EXHIBIT INDEX ON PAGE 102
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1998
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 (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)
Registrant's telephone number including area code: (201) 587-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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. YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Documents Incorporated by Reference
-----------------------------------
The Proxy Statement of Vornado Realty Trust for the Annual Meeting of
Shareholders to be held on May 19, 1999 is incorporated by reference into Part
III.
1 of 115
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TABLE OF CONTENTS
Item Page
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Part I. 1. Business.....................................................3
2. Properties..................................................15
3. Legal Proceedings...........................................42
4. Submission of Matters to a Vote of Security Holders.........42
Executive Officers of the Registrant........................42
Part II. 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.......................................43
6. Selected Consolidated Financial Data........................43
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................44
7A. Quantitative and Qualitative Disclosure about
Market Risk...............................................55
8. Financial Statements and Supplementary Data.................56
9. Changes In and Disagreements With Independent Auditors'
on Accounting and Financial Disclosure....................56
Part III. 10. Directors and Executive Officers of the Registrant.........(1)
11. Executive Compensation.....................................(1)
12. Security Ownership of Certain Beneficial Owners and
Management...............................................(1)
13. Certain Relationships and Related Transactions.............(1)
Part IV. 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K..................................................92
Signatures....................................................................93
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(1) These items are omitted because Vornado Realty Trust (see Item 1.) will
file a definitive Proxy Statement pursuant to Regulation 14A involving
the election of directors with the Securities and Exchange Commission
not later than 120 days after December 31, 1998, which is incorporated
by reference herein. Information relating to Executive Officers of
Vornado Realty Trust appears on page 42 of this Annual Report on Form
10-K.
Certain statements contained herein constitute forward-looking
statements as such term is defined in Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Certain factors could cause actual
results to differ materially from those in the forward-looking statements.
Factors that might cause such a material difference include, but are not limited
to, (a) changes in the general economic climate, (b) local conditions such as an
oversupply of space or a reduction in demand for real estate in the area, (c)
conditions of tenants, (d) competition from other available space, (e) increased
operating costs and interest expense, (f) the timing of and costs associated
with property improvements, (g) changes in taxation or zoning laws, (h)
government regulations, (i) failure of Vornado Realty Trust to continue to
qualify as a REIT, (j) availability of financing on acceptable terms, (k)
potential liability under environmental or other laws or regulations, (l)
general competitive factors and (m) failure by Vornado Realty Trust, or by other
companies with which it does business, to remediate possible Year 2000 problems
in computer software or embedded technology.
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PART I
Item 1. Business
The Company
Vornado Realty L.P. (the "Operating Partnership," including the
operations of Vornado Realty Trust prior to the conversion described below) is a
Delaware limited partnership. Operations commenced 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. As a result,
Vornado now conducts its business through the Operating Partnership. Vornado is
the sole general partner of, and owned approximately 85% of the limited
partnership common interest in, the Operating Partnership at March 17, 1999. All
references to the "Company" refer to Vornado and its consolidated subsidiaries,
including the Operating Partnership.
The Company currently owns directly or indirectly:
Office Building Properties ("Office"):
(i) all or portions of 21 office building properties in the New York City
metropolitan area (primarily Manhattan) containing approximately 12.5
million square feet;
(ii) a 34% limited partnership interest in Charles E. Smith Commercial Realty
L.P. ("CESCR"), a limited partnership, which owns interests in and
manages approximately 10.7 million square feet of office properties in
Northern Virginia and Washington D.C., and manages an additional 14.6
million square feet of office and other commercial properties in the
Washington, D.C. area;
Retail Properties ("Retail"):
(iii) 59 shopping center properties in seven states and Puerto Rico containing
approximately 12.2 million square feet, including 1.4 million square
feet built by tenants on land leased from the Company;
Cold Storage Companies ("Cold Storage"):
(iv) a 60% interest in partnerships that own 88 warehouse facilities
nationwide with an aggregate of approximately 450 million cubic feet of
refrigerated, frozen and dry storage space (excludes 13 additional
warehouses containing approximately 80 million cubic feet managed by the
Cold Storage Companies - see "Spin-off of Vornado Operating Company");
Merchandise Mart Properties:
(v) the Merchandise Mart Properties portfolio containing approximately 6.7
million square feet, including the 3.4 million square foot Merchandise
Mart in Chicago;
Other Real Estate Investments:
(vi) approximately 29.3% of the outstanding common stock of Alexander's, Inc.
("Alexander's"), which has eight properties in the New York City
metropolitan area;
(vii) an 80% interest in the Hotel Pennsylvania, a New York City hotel which
contains 800,000 square feet of space with 1,700 rooms and 400,000
square feet of retail and office space;
(viii) eight dry warehouse /industrial properties in New Jersey containing
approximately 2.0 million square feet; and
(ix) other real estate investments.
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Objectives and Strategy
The Company's business objective is to maximize shareholder value. The
Company intends to achieve its business objective by continuing to pursue its
investment philosophy, making opportunistic investments and executing its
operating strategies through:
o Maintaining a superior team of operating and investment
professionals and an opportunistic entrepreneurial spirit;
o Investing in properties in the New York City metropolitan area
and other selected markets where the Company believes there is
high likelihood of capital appreciation;
o Acquiring high quality properties at a discount to replacement
cost and where there is a significant potential for higher rents;
o Investing in retail properties in selected understored locations
such as the New York City metropolitan area;
o Investing in fully integrated operating companies that have a
significant real estate component with qualified, experienced
operating management and strong growth potential which can
benefit from the Company's access to efficient capital; and
o Developing and redeveloping the Company's existing properties to
increase returns and maximize value.
The Company expects to finance its growth, acquisitions and investments using
internally generated funds, funds from possible asset sales and by accessing the
public and private capital markets.
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Acquisitions and Investments
Since January 1, 1998, the Company completed approximately $2.4 billion
of real estate acquisitions or investments. The following table lists the
acquisitions and investments by business segment:
<TABLE>
<CAPTION>
Total
Consideration
Location (in millions)
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Office:
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<S> <C> <C>
One Penn Plaza................................... New York City $ 410
Charles E. Smith Commercial Realty, L.P.:
Increase in investment to 34%................ Northern Virginia and Washington, D.C. 242
Crystal City hotel land...................... Crystal City, Virginia 8
770 Broadway..................................... New York City 149
150 East 58th Street............................. New York City 118
Mendik Real Estate Limited Partnership
properties:
Saxon Woods Corporate Center................. Harrison, New York 21
Two Park Avenue
(remaining 60% interest)................... New York City 76
330 West 34th Street......................... New York City 9
888 Seventh Avenue............................... New York City 100
40 Fulton Street................................. New York City 55
570 Lexington - increase in investment to 50%.... New York City 37
689 Fifth Avenue................................. New York City 33
Westport Corporate Office Park................... Westport, Connecticut 14
20 Broad Street.................................. New York City 1
Retail:
Las Catalinas Mall............................... Caguas, Puerto Rico 38
Cold Storage (60% interest):
Freezer Services, Inc............................ Midwestern section of the
United States 80
Carmar Group..................................... Midwestern and Southwestern sections of
the United States 95
Merchandise Mart Properties:
The Merchandise Mart Properties.................. Chicago & Washington, D.C. 630
Market Square Complex............................ High Point, North Carolina 97
National Furniture Mart.......................... High Point, North Carolina 18
Other Real Estate Investments:
Hotel Pennsylvania - increase in investment
to 80%....................................... New York City 70
Newkirk Joint Ventures (30% interest)............ Various 108
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Total Acquisitions and Investments..... $ 2,409
=======
</TABLE>
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Office:
One Penn Plaza
In February 1998, the Company acquired a long-term leasehold interest
in One Penn Plaza for approximately $410,000,000. One Penn Plaza is a 57 story
Manhattan office building containing approximately 2,400,000 square feet and
encompasses substantially the entire square block bounded by 33rd Street, 34th
Street, Seventh Avenue and Eighth Avenue.
Charles E. Smith Commercial Realty L.P.
On March 4, 1999, the Company made an additional $242,000,000
investment in CESCR by contributing to CESCR the land under certain CESCR office
properties in Crystal City, Arlington, Virginia and partnership interests in
certain CESCR subsidiaries. The Company acquired these assets from Commonwealth
Atlantic Properties, Inc. ("CAPI"), an affiliate of Lazard Freres Real Estate
Investors L.L.C., immediately prior to the contribution to CESCR. Together with
the Company's investment in CESCR made in 1997 and the units it reacquired on
March 4, 1999 from Vornado Operating Company, the Company owns approximately 34%
of CESCR's limited partnership units. In addition, the Company acquired from
CAPI for $8,000,000 the land under a Marriott Hotel located in Crystal City.
The purchase price was paid to CAPI by the Company issuing $250,000,000 of
6% Convertible Preferred Units of the Operating Partnership. The Preferred Units
are convertible at $44 per unit and the coupon increases to 6.50% over the next
three years and then fixes at 6.75% in year eight. The Company will appoint one
of three members to CESCR's Board of Managers, increasing under certain
circumstances to two of four members in March 2002.
In connection with these transactions, the Company made a five-year
$41,000,000 loan to CAPI with interest at 8%, increasing to 9% ratably over the
term. The loan is secured by approximately $55,000,000 of the Operating
Partnership's units issued to CAPI as well as certain real estate assets.
770 Broadway
In July 1998, the Company acquired 770 Broadway, a 1,016,000 square
foot Manhattan office building, for approximately $149,000,000, including
$18,000,000 of Operating Partnership Units.
150 East 58th Street
In March 1998, the Company acquired 150 East 58th Street (the
Architects and Design Center), a 39 story Manhattan office building, for
approximately $118,000,000. The building contains approximately 550,000 square
feet.
Mendik Real Estate Limited Partnership Properties
In November 1998, the Company completed the acquisition of certain
properties from the Mendik Real Estate Limited Partnership ("Mendik RELP"). The
acquired real estate assets include (i) a leasehold interest in the Saxon Woods
Corporate Center located at 550/600 Mamaroneck Avenue, in Harrison, New York
which contains approximately 234,000 square feet, (ii) the remaining 60%
interest in an office building located at Two Park Avenue, in Manhattan which
contains approximately 946,000 square feet (the Company already owned 40%) and
(iii) a leasehold interest in an office building located at 330 West 34th
Street, also in Manhattan, which contains approximately 628,000 square feet. The
aggregate purchase price of approximately $106,000,000, consisted of $31,000,000
of cash, $29,000,000 of Vornado's common shares and $46,000,000 of debt. An
equivalent number of units were issued to Vornado for the shares issued.
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888 Seventh Avenue and 40 Fulton Street
In June 1998, the Company entered into an agreement to acquire the
leasehold interest in 888 Seventh Avenue, a 46 story office building containing
approximately 848,000 square feet located in midtown Manhattan, and
simultaneously acquired 40 Fulton Street, a 29 story office building containing
approximately 234,000 square feet located in downtown Manhattan. The aggregate
consideration for both buildings was approximately $154,500,000.
The acquisition of 888 Seventh Avenue was completed in January 1999.
570 Lexington Avenue - additional investment
In April 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 433,000 square feet. The Company
purchased the additional interest for approximately $37,200,000, including
$4,900,000 of existing debt.
689 Fifth Avenue
In August 1998, the Company acquired 689 Fifth Avenue, a 84,000 square
foot Manhattan specialty building for approximately $33,000,000 from a
partnership that included Bernard H. Mendik, a former trustee of the Company.
Westport Corporate Office Park
In January 1998, the Company acquired Westport Corporate Office Park
("Westport") from a limited partnership that included Bernard H. Mendik and
David R. Greenbaum, the Chief Executive Officer of the Company's Mendik
Division, as partners (Messrs. Mendik and Greenbaum and certain entities
controlled by them are referred to herein as the "Mendik Group".) The purchase
price was approximately $14,000,000 consisting of $6,000,000 of cash and an
$8,000,000 mortgage loan for the two buildings which contain 120,000 square
feet.
20 Broad Street
In September 1997, the Company purchased, at a discount, a mortgage on
a 460,000 square foot office building at 20 Broad Street in Manhattan for
$27,000,000. In August 1998, the Company acquired a 60% interest in the
leasehold from the Mendik Group for approximately $600,000 of Operating
Partnership Units. In a related transaction, the Company sold a 40% interest in
the mortgage to the other unrelated owner of the property for $10,800,000. The
Mendik Group may also receive a future earn-out, capped at $4,400,000 in
additional units, based on leasing activity through December 31, 2004.
Retail:
Las Catalinas Mall
In October 1998, the Company completed the acquisition of Kmart
Corporation's ("Kmart") 50% interest in the Las Catalinas Mall located in
Caguas, Puerto Rico (adjacent to San Juan). In addition, the Company acquired
75% and the Company's partner in the Mall acquired 25% of Kmart's anchor store.
The Company's purchase price of $38,000,000 was fully financed with 15 year
debt. The Las Catalinas Mall, which opened in 1997, contains 489,000 square
feet, including a 123,000 square foot Kmart store and a 146,000 square foot
Sears store.
Cold Storage:
In June 1998, a partnership in which the Company owns a 60% interest
through a preferred stock affiliate acquired the assets of Freezer Services,
Inc., consisting of nine cold storage warehouses in the central United States
for approximately $133,000,000, including $107,000,000 in cash and $26,000,000
in indebtedness. The Company's share of this investment was $80,000,000.
Additionally, in July 1998, the Carmar Group was acquired for approximately
$158,000,000, including $144,000,000 in cash and $14,000,000 in indebtedness.
The Company's share of this investment was $95,000,000. Carmar owned and
operated five cold storage distribution warehouses in the midwest and southeast
United States.
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Merchandise Mart Properties:
The Merchandise Mart Properties
In April 1998, the Company acquired a real estate portfolio from the
Kennedy Family for approximately $630,000,000, consisting of $187,000,000 in
cash, $116,000,000 in Operating Partnership Units, $77,000,000 in existing debt
and $250,000,000 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 included the acquisition of
Merchandise Mart Properties, Inc., which manages the properties and owns and
operates certain trade shows.
Market Square Complex
In December 1998, the Company completed the acquisition of the 1.07
million square foot Market Square Complex of showrooms in High Point, North
Carolina. The consideration was approximately $97,000,000, consisting of
$46,000,000 in debt, $44,000,000 in Operating Partnership Units and 6.5%
Preferred Operating Partnership Units convertible at $43.74 per unit and
$7,000,000 of cash. The acquired real estate assets include the Market Square,
Hamilton Market and Furniture Plaza showroom buildings and the High Point
Holiday Inn hotel.
In a second transaction, the Company acquired the 243,000 square foot
National Furniture Mart, which is adjacent to the forementioned properties, in
High Point. The price was approximately $17,700,000, consisting of $3,800,000 in
cash and $13,900,000 in debt.
Other Real Estate Investments:
Hotel Pennslyvania - additional investment
In May 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 $70,000,000, including $48,000,000 of existing debt.
Newkirk Joint Ventures
In July and September 1998, the Company invested an aggregate of
$56,000,000 for a 30% share in joint ventures with affiliates of Apollo Real
Estate Investment Fund III, L.P., collectively Newkirk Joint Ventures
("Newkirk"). Newkirk owns various equity and debt interests relating to 120
limited partnerships which own real estate primarily net leased to credit rated
tenants. The Company has issued a $15,600,000 letter of credit in connection
with these joint ventures.
In March 1999, the Company and its joint venture partner completed an
acquisition of additional equity interests in certain limited partnerships. The
Company's additional investment of $52,435,000 consisted of $47,790,000 in
Operating Partnership Units and $4,645,000 in cash.
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Development and Redevelopment Projects
The Company is currently engaged in or considering certain multi-year
development and redevelopment projects. These projects include: (i) construction
of 119,000 square feet of residential condominiums in Manhattan (YMCA
Development 80% interest), (ii) construction of an 800,000 square foot high-rise
rental apartment complex in Fort Lee, New Jersey (75% interest), (iii)
acquisitions, developments and expansions of Cold Storage distribution and
production warehouses (60% interest), (iv) tenant improvements and refurbishment
of 770 Broadway, (v) conversion of 38,000 square feet of office space to retail
space at 640 Fifth Avenue, (vi) redevelopment of the Russian Tea Room restaurant
building on 57th Street in Manhattan (50% interest), (vii) the conversion of
office space at 689 Fifth Avenue to hotel space, (viii) the expansion of the
Market Square Complex in High Point, North Carolina, (ix) the redevelopment of
the site at 14th Street and Union Square (currently leased by Bradlees), which
may include razing the existing building and developing a large multi-use
building, (x) the refurbishment of the Hotel Pennsylvania, (xi) the
redevelopment of the Company's Penn Station properties which may include
creating new retail space, (xii) Alexander's (29.3% interest) redevelopment of
its Paramus property into a 550,000 square foot shopping center, (xiii)
Alexander's (29.3% interest) development of a large multi-use building at its
59th Street and Lexington Avenue site and (xiv) Alexander's (29.3% interest)
renovation of its Kings Plaza Mall. There can be no assurance that all of the
above projects will be commenced or ultimately completed.
Spin-off of Vornado Operating Company
General
Vornado Operating Company, ("Vornado Operating") was incorporated on
October 30, 1997, as a wholly owned subsidiary of the Company. In order to
maintain its status as a REIT for federal income tax purposes, the Company is
required to focus principally on investment in real estate assets. Accordingly,
the Company is prevented from owning certain assets and conducting certain
activities that would be inconsistent with its status as a REIT. Vornado
Operating was formed to own assets that Vornado could not itself own and conduct
activities that Vornado could not itself conduct. Vornado Operating is intended
to function principally as an operating company, in contrast to the Company's
principal focus on investment in real estate assets. Vornado Operating is able
to do so because it is taxable as a regular "C" corporation rather than a REIT.
Vornado Operating will seek to become the operator of businesses
conducted at properties it leases from the Company, as contemplated by the
Intercompany Agreement between the Company and Vornado Operating (the
"Intercompany Agreement"), referred to below. Vornado Operating expects to rely
exclusively on the Company to identify business opportunities and currently
expects that those opportunities will relate in some manner to the Company and
its real estate investments rather than to unrelated businesses.
The Distribution
On October 16, 1998, the Operating Partnership made a distribution (the
"Distribution") of one share of common stock, par value $.01 per share (the
"Common Stock"), of Vornado Operating for 20 units of limited partnership
interest of the Operating Partnership (including units owned by Vornado) held of
record as of the close of business on October 9, 1998 and Vornado in turn made a
distribution of the Common Stock it received to the holders of its common shares
of beneficial interest. While no Common Stock was distributed in respect of
Vornado's $3.25 Series A Convertible Preferred Shares, the Company adjusted the
Conversion Price to take into account the Distribution. Vornado Operating's
Common Stock is listed on the American Stock Exchange under the symbol "VOO".
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Capital Contribution and Revolving Credit Agreement.
The Company initially capitalized Vornado Operating with an equity
contribution of $25,000,000 of cash. As part of its formation, Vornado Operating
was granted a $75,000,000 unsecured five-year revolving credit facility from
Vornado (the "Revolving Credit Agreement"). Borrowings under the Revolving
Credit Agreement bear interest at a floating rate per annum equal to LIBOR plus
3%. Commencing January 1, 1999, Vornado Operating pays the Company a commitment
fee equal to 1% per annum on the average daily unused portion of the facility.
Amounts may be borrowed under the Revolving Credit Agreement, repaid and
reborrowed from time to time on a revolving basis (so long as the principal
amount outstanding at any time does not exceed $75,000,000). Only interest and
commitment fees are payable under the Revolving Credit Agreement until it
expires. The Revolving Credit Agreement prohibits Vornado Operating from
incurring indebtedness to third parties (other than certain purchase money debt
and certain other exceptions) and prohibits Vornado Operating from paying
dividends. Debt under the Revolving Credit Agreement is recourse to Vornado
Operating.
Intercompany Agreement.
The Company and Vornado Operating have entered into the Intercompany
Agreement pursuant to which, among other things, (a) the Company will under
certain circumstances offer Vornado Operating an opportunity to become the
lessee of certain real property owned now or in the future by the Company (under
mutually satisfactory lease terms) and (b) Vornado Operating will not make any
real estate investment or other REIT-Qualified Investment unless it first offers
the Company the opportunity to make such investment and the Company has rejected
that opportunity.
Under the Intercompany Agreement, the Company has agreed to provide
Vornado Operating with certain administrative, corporate, accounting, financial,
insurance, legal, tax, data processing, human resources and operational
services. For these services, Vornado Operating will compensate the Company in
an amount determined in good faith by the Company as the amount an unaffiliated
third party would charge Vornado Operating for comparable services and will
reimburse the Company for certain costs incurred and paid to third parties on
behalf of Vornado Operating. For the period from October 16, 1998 (commencement
date) to December 31, 1998, approximately $50,000 of compensation for such
services was charged pursuant to the Intercompany Agreement.
Vornado Operating and the Company each have the right to terminate the
Intercompany Agreement if the other party is in material default of the
Intercompany Agreement or upon 90 days written notice to the other party at any
time after December 31, 2003. In addition, the Company has the right to
terminate the Intercompany Agreement upon a change in control of Vornado
Operating.
Vornado Operating's Management.
Messrs. Roth, Fascitelli, West and Wight are directors of Vornado
Operating. Mr. Roth is also Chairman of the Board and Chief Executive Officer of
Vornado Operating, Mr. Fascitelli is also President of Vornado Operating, and
certain other members of the Company's senior management hold a corresponding
position with Vornado Operating.
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The Cold Storage Companies
On October 31, 1997, partnerships (the "Vornado/Crescent Partnerships")
in which affiliates of the Company have a 60% interest and affiliates of
Crescent Real Estate Equities Company have a 40% interest acquired each of
AmeriCold Corporation ("Americold") and URS Logistics, Inc. ("URS"). In June
1998, the Vornado/Crescent Partnerships acquired the assets of Freezer Services,
Inc. and in July 1998 acquired the Carmar Group (Americold, URS, Freezer
Services, Inc. and the Carmar Group, collectively, the "Cold Storage
Companies").
On March 12, 1999, the Vornado/Crescent Partnerships sold all of the
non-real estate assets of the Cold Storage Companies encompassing the operations
of the cold storage business for approximately $48,000,000 to a new partnership
owned 60% by Vornado Operating Company and 40% by Crescent Operating Inc. The
new partnership leases the underlying cold storage warehouses used in this
business from the Vornado/Crescent Partnerships which continue to own the real
estate. The leases have a 15 year term with two-five year renewal options and
provide for the payment of fixed base rent and percentage rent based on customer
revenues. The new partnership is required to pay for all costs arising from the
operation, maintenance and repair of the properties as well as property capital
expenditures in excess of $5,000,000 annually. Fixed base rent and percentage
rent for the initial lease year is projected to be approximately $151 million.
The new partnership has the right to defer a portion of the rent for up to three
years beginning on March 12, 1999 to the extent that available cash, as defined
in the leases, is insufficient to pay such rent.
Disposition and Acquisition of Interest in CESCR
On December 31, 1998, the Company sold approximately 1.7% of the
outstanding partnership units of CESCR, (a Delaware limited partnership that
owns interests in and manages approximately 10,700,000 square feet of office
properties in Crystal City, Arlington, Virginia, a suburb of Washington, D.C.,
and manages an additional 14,600,000 square feet of office and other commercial
properties in the Washington, D.C. area) to Vornado Operating Company for an
aggregate purchase price of approximately $12,900,000, or $34 per unit (which is
the price at which CESCR issued partnership units in October 1998 in connection
with a significant "roll-up" transaction). The purchase price was funded out of
Vornado Operating's working capital. After giving effect to this purchase, the
Company owned approximately 9.6% of CESCR as of December 31, 1998. In connection
with this purchase, the Company granted to Vornado Operating an option to
require the Company to repurchase all of the CESCR units at the price at which
Vornado Operating purchased the CESCR units, plus a cumulative return on such
amount at a rate of 10% per annum. The option was exercised on March 4, 1999.
Accordingly, the Company reacquired the CESCR units from Vornado Operating for
$13,200,000.
Financing Activities
Corporate:
In April 1998, Vornado completed the sale of 10,000,000 common shares
pursuant to an effective registration statement with net proceeds of
approximately $401,000,000. Also in April 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
$44,000,000. An equivalent number of units were issued to Vornado for the shares
sold.
In November and December of 1998, the Operating Partnership sold an
aggregate of $87,500,000 of 8.5% Series D-1 Cumulative Redeemable Preferred
Units to an institutional investor in a private placement, resulting in net
proceeds of approximately $85,300,000. The perpetual Preferred Units may be
called without penalty at the option of the Operating Partnership commencing on
November 12, 2003.
On March 17, 1999, Vornado completed the sale of 3 million 8.5% Series
B Cumulative Redeemable Preferred Shares, at a price $25.00 per share, pursuant
to an effective registration statement with net proceeds of approximately
$72,200,000. Further on March 22, 1999, 400,000 shares were sold when the
underwriters exercised their over-allotment option resulting in additional net
proceeds of $9,700,000. The perpetual preferred shares may be called without
penalty at the option of Vornado commencing on March 17, 2004. An equivalent
number of units were issued ot Vornado for the shares sold.
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Office:
In June 1998, the Company completed a $275,000,000 refinancing of its
One Penn Plaza office building and borrowed $170,000,000 pursuant thereto. In
the third quarter of 1998, the Company borrowed the remaining $105,000,000. The
debt matures in June 2002, is prepayable at anytime, and bears interest at LIBOR
+ 1.25% (currently 6.35%). This debt replaced the $93,000,000 bridge-mortgage
loan financing put in place when the property was acquired.
In February 1999, the Company completed a $165,000,000 refinancing of
its Two Penn Plaza office building and prepaid the then existing $80,000,000
debt on the property. The new 5-year debt matures in February 2004 and bears
interest at 7.08%.
Retail:
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%.
Cold Storage:
In April 1998, the Cold Storage Companies completed a $550,000,000
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.
Merchandise Mart Properties:
In June 1998, the Company repaid the $26,000,000 mortgage on 350 North
Orleans Street, in Chicago.
In November 1998, the terms of the $24,000,000 mortgage on the
Washington Design Center were modified to adjust the interest rate from LIBOR +
3.00% to LIBOR + 1.35% (currently 6.45%) and to extend the maturity date from
April 2000 to November 2000.
In February 1999, the Company exercised its option to extend the
maturity date on the $250,000,000 loan on its Chicago Merchandise Mart building
from March 31, 1999 to September 30, 1999. In connection therewith, the Company
paid a fee of 1/8%.
At December 31, 1998, the ratio of debt-to-enterprise value (market
equity value plus debt less cash) was 45% based on debt of $2.8 billion which
included the Company's proportionate share of debt of partially-owned entities.
Historically, the Company has maintained a lower debt-to-enterprise value ratio.
In the future, in connection with its strategy for growth, this percentage may
change. The Company's policy concerning the incurrence of debt may be reviewed
and modified from time to time by the Company without the vote of shareholders.
The Company may seek to obtain funds through equity offerings or debt
financing, although there is no express policy with respect thereto. Vornado may
offer its shares or Operating Partnership units in exchange for property and may
repurchase or otherwise reacquire its shares or any other securities in the
future.
-12-
<PAGE>
EBITDA By Segment and Region
The following table sets forth the percentage of the Company's
EBITDA(1) by segment and region on a pro forma basis for the year ended December
31, 1998 and on a historical basis for the years ended December 31, 1998 and
1997. The pro forma column gives effect to the acquisitions previously described
and the financings attributable thereto, as if they had occurred on January 1,
1997. Prior to April 1997, the Company operated in one segment-retail real
estate, primarily in the Northeast section of the United States.
Percentage of EBITDA
--------------------
Pro Forma Historical
---------- ---------------------
Years Ended December 31,
---------- ---------- ----------
Segment 1998 1998 1997
---------- ---------- ----------
Office................................. 46% 37% 38%
Retail................................. 21% 26% 57%
Cold Storage........................... 16% 20% 8%
Merchandise Mart Properties............ 10% 9% --
Other.................................. 7% 8% (3)%
--- --- ----
100% 100% 100%
=== === ====
Region
New York City metropolitan area........ 50% 54% 72%
Washington D.C./Northeast Virginia..... 18% 7% 1%
Chicago................................ 5% 6% --
New Jersey............................. 4% 5% 14%
Puerto Rico............................ 2% 2% 4%
Other (2).............................. 21% 26% 9%
--- --- ----
100% 100% 100%
=== === ====
(1) EBITDA represents net income before interest, taxes, depreciation
and amortization, extraordinary or non-recurring items, gains or
losses on sales of real estate and the effect of straight-lining
of property rentals for rent escalations. Management considers
EBITDA a supplemental measure for making decisions and assessing
the performance of its segments. EBITDA may not be comparable to
similarly titled measures employed by other companies.
(2) Other includes the Cold Storage segment which has facilities in 33 states.
See page 30 for details.
-13-
<PAGE>
Relationship with Alexander's
The Company owns 29.3% of the outstanding shares of common stock of
Alexander's. See "Interstate Properties" below for a description of Interstate's
ownership of the Company and Alexander's.
Alexander's has eight properties (see Item 2. Properties--Alexander's).
In March 1995, the Company lent Alexander's $45,000,000. The loan,
which was originally scheduled to mature in March 1998, has been renewed for two
additional one year periods and currently matures in March 2000. The interest
rate was reset in March 1999 from 13.87% per annum to 14.18% per annum.
Management believes there are no indications of impairment as discussed in
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan".
The Company 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 Company
receives annual fees from Alexander's. These Agreements have a one-year term
expiring in March of each year and are automatically renewable.
Alexander's common stock is listed on the New York Stock Exchange under
the symbol "ALX".
Interstate Properties
As of December 31, 1998, Interstate Properties owned approximately
18.1% of the common shares of beneficial interest of Vornado, 27.1% of
Alexander's common stock and beneficial ownership of 14.8% of Vornado Operating.
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 both Alexander's and Vornado Operating. Mr. Wight is a trustee of the Company
and is also a director of both Alexander's and Vornado Operating. Mr. Mandelbaum
is a trustee of the Company and is also a director of Alexander's
Competition
The Company's four business segments, Office, Retail, Cold Storage and
Merchandise Mart Properties, operate in highly competitive environments. The
Company's success depends upon, among other factors, the trends of the national
and local economies, the financial condition and operating results of current
and prospective tenants and customers, the availability and cost of capital,
construction and renovation costs, income tax laws, governmental regulations,
legislation and population trends. The Company competes with a large number of
real estate property owners. Principal factors of competition are rent charged,
attractiveness of property and the quality and breadth of services provided .
The Company has a large concentration of properties in the New York City
metropolitan area, a highly competitive market. The economic condition of this
market may be significantly influenced by supply and demand for space and the
financial performance and productivity of the publishing, retail,
pharmaceutical, insurance and finance industries.
-14-
<PAGE>
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 or toxic 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 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 Company could be held liable for the costs of
remedial action with respect to such regulated substances or tanks or related
claims.
Each of the Company's properties has been subjected to varying degrees
of environmental assessment at various times. The environmental assessments did
not reveal any material environmental condition. 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
Company.
Certain Activities
Acquisitions and investments are not necessarily required to be based
on specific allocation by type of property. The Company 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 Company has not adopted a policy that limits the
amount or percentage of assets which would be invested in a specific property.
While the Company may seek the vote of its shareholders in connection with any
particular material transaction, generally the Company's activities are reviewed
and may be modified from time to time by its Board of Trustees without the vote
of shareholders.
Employees
The Company has approximately 600 employees consisting of 88 in the
Office Properties segment, 53 in the Retail Properties segment, 384 in the
Merchandise Mart Properties segment and 75 in the corporate office. This does
not include employees of partially-owned entities such as the 5,500 employees of
the Cold Storage Companies and the 400 employees at the Hotel Pennsylvania.
Segment Data
The Company operates in four business segments: Office Properties,
Retail Properties, Cold Storage and Merchandise Mart Properties. The Company
engages in no foreign operations.
The Company's principal executive offices are located at Park 80 West,
Plaza II, Saddle Brook, New Jersey 07663; telephone (201) 587-1000.
Item 2. Properties
The Company currently owns, directly or indirectly, Office properties
Retail properties, Cold Storage warehouses and the Merchandise Mart Properties.
The Company also owns or has investments in dry warehouse and industrial
buildings, Alexander's, Hotel Pennsylvania and Newkirk Joint Ventures.
-15-
<PAGE>
Office
The Company's office properties consist of (i) all or a portion of 21
office buildings in the New York City metropolitan area (primarily Manhattan)
containing approximately 12.5 million square feet (including 720,000 square feet
of retail space and 5 garages containing 334,000 square feet) (collectively, the
"New York City Office Properties") and (ii) a 34% interest in Charles E. Smith
Commercial Realty, L.P. which owns interests in and manages approximately 10.7
million square feet of office properties in Northern Virginia and Washington
D.C. (the "CESCR Office Properties").
The following data on pages 16 to 20 covers the New York City Office
Properties. The CESCR Office Properties are described on page 21.
New York City Office Properties:
The following table sets forth the percentage of the New York City
Office Properties revenue by tenant's industry:
Industry Percentage
Publishing.................. 11.8%
Finance..................... 9.5%
Technology.................. 8.3%
Retail...................... 8.1%
Insurance................... 6.9%
Legal....................... 6.7%
Pharmaceuticals............. 5.3%
Government.................. 5.1%
Media and Entertainment..... 4.1%
Service Contractors......... 3.2%
Apparel..................... 3.2%
Engineering................. 3.1%
Bank Branches............... 2.6%
Other....................... 22.1%
The average lease term of a tenant's lease is approximately 12 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 included in rent based on surveys
and adjusted for subsequent utility rate increases. Leases also typically
provide for tenant improvement allowances for all or a portion of the tenant's
initial construction of its premises. None of the tenants in the office segment
accounted for more than 10% of the Company's total revenue. Below is a listing
of the New York City Office Properties tenants which accounted for 2% or more of
the New York City Office Properties revenues in 1998:
Percentage
of the New
(in thousands, except percentages) York City
Office
Square Feet 1998 Properties
Tenant Leased Revenues Revenues
------ ----------- ---------- ----------
Sterling Winthrop Inc............ 429 $18,268 7%
Times Mirror Company............. 519 16,056 6%
The McGraw Hill
Companies Inc................ 447 10,168 4%
Mutual Life Insurance Co......... 264 8,259 3%
Information Builders, Inc........ 252 6,052 2%
Kmart Corporation................ 287 5,620 2%
R.H. Macy & Co. Inc.............. 154 5,488 2%
-16-
<PAGE>
The following table sets forth as of December 31, 1998 lease
expirations for each of the next 10 years, assuming that none of the tenants
exercise their renewal options.
<TABLE>
<CAPTION>
Percentage of Annual Escalated
Total Rent of Expiring Leases
Number of Square Feet of Leased -----------------------------------
Year Expiring Leases Expiring Leases Square Feet Total Per Square Foot
- - - ---- --------------- --------------- ------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
1999...................... 187 793,000 6.4% $ 21,556,000 $ 27.18
2000...................... 106 396,000 3.2% 12,134,000 30.64
2001...................... 95 709,000 5.7% 20,456,000 28.85
2002...................... 86 768,000 6.2% 19,318,000 25.15
2003...................... 77 613,000 4.9% 18,263,000 29.79
2004...................... 60 820,000 6.6% 23,119,000 28.19
2005...................... 44 551,000 4.4% 14,788,000 26.84
2006...................... 51 765,000 6.2% 20,153,000 26.34
2007...................... 45 715,000 5.7% 21,571,000 30.17
2008...................... 58 1,109,000 8.9% 32,908,000 29.67
</TABLE>
The following table sets forth the occupancy rate and the average
annual escalated rent per square foot for the New York City Office properties at
the end of each of the past two years.
Average Annual
As of Rentable Escalated Rent
December 31, Square Feet Occupancy Rate Per Square Foot
------------------ ------------------ ----------------- -----------------
1998................. 12,437,000 91% $ 28.14
1997................. 8,353,000 95% $ 27.09
As of March 1, 1999, the occupancy rate of the Company's New York City Office
properties was 92%. Excluding 770 Broadway, which was acquired in July 1998, the
occupancy rate was 96% at March 1, 1999 and 95% at December 31, 1998.
-17-
<PAGE>
In 1998, the New York City Office Properties leased 1,155,931 square
feet at a weighted average initial rent per square feet of $35.03. Vornado's
ownership interest in the leased square footage is 820,975 square feet at a
weighted average initial rent per square foot of $34.82. At December 31, 1997,
the weighted average escalated rent per square foot for Vornado's interest in
such properties was $28.69. Following is the detail by building:
<TABLE>
<CAPTION>
1998 Leases
-------------------------- Average Annual The Company's
Average Escalated Rent Estimate at
Initial Rent Per Square Foot March 1, 1999 of
Per Square at December 31, Market Rents Per
Location Square Feet Foot (1) 1997 Square Foot
- - - -------- ----------- ------------- ----------------- ------------------
<S> <C> <C> <C> <C>
One Penn Plaza.......................... 176,496 $ 38.27 $ 25.33 $35.50 to $42.00
Two Penn Plaza.......................... 42,025 30.81 28.17 $35.00 to $39.00
Eleven Penn Plaza....................... 130,511 30.77 28.02 $32.00 to $35.00
Two Park Avenue......................... 137,422 33.01 23.56 $31.00 to $38.00
90 Park Avenue.......................... 99,710 39.13 36.52 $42.00 to $50.00
1740 Broadway........................... 22,865 43.35 34.90 $38.00 to $44.00
150 East 58th Street.................... 31,347 34.73 30.19 $30.00 to $40.00
866 United Nations Plaza................ 84,372 32.79 30.01 $33.00
40 Fulton Street........................ 4,993 30.00 26.35 $26.00 to $30.00
330 Madison Avenue...................... 160,412 42.56 34.41 $38.00 to $45.00
20 Broad Street......................... 19,494 30.00 27.24 $30.00
570 Lexington Avenue.................... 88,737 33.17 31.53 $38.00 to $48.00
825 Seventh Avenue...................... 157,547 29.46 12.63 $29.00
---------
Total................................. 1,155,931 35.03 28.62
=========
Company's ownership
interest 820,975 34.82 28.69
=========
<FN>
(1) Most leases include periodic step-ups in rent, which are not reflected in the initial rent per square foot leased.
</FN>
</TABLE>
-18-
<PAGE>
New York City Office Properties
The following table sets forth certain information for the New York City
Office Properties owned by the Company as of December 31, 1998 or as of the
date of acquisition for properties acquired thereafter.
<TABLE>
<CAPTION>
Annualized
Year Approximate Annualized Escalated
Originally Land Leasable Number Base Rent Rent
Developed Area Building Square of per per Sq. Ft. Percent
Location or Acquired (Sq. Ft.) Feet Tenants Sq. Ft. (1) (2) Leased (1)
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW YORK
Manhattan
One Penn Plaza (3) 1972 128,000 2,400,000 223 $ 26.88 $ 27.98 95%
Two Penn Plaza 1968 117,000 1,508,000 68 27.23 27.80 97%
770 Broadway 1907 63,000 1,016,000 5 20.16 20.16 47%
Eleven Penn Plaza 1923 56,000 956,000 72 26.13 26.75 97%
Two Park Avenue 1928 44,000 946,000 48 22.97 23.54 97%
90 Park Avenue 1964 38,000 877,000 30 32.21 37.63 100%
888 Seventh Avenue 1969 32,000 848,000 61 29.98 30.08 94%
330 West 34th Street (3) 1925 46,000 628,000 12 12.56 12.65 100%
</TABLE>
<TABLE>
<CAPTION>
Lease
Principal Tenants Expiration/
(50,000 square feet or Option Encumbrances
Location more) Expiration (thousands)
- - - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK
Manhattan
One Penn Plaza (3) BNY Financial Group 2004/2009 $ 275,000
Buck Consultants 2008
Cisco Systems 2005/2009
First Albany 2008/2013
Kmart Corporation 2016/2036
Metropolitan Life 2002
Miller Freeman Inc. 2011/2016
MWB Leasing 2006
Parsons Brinkerhoff 2008/2013
State of NY 2004
Stone & Webster 2008
Two Penn Plaza Compaq Computer 2003/2008 80,000(4)
Forest Electric 2006/2011
Information Builders, Inc. 2013/2023
Madison Square Garden 2007/2017
McGraw Hill Co., Inc. 2020/2030
Ogden Services 2008
UHC Management 2001/2006
770 Broadway Chase Manhattan Bank 1999 --
J. Crew 2012/2017
Kmart 2016/2036
Eleven Penn Plaza Crowthers McCall 2010 53,901
Executive Office Network 2012
General Mills 2002
Times Mirror 2001
Two Park Avenue Herrick Feinstein 2010 65,000
Scheflin & Summerset 2006
Times Mirror Company 2010/2025
United Way 2013
90 Park Avenue Sterling Winthrop Inc. 2015/2035 --
888 Seventh Avenue Golden Books 2013 55,000
The Limited 2014
330 West 34th Street (3) City of New York 2012 --
Master Garment 2002
Props for Today 2006
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Annualized
Year Approximate Annualized Escalated
Originally Land Leasable Number Base Rent Rent
Developed Area Building Square of per per Sq. Ft. Percent
Location or Acquired (Sq. Ft.) Feet Tenants Sq. Ft. (1) (2) Leased (1)
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1740 Broadway 1950 30,000 551,000 19 $ 31.06 $ 34.42 100%
150 East 58th Street 1969 21,000 548,000 125 29.90 30.99 92%
866 United Nations Plaza 1966 90,000 386,000 81 30.20 30.69 92%
640 Fifth Avenue 1950 22,000 249,000 13 25.24 29.62 81%
40 Fulton Street 1987 18,000 234,000 27 26.45 26.60 93%
689 Fifth Avenue 1925 6,000 84,000 7 55.22 55.65 68%
330 Madison Avenue 1963 33,000 771,000 47 34.47 35.42 93%
(25% Ownership)
20 Broad Street (3) 1956 20,000 459,000 16 27.13 27.51 94%
(60% Ownership)
570 Lexington Avenue 1930 16,000 433,000 45 31.36 31.69 82%
(49.9% Ownership)
825 Seventh Avenue 1968 18,000 160,000 3 27.69 27.69 100%
(50% Ownership)
WESTCHESTER
550/600 Mamaroneck Avenue 1971/1969 666,000 234,000 49 19.32 19.72 97%
(3)
NEW JERSEY
Paramus (3) 1987 148,000 118,000 27 16.89 16.95 65%
CONNECTICUT
Westport 1980 955,000 120,000 5 22.31 22.81 100%
----------- ------------ ------
Total Office Buildings 2,567,000 13,526,000 983 27.01 28.14 91%
=========== ============ ======
Company's Ownership Interest 2,517,000 12,467,000 91%
=========== ============
</TABLE>
<TABLE>
<CAPTION>
Lease
Principal Tenants Expiration/
(50,000 square feet or Option Encumbrances
Location more) Expiration (thousands)
- - - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1740 Broadway Mutual of New York 2016/2026 --
William Douglas McAdams 2007
150 East 58th Street
866 United Nations Plaza Fross & Zelnick 2009 $33,000
640 Fifth Avenue Bozell Jacobs Kenyon 2008/2013 --
40 Fulton Street Pencom Systems 2007 --
689 Fifth Avenue
330 Madison Avenue Bank Julius Baer 2005 60,000
(25% Ownership) BDO Seidman 2010/2015
20 Broad Street (3) N.Y. Stock Exchange 2003/2066 --
(60% Ownership)
570 Lexington Avenue 16,410
(49.9% Ownership)
825 Seventh Avenue International 2013/2023 18,015
(50% Ownership) Merchandising Corp
Young & Rubicom 2008/2018
WESTCHESTER
550/600 Mamaroneck Avenue 6,500
(3)
NEW JERSEY
Paramus (3) 250
CONNECTICUT
Westport Metropolitan Life Insurance 2001 8,000
---------
Total Office Buildings $ 671,076
=========
Company's Ownership Interest $ 608,847
=========
<FN>
(1) Represents annualized monthly base rent excluding rent for leases which had not commenced as of December 31, 1998,
which are included in percent leased.
(2) Represents annualized monthly base rent for office properties including tenant pass--throughs of operating expenses
(exclusive of tenant electricity costs) and real estate taxes.
(3) 100% ground leased property.
(4) At December 31, 1998, the property was encumbered by an $80,000,000 mortgage. In February 1999, the Company completed
a $165,000,000 refinancing on the property and prepaid the then existing $80,000,000 mortgage.
</FN>
</TABLE>
-20-
<PAGE>
CESCR Office Properties:
The following table sets forth certain information for the CESCR Office
Properties (in which the Company has a 34% interest), as of December 31, 1998 or
as of the date of acquisition for properties acquired thereafter.
<TABLE>
<CAPTION>
Year Approximate Annualized
Originally Leasable Number Annualized Escalated Rent
Developed Number of Building Square of Base Rent per per Sq. Ft. Percent
Location or Acquired Buildings Feet Tenants Sq. Ft. (1) (2) Leased (1)
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal Mall 1968 4 1,068,000 14 $ 24.17 $ 24.84 100%
Crystal Plaza 1964-1969 6 1,223,000 127 21.42 21.54 100%
Crystal Square 1974-1980 4 1,388,000 211 26.03 27.37 97%
Crystal Gateway 1983-1987 4 1,081,000 107 26.85 27.53 95%
Crystal Park 1984-1989 5 2,154,000 113 27.46 28.69 95%
Arlington Plaza 1985 1 174,000 17 23.83 26.95 100%
1919 S Eads Street 1990 1 93,000 7 26.69 27.38 94%
Skyline Place 1973-1984 6 1,595,000 192 20.61 20.91 99%
One Skyline Tower 1988 1 477,000 8 20.96 22.47 100%
Courthouse Plaza 1988-1989 2 609,000 80 23.72 23.99 100%
1101 17th Street 1963 1 204,000 55 27.50 28.40 96%
1730 M Street 1963 1 190,000 49 22.77 24.34 98%
1140 Connecticut Ave 1966 1 175,000 36 26.18 26.00 93%
1150 17th Street 1970 1 226,000 43 26.15 26.42 97%
---- ----------- ------
Total Charles E. Smith Properties 38 10,657,000 1,059 24.42 25.22 98%
==== =========== ======
</TABLE>
<TABLE>
<CAPTION>
Lease
Principal Tenants Expiration/
(50,000 square feet or Option Encumbrances
Location more) Expiration (thousands)
- - - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Crystal Mall General Services 2001/2011 $ 64,835
Administration
General Services 2001/2006
Administration
Crystal Plaza General Services 2004/2014 75,803
Administration
Crystal Square Boeing 2002/2007 82,287
General Services 2003/2008
Administration
Lockheed Martin 2003/2008
Oblon Spivak 2004/2009
Crystal Gateway Analytical Services, Inc. 2001/2006 177,794
General Services 1999
Administration
Lockheed Martin 2002/2005
Science Applications Int'l 2002
Corp.
Crystal Park CE Smith Headquarters 2004/2009 316,023
General Services 2001/2011
Administration
Techmatics 2002/2007
US Airways Headquarters 2008/2018
Vitro Corp 2002/2007
Arlington Plaza Georgetown University 2002/2007 18,455
Science Research Analysis 2001/2011
Corp.
1919 S Eads Street Vitro Corp 2001/2004 13,841
Skyline Place BDM Federal, Inc. 2000/2003 126,346
Electronic Data Services 2000
Science Application Int'l 2003/2008
Corp.
Science Research Analysis 2001
Corp.
One Skyline Tower General Services 1999 & 2009 68,871
Administration
Science Research Analysis 2003/2008
Corp.
Courthouse Plaza Arlington County 2003/2008 83,645
KPMG-Peat Marwick 2000/2003
1101 17th Street American Iron & Steel 2001/2006 22,830
Institute
Cosmetic & Toiletry Assn 2000/2005
1730 M Street General Services 2002/2012 19,026
Administration
General Services 1999/2004
Administration
League of Women Voters 2004/2009
1140 Connecticut Ave Michaels & Wishner PC 2002/2007 22,876
The Investigative Group 2000/2005
1150 17th Street American Enterprise 2002/2012 9,804
Institute
Arthur Andersen LLP 1999/2004
----------
Total Charles E. Smith Properties $1,102,436
==========
<FN>
(1) Represents annualized monthly base rent excluding rent for leases which had not commenced as
of December 31, 1998, which are included in percent leased.
(2) Represents annualized monthly base rent for office properties including tenant pass-throughs
of operating expenses (exclusive of tenant electricity costs) and real estate taxes
</FN>
</TABLE>
-21-
<PAGE>
Retail
The Company owns 59 shopping center properties of which 56 are strip
shopping centers primarily located in the Northeast and Midatlantic states, two
are regional centers located in San Juan, Puerto Rico and one, the Green Acres
Mall, is a super-regional center located in Nassau County, Long Island, New
York. The Company's shopping centers are generally located on major regional
highways in mature densely populated areas. The Company believes its shopping
centers attract consumers from a regional, rather than a neighborhood
marketplace because of their location on regional highways.
As of March 1, 1999, the occupancy rate of the retail properties was
93%. The following table sets forth the occupancy rate and the average annual
base rent per square foot (excluding the Green Acres Mall) for the properties at
the end of each of the past five years.
Average Annual
Rentable Base Rent
Year End Square Feet Occupancy Rate Per Square Foot
-------- ----------- -------------- ---------------
1998 10,625,000 92% $ 10.53
1997 10,550,000 91% 9.78
1996 10,019,000 90% 9.09
1995 9,913,000 91% 8.68
1994 9,501,000 94% 8.05
The average annual base rent per square foot at December 31, 1998 for
the Green Acres Mall was $12.92 in total and $32.24 for mall tenants only.
The Company's shopping center lease terms range from five years or less
in some instances, for smaller tenant spaces to as long as thirty years for
major tenants. Leases generally provide for additional rents based on a
percentage of tenant's sales and pass through to tenants the tenant's share of
all common area charges (including roof and structure in strip shopping centers,
unless it is the tenant's direct responsibility), real estate taxes and
insurance costs and certain capital expenditures. Percentage rent accounted for
less than 2% of total shopping center revenues in 1998. None of the tenants in
the Retail Segment accounted for more than 10% of the Company's total revenues.
Below is a listing of the Retail tenants which accounted for 2% or more
of the Retail property rentals in 1998:
Percentage of
(in thousands, except percentages) 1998 Retail Property
Square Feet Property Rentals (excluding
Tenant Leased Rentals reimbursements)
------ ----------- ---------- -------------------
Bradlees, Inc. ("Bradlees") 1,300(1) 13,917(1) 11%
The Home Depot, Inc. 409 4,922 4%
Kmart Corporation 359 3,547 3%
Staples, Inc. 214 2,868 2%
The TJX Companies, Inc. 328 2,728 2%
--------------------
(1) Excludes the 14th Street and Union Square Property currently leased to
Bradlees- see below.
In June 1995, Bradlees filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. Bradlees emerged from bankruptcy in January 1999 when its
plan of reorganization was confirmed. The Company withdrew its objection to
Bradlees' proposed plan of reorganization after obtaining Bradlees' agreement
that its lease of the Company's 14th Street and Union Square property would
terminate in March 2000. The lease was scheduled to expire in October 2019, and
contained an option to renew for an additional ten years. In addition, the rent
under the lease was increased by $1,100,000 per annum to $3,400,000 per annum
from January 1999 to the March 2000 termination date. In connection with the
foregoing, the Company paid $11,000,000 to Bradlees. The Company is considering
various alternatives for the redevelopment of this site. The Company currently
leases 15 other locations to Bradlees. Of these locations, the leases for 14 are
fully guaranteed by Stop & Shop Companies, Inc., a wholly-owned subsidiary of
Royal Ahold NV, a leading international food retailer, and one is guaranteed as
to 70% of the rent.
-22-
<PAGE>
The following table sets forth as of December 31, 1998 lease
expirations for each of the next 10 years assuming that none of the tenants
exercise their renewal options.
<TABLE>
<CAPTION>
Annual Base Rent of
Expiring Leases
Number of Square Feet of Percentage of Total -----------------------------------
Year Expiring Leases Expiring Leases Leased Square Feet Total Per Square Foot
- - - ---- --------------- --------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
1999........................ 114 403,000 3.3% $ 5,344,000 $ 13.26
2000........................ 62 455,000 3.7% 5,352,000 11.76
2001........................ 74 471,000 3.9% 5,300,000 11.25
2002........................ 66 1,177,000 9.7% 12,870,000 10.93
2003........................ 50 503,000 4.1% 5,836,000 11.60
2004........................ 69 871,000 7.1% 8,426,000 9.67
2005........................ 80 581,000 4.8% 8,054,000 13.86
2006........................ 46 862,000 7.1% 6,089,000 7.06
2007........................ 42 587,000 4.8% 6,027,000 10.27
2008........................ 17 382,000 3.1% 2,904,000 7.60
</TABLE>
The Company's strip shopping centers are substantially leased to large
stores (over 20,000 square feet). 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.
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 Company's two regional shopping centers located in Montehiedra and
Caguas, Puerto Rico, (both of which are in the San Juan area) contain 1,014,000
square feet of which the Company owns 727,000 square feet. The centers are
anchored by four major stores: Sears, Roebuck and Co., Kmart (one in each of the
centers) and a Builders Square Home Improvement store.
The Green Acres Mall is a 1.6 million square foot super-regional
enclosed shopping mall complex situated in Nassau County, Long Island, New York,
approximately one mile east of the borough of Queens, New York. The Green Acres
Mall is anchored by four major department stores: Sears, Roebuck and Co., J.C.
Penney Company, Inc. and Federated Department Stores, Inc. doing business as
Stern's and as Macy's. The complex also includes The Plaza at Green Acres, a
188,000 square foot strip shopping center which is anchored by Kmart and
Waldbaums.
-23-
<PAGE>
Retail Properties
The following table sets forth certain information for the Retail
Properties as of December 31, 1998.
<TABLE>
<CAPTION>
Approximate Leasable
Building Square Feet
---------------------------
Owned by
Tenants
Year (Land
Originally Land Owned/ Leased Number Annualized
Developed Area Leased by from of Base Rent per Percent
Location or Acquired (Acres) Company Company) Tenants Sq. Ft. (1) Leased (1)
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW JERSEY
Bordentown 1958 31.2 179,000 -- 4 $ 6.63 100%
Bricktown 1968 23.9 260,000 3,000 20 10.57 100%
Cherry Hill 1964 37.6 231,000 64,000 14 9.25 96%
Delran 1972 17.5 168,000 4,000 6 5.87 100%
Dover 1964 19.6 173,000 -- 14 6.29 100%
East Brunswick 1957 19.2 216,000 10,000 6 13.10 100%
East Hanover I 1962 24.6 271,000 -- 18 10.85 98%
East Hanover II 1979 8.1 91,000 -- 10 10.36 82%
Hackensack 1963 21.3 208,000 59,000 21 15.53 98%
Jersey City 1965 16.7 223,000 3,000 13 12.35 100%
Kearny 1959 35.3 42,000 62,000 4 13.49 68%
Lawnside 1969 16.4 145,000 -- 3 10.50 100%
</TABLE>
<TABLE>
<CAPTION>
Lease
Principal Tenants Expiration/
(30,000 square Option Encumbrances
Location feet or more) Expiration (thousands)
- - - ------------------------------------------------------------------------------------
NEW JERSEY
<S> <C> <C> <C>
Bordentown Bradlees (2) 2001/2021 $ 3,276 (7)
Shop-Rite 2011/2016
Bricktown Kohl's 2008/2028 9,919 (7)
Shop-Rite 2002/2017
Cherry Hill Bradlees (2) 2006/2026 9,706 (7)
Drug Emporium 2002
Shop & Bag 2007/2017
Toys "R" Us 2012/2042
Delran Sam's Wholesale 2011/2021 2,848 (7)
Dover Ames 2017/2037 3,635 (7)
Shop-Rite 2012/2022
East Brunswick Bradlees (2) 2003/2023 8,205 (7)
Shoppers World 2007/2012
T.J. Maxx 2004/2009
East Hanover I Home Depot 2009/2019 11,066 (7)
Marshalls 2004/2009
Pathmark 2001/2024
Today's Man 2009/2014
East Hanover II --
Hackensack Bradlees (2) 2012/2017 --
Pathmark 2014/2034
Staples 2003/2013
Jersey City Bradlees (2) 2002/2022 10,381 (7)
Shop-Rite 2008/2028
Kearny Pathmark 2013/2033 --
Lawnside Home Depot 2012/2027 5,708 (7)
Drug Emporium 2007
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Approximate Leasable
Building Square Feet
---------------------------
Owned by
Tenants
Year (Land
Originally Land Owned/ Leased Number Annualized
Developed Area Leased by from of Base Rent per Percent
Location or Acquired (Acres) Company Company) Tenants Sq. Ft. (1) Leased (1)
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lodi 1975 8.7 130,000 -- 1 $ 9.03 100%
Manalapan 1971 26.3 194,000 2,000 7 9.13 100%
Marlton 1973 27.8 173,000 7,000 10 8.54 100%
Middletown 1963 22.7 180,000 52,000 22 12.51 98%
Morris Plains 1985 27.0 172,000 1,000 19 11.61 100%
North Bergen 1959 4.6 7,000 55,000 3 26.22 100%
North Plainfield (3) 1989 28.7 217,000 -- 13 8.57 91%
Totowa 1957 40.5 178,000 139,000 7 16.73 100%
Turnersville 1974 23.3 89,000 7,000 3 5.98 100%
Union 1962 24.1 257,000 -- 11 17.77 99%
Vineland 1966 28.0 143,000 -- 3 4.16 17%
Watchung 1959 53.8 50,000 116,000 6 17.50 97%
Woodbridge 1959 19.7 233,000 3,000 10 13.69 91%
NEW YORK
14th Street and Union
Square, Manhattan 1993 0.8 232,000 -- 1 9.92 100%
Albany (Menands) 1965 18.6 141,000 -- 2 6.35 100%
</TABLE>
<TABLE>
<CAPTION>
Lease
Principal Tenants Expiration/
(30,000 square Option Encumbrances
Location feet or more) Expiration (thousands)
- - - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lodi National Wholesale 2013/2023 $ 2,420 (7)
Liquidators
Manalapan Bradlees (2) 2002/2022 6,397 (7)
Grand Union 2012/2022
Marlton Kohl's (2) 2011/2031 5,398 (7)
Shop-Rite 2004/2009
Middletown Bradlees (2) 2002/2022 7,761 (7)
Grand Union 2009/2029
Morris Plains Kohl's 2002/2023 6,600 (7)
Shop-Rite 2002
North Bergen A & P 2012/2032 --
North Plainfield (3) Kmart 2006/2016 3,109
Pathmark 2001/2011
Totowa Bradlees (2) 2013/2028 15,646 (7)
Home Depot 2015/2025
Marshalls 2007/2012
Circuit City 2018/2038
Turnersville Bradlees (2) 2011/2031 2,116 (7)
Union Bradlees (2) 2002/2022 15,975 (7)
Toys "R" Us 2015
Cost Cutter Drug 2000
Vineland 2,358 (7)
Watchung B.J.'s Wholesale 2024 --
Woodbridge Bradlees (2) 2002/2022 8,792 (7)
Foodtown 2007/2014
Syms 2000/2005
NEW YORK
14th Street and Union
Square, Manhattan Bradlees 2000 --
Albany (Menands) Fleet Bank 2004/2014 --
Albany Public 2000
Mkts. (4)
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
Approximate Leasable
Building Square Feet
---------------------------
Owned by
Tenants
Year (Land
Originally Land Owned/ Leased Number Annualized
Developed Area Leased by from of Base Rent per Percent
Location or Acquired (Acres) Company Company) Tenants Sq. Ft. (1) Leased (1)
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Buffalo (Amherst) (3) 1968 22.7 185,000 112,000 10 $ 6.99 96%
Freeport 1981 12.5 167,000 -- 3 11.53 100%
New Hyde Park (3) 1976 12.5 101,000 -- 1 13.55 100%
North Syracuse (3) 1976 29.4 98,000 -- 1 2.74 100%
Rochester 1971 15.0 148,000 -- 1 5.86 47%
(Henrietta ) (3)
Rochester 1966 18.4 176,000 -- 1 6.05 41%
Valley Stream (Green 1958 100.0 1,525,000 71,000 156 (5) 94%
Acres) (3)
PENNSYLVANIA
Allentown 1957 86.8 263,000 354,000 20 10.13 100%
Bensalem 1972 23.2 119,000 7,000 10 5.84 95%
Bethlehem 1966 23.0 157,000 3,000 13 5.41 81%
Broomall 1966 21.0 146,000 22,000 5 9.41 100%
Glenolden 1975 10.0 101,000 -- 3 10.73 100%
Lancaster 1966 28.0 180,000 -- 7 4.42 51%
</TABLE>
<TABLE>
<CAPTION>
Lease
Principal Tenants Expiration/
(30,000 square Option Encumbrances
Location feet or more) Expiration (thousands)
- - - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Buffalo (Amherst) (3) Circuit City 2017 $ 4,863 (7)
Media Play 2002/2017
MJ Design 2006/2017
Toys "R" Us 2013
T.J. Maxx 2004
Freeport Home Depot 2011/2021 8,021 (7)
Cablevision 2004
New Hyde Park (3) Mayfair 2019/2029 2,043 (7)
Supermarkets
North Syracuse (3) Reisman Properties 2014 --
Rochester Hechinger (4) 2005/2025 2,203 (7)
(Henrietta ) (3)
Rochester Hechinger (4) 2005/2025 2,832 (7)
Valley Stream (Green
Acres) (3) Macy 2006/2036 165,574
Sterns 2007/2017
JC Penney 2012/2017
Sears 2023/2073
Home Depot (6)
Kmart 2010/2038
Dime Savings Bank 2020
Greenpoint Bank 2009
PENNSYLVANIA
Allentown Hechinger 2011/2031 7,696 (7)
Shop-Rite 2011/2019
Burlington Coat 2017
Factory
Wal*Mart 2024/2094
Sam's Wholesale 2024/2094
T.J. Maxx 2003/2008
Bensalem Kohl's (2) 2011/2031 3,967 (7)
Bethlehem Pathmark 2008/2033 --
Super Petz 2005/2015
Broomall Bradlees (2) 2006/2026 3,260 (7)
Glenolden Bradlees (2) 2012/2022 4,245 (7)
Lancaster Weis Markets 2008/2018 2,312 (7)
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Approximate Leasable
Building Square Feet
---------------------------
Owned by
Tenants
Year (Land
Originally Land Owned/ Leased Number Annualized
Developed Area Leased by from of Base Rent per Percent
Location or Acquired (Acres) Company Company) Tenants Sq. Ft. (1) Leased (1)
- - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Levittown 1964 12.8 104,000 -- 1 5.98 100%
10th and Market
Streets, Philadelphia 1994 1.8 271,000 -- 5 $ 9.36 77%
Upper Moreland 1974 18.6 122,000 -- 1 7.50 100%
York 1970 12.0 113,000 -- 3 4.64 100%
MARYLAND
Baltimore (Belair Rd.) 1962 16.0 206,000 -- 2 5.95 65%
Baltimore (Towson) 1968 14.6 146,000 7,000 7 9.64 100%
Baltimore (Dundalk) 1966 16.1 183,000 -- 17 6.78 82%
Glen Burnie 1958 21.2 117,000 3,000 5 5.99 100%
Hagerstown 1966 13.9 133,000 15,000 6 3.29 100%
CONNECTICUT
Newington 1965 19.2 134,000 45,000 4 6.86 100%
Waterbury 1969 19.2 140,000 3,000 10 6.33 100%
MASSACHUSETTS
Chicopee 1969 15.4 112,000 3,000 2 4.71 84%
Milford (3) 1976 14.7 83,000 -- 1 5.26 100%
Springfield 1966 17.4 8,000 117,000 2 12.25 100%
TEXAS
Lewisville 1990 13.3 35,000 7,000 14 14.52 84%
Mesquite 1990 5.5 71,000 -- 13 15.25 98%
Dallas 1990 9.9 100,000 -- 9 10.13 83%
</TABLE>
<TABLE>
<CAPTION>
Lease
Principal Tenants Expiration/
(30,000 square Option Encumbrances
Location feet or more) Expiration (thousands)
- - - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Levittown (2) 2006/2026 2,283 (7)
10th and Market
Streets, Philadelphia Kmart 2010/2035 $ --
Upper Moreland Sam's Wholesale 2010/2015 3,517 (7)
York Builders Square 2009/2018 1,463 (7)
MARYLAND
Baltimore (Belair Rd.) Food Depot 2003 --
Baltimore (Towson) Staples 2004 5,779 (7)
Cost Saver 2000/2020
Supermarket
Drug Emporium 2004
Baltimore (Dundalk) A & P 2002/2017 4,084 (7)
Ollie's 2003/2008
Glen Burnie Weis Markets 2018/2053 2,299 (7)
Hagerstown Big Lots 2002/2012 --
Pharmhouse 2008/2012
Weis Markets 2004/2009
CONNECTICUT
Newington (2) 2002/2022 3,042 (7)
The Wiz 2007/2027
Waterbury Toys "R" Us 2010 3,889 (7)
Shaws Supermarkets 2003/2018
MASSACHUSETTS
Chicopee Bradlees (2) 2002/2022 1,999 (7)
Milford (3) Bradlees (2) 2004/2009 --
Springfield Wal*Mart 2018/2092 --
TEXAS
Lewisville Albertson's (6) 2055 764 (7)
Mesquite 3,445 (7)
Dallas Albertson's (6) 2055 1,987 (7)
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
Approximate Leasable
Building Square Feet
---------------------------
Owned by
Tenants
Year (Land
Originally Land Owned/ Leased Number Annualized
Developed Area Leased by from of Base Rent per Percent
Location or Acquired (Acres) Company Company) Tenants Sq. Ft. (1) Leased (1)
- - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PUERTO RICO
(SAN JUAN AREA)
Montehiedra 1997 57.1 525,000 -- 96 $ 16.02 100%
Caguas (50% ownership of 1998 35.0 343,000 -- 105 25.86 92%
mall stores and 75%
ownership of Kmart
store)
--------- ------------ ------------ --------
Total Shopping Centers 1,362.2 10,915,000 1,356,000 785 10.53 93%
========= ============ ============ ========
Company's Ownership Interest 1,346.6 10,774,000 1,356,000 93%
========= ============ ============
</TABLE>
<TABLE>
<CAPTION>
Lease
Principal Tenants Expiration/
(30,000 square Option Encumbrances
Location feet or more) Expiration (thousands)
- - - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
PUERTO RICO
(SAN JUAN AREA)
Montehiedra Kmart 2022/2072 $ 62,180
Builders Square 2022/2072
Marshalls 2010/2025
Caribbean Theatres 2021/2026
Caguas (50% ownership of Kmart 2064
mall stores and 75% Sears (6) 70,941
ownership of Kmart
store)
-------------
Total Shopping Centers $ 516,004
=============
Company's Ownership Interest $ 480,534
=============
<FN>
(1) Represents annualized monthly base rent excluding ground leases, storage
rent and rent for leases which had not commenced as of December 31, 1998,
which are included in percent leased.
(2) 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.
(3) 100% ground and/or building leasehold interest; other than Green Acres,
where approximately 10% of the ground is leased.
(4) The tenant has ceased operations at these locations but continues to pay
rent.
(5) Annualized rent per square foot is $12.92 in total and $32.24 for the mall
tenants only.
(6) Square footage excludes anchor store which owns its land and building.
(7) These encumbrances are cross collateralized under a mortgage in the amount
of $227,000,000 at December 31, 1998.
</FN>
</TABLE>
-28-
<PAGE>
Cold Storage
The Company has a 60% interest in the Vornado/Crescent Partnerships
that currently own 88 refrigerated warehouses with an aggregate of approximately
450 million cubic feet (excludes 13 additional warehouses containing
approximately 80 million cubic feet managed by the Cold Storage Companies doing
business as AmeriCold Logistics). The Cold Storage segment is headquartered in
Atlanta, Georgia.
On March 12, 1999, the Vornado/Crescent Partnerships sold all of the
non-real estate assets of AmeriCold Logistics encompassing the operations of the
cold storage business for approximately $48,000,000 to a new partnership owned
60% by Vornado Operating Company and 40% by Crescent Operating Inc. The new
partnership leases the underlying cold storage warehouses used in this business
from the Vornado/Crescent Partnerships which continue to own the real estate.
The leases have a 15 year term with two-five year renewal options and provide
for the payment of fixed base rent and percentage rent based on customer
revenues. The new partnership is required to pay for all costs arising from the
operation, maintenance and repair of the properties as well as property capital
expenditures in excess of $5,000,000 annually. Fixed base rent and percentage
rent for the initial lease year is projected to be approximately $151 million.
The new partnership has the right to defer a portion of the rent for up to three
years beginning on March 12, 1999 to the extent that available cash, as defined
in the lease, is insufficient to pay such rent.
AmeriCold Logistics provides the frozen food industry with refrigerated
warehousing and transportation management services. Refrigerated warehouses are
comprised of production and distribution facilities. Production facilities
typically serve one or a small number of customers, generally food processors,
located nearby. These customers store large quantities of processed or partially
processed products in the facility until they are shipped to the next stage of
production or distribution. Distribution facilities primarily warehouse a wide
variety of customers' finished products until future shipment to end-users. Each
distribution facility primarily services the surrounding regional market.
AmeriCold Logistics' transportation management services include freight routing,
dispatching, freight rate negotiation, backhaul coordination, freight bill
auditing, network flow management, order consolidation and distribution channel
assessment. AmeriCold Logistics' temperature-controlled logistics expertise and
access to both frozen food warehouses and distribution channels enable its
customers to respond quickly and efficiently to time-sensitive orders from
distributors and retailers.
AmeriCold Logistics' customers consist primarily of national, regional
and local frozen food manufacturers, distributors, retailers and food service
organizations which include Con-Agra, Inc., Tyson Foods, H.J. Heinz & Co.,
McCain Foods, Pillsbury, Sara Lee, Phillip Morris, J.R. Simplot, Farmland
Industries and Unilever.
-29-
<PAGE>
Facilities
The following table shows the location, size and type of facility for each of
the Cold Storage properties as of December 31, 1998:
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
GEORGIA
Xavier Drive, SW D Owned 11.1
Atlanta, GA
Lakewood Avenue, SW D Owned 2.9
Atlanta, GA
Laney-Walker Road P Owned 1.1
Augusta, GA
Westgate Parkway D Owned 11.4
Atlanta, GA
Westgate Parkway D Owned 3.5
Atlanta, GA
South Airport Drive P Owned 4.2
Montezuma, GA
121 Roseway Drive P Owned 6.9
Thomasville, GA ---
TOTAL GEORGIA 41.1
----
NORTH CAROLINA
- - - --------------
West 9th Street P Owned 1.0
Charlotte, NC
Exchange Street P Owned 4.1
Charlotte, NC
Sara Lee Road P Leased 3.4
Tarboro, NC ---
TOTAL NORTH CAROLINA 8.5
---
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
PENNSYLVANIA
RD2, Orchard Lane D Owned 5.8
Leesport, PA
Mill Road D Owned 85% 21.6
Fogelsville, PA Leased 15%
Dry M Managed 16.1
2600 Brodhead Road
Bethlehem, PA
Refrigerated M Managed 7.3
---
4000 Miller Circle North
Bethlehem, PA
TOTAL PENNSYLVANIA 50.8
----
TEXAS
- - - -----
10300 South East Third Owned 3.2
Street Amarillo, TX
200 Railhead Drive D Owned 3.4
Ft. Worth, TX
Dry M Managed 13.0
1006 Railhead Drive
Ft. Worth, TX
Refrigerated M Managed 7.6
1005 Railhead Drive ---
Ft. Worth, TX
TOTAL TEXAS 27.2
----
WASHINGTON
South Walnut
Burlington, WA P/D Owned 4.7
Wheeler Road P/D Owned 7.3
Moses Lake, WA
14th Avenue South P Owned 3.1
Walla Walla, WA
-30-
<PAGE>
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
SOUTH CAROLINA
- - - --------------
Shop Road P Owned 1.6
Columbia, SC
ALABAMA
West 25th Avenue P Owned 2.0
Birmingham, AL
Newcomb Avenue P Leased 1.2
Montgomery, AL
East Air Depot Road P Leased 4.0
Gadsden, AL
Railroad Avenue P Owned 2.2
Albertville, AL
4th Street, West M Managed 0.1
Birmingham, AL ---
TOTAL ALABAMA 9.5
---
KANSAS
North Mead P Owned 2.8
Wichita, KS
2007 West Mary Street P Owned 2.2
Garden City, KS
Inland Drive P/D Owned 35.2(1)
Kansas City, KS ----
TOTAL KANSAS 40.2
----
MISSOURI
West Highway 20 P Owned 4.8
Marshall, MO
No. 1 Civil War Road D Owned 33.1
Carthage, MO ----
TOTAL MISSOURI 37.9
----
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
Industrial Way P Leased 6.7
Pasco, WA
West Juniper Street P Owned 5.7
Connell, WA
Dodd Road P/D Owned 1.2
Wallula, WA ---
TOTAL WASHINGTON 28.7
----
VIRGINIA
- - - --------
East Princess Anne Road P Owned 1.9
Norfolk, VA
MASSACHUSETTS
East Main Street P/D Owned 1.9
Gloucester, MA
Railroad Avenue P/D Owned 0.3
Gloucester, MA
Rogers Street P/D Owned 2.8
Gloucester, MA
Rowe Square P/D Owned 2.4
Gloucester, MA
Wildett Circle P/D Owned 3.1
Boston, MA
Pleasant Street P/D Owned 4.7
Watertown, MA ---
TOTAL MASSACHUSETTS 15.2
----
UTAH
- - - ----
South Street P/D Owned 8.6
Clearfield, UT
- - - ----------------------
(1)AmeriCold Logistics plans to cease warehousing operations at this facility
in October 1999 which will have no effect on the rent being paid to the
Vornado/Crescent Partnership because the cecession of operations was
contemplated at the time of the March 12, 1999 sale.
-31-
<PAGE>
+
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
IOWA
Maple Drive D Owned 3.7
Fort Dodge, IA
State Street P/D Owned 8.8
Bettendorf, IA ---
TOTAL IOWA 12.5
----
TENNESSEE
East Parkway South P Owned 5.6
Memphis, TN
Spottswood Avenue P Owned 0.5
Memphis, TN
Stephenson Drive P/D Owned 4.5
Murfreesboro, TN
Biffle Road P Managed 2.4
Newbern, TN ---
TOTAL TENNESSEE 13.0
----
OREGON
Westland Avenue P Owned 4.0
Hermiston, OR
S.E. McLoughlin Blvd. D Owned 4.7
Milwaukie, OR
Brooklake Road P Owned 4.8
Brooks, OR
Portland Road N.E. P/D Owned 12.5
Salem, OR
Silverton Road P/D Owned 6.3
Woodburn, OR
Leased 8.1
---
N.E. First Street P
Ontario, OR
TOTAL OREGON 40.4
----
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
RKANSAS
Midland Boulevard P Owned 1.4
Fort Smith, AR
Genoa Road P Owned 4.7
Texarkana, AR
South Airport Road D Owned 5.3
West Memphis, AR
300 El Mira P Owned 5.6
Russellville, AR
203 Industrial Boulevard P Owned 9.5
Russellville, AR
1200 N. Old Missouri P Owned 6.6
Road Springdale, AR ---
TOTAL ARKANAS 33.1
----
FLORIDA
South Lois Avenue D Owned 0.4
Tampa, FL
U.S. Highway 17
Bartow, FL P/D Owned 1.4
South Alexander Street P/D Owned 0.8
Plant City, FL
50th Street P/D Owned 80% 3.9
Tampa, FL Leased 20%
Port of Tampa D Owned 1.0
Tampa, FL ---
TOTAL FLORIDA 7.5
---
-32-
<PAGE>
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
OKLAHOMA
South Hudson P Owned 0.7
Oklahoma City, OK
Exchange Street P Owned 1.4
Oklahoma City, OK ---
TOTAL OKLAHOMA 2.1
---
MISSISSIPPI
751 West Churchill Road P Owned 4.7
West Point, MS
MAINE
Read Street P/D Owned 1.8
Portland, ME
IDAHO
U.S. Highway 30 P/D Owned 10.7
Burley, ID
4th Street North P Owned 8.0
Nampa, ID ---
TOTAL IDAHO 18.7
----
ILLINOIS
Americold Drive D Owned 6.0
Rochelle, IL
18531 U.S. Route 20 West P Owned 5.6
East Dubuque, IL ---
TOTAL ILLINOIS 11.6
----
NEW YORK
Farrell Road D Owned 11.8
Syracuse, NY
INDIANA
Arlington Avenue D Owned 9.1
Indianapolis, IN
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
CALIFORNIA
Malaga Place D Owned 24% 8.1
Ontario, CA Leased 76%
Santa Ana D Leased 1.9
Ontario, CA
West Magnolia Boulevard P/D Owned 0.8
Burbank, CA
Jesse Street P/D Owned 2.7
Los Angeles, CA
5th Street P/D Owned 2.5
Turlock, CA
South Kilroy Road P/D Owned 3.0
Turlock, CA
Coil Avenue D Managed 4.5
Wilmington, CA
751 North Vintage Street M Managed 0.5
Ontario, CA
South Raymond Avenue P/D Leased 2.8
Fullerton, CA
Salinas Road P/D Leased 1.4
Pajaro, CA
West Riverside Drive P/D Owned 5.4
Watsonville, CA
Wanamaker Avenue M Managed 3.2
Ontario, CA
Airport Drive M Managed 13.5
Ontario, CA ----
TOTAL CALIFORNIA 50.3
----
WISCONSIN
- - - ---------
Route 2 P Owned 4.6
Tomah, WI
110th Street P/D Owned 9.4
Plover, WI ---
TOTAL WISCONSIN 14.0
----
-33-
<PAGE>
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
NEBRASKA
950 South Schneider Street P Owned 2.2
Fremont, NE
East Roberts Street P/D Leased 2.2
---
Grand Island, NE
TOTAL NEBRASKA 4.4
---
SOUTH DAKOTA
- - - ------------
2300 East Rice Street P Owned 2.9
Sioux Falls, SD
Distribution Development M Managed 3.4
---
802 East Rice Street
Sioux Falls, SD
TOTAL SOUTH DAKOTA 6.3
---
ARIZONA
455 South 75th Avenue D Owned 2.9
Phoenix, AZ
Total
Type Cubic
Production(P)/ Footage
Distribution(D)/ Owned/ (in
Property Managed(M) Leased millions)
- - - ---------------------- ------------------ ----------- ------------
COLORADO
East 50th Street P/D Owned 52% 2.8
Denver, CO
Leased 48%
North Washington Street P/D Leased 0.6
---
Denver, CO
TOTAL COLORADO 3.4
---
KENTUCKY
1541 U.S. Highway 41 North P Owned 2.7
Sebree, KY
MINNESOTA
U.S. Highway 71 South M Managed 5.9
Park Rapids, MN
NEW JERSEY
N. Mill road P Managed 2.7
Vineland, NJ
The above table is summarized as follows:
Total
Cubic Percent
Feet of Number of
Type of Property (in millions) Total Facilities
---------------- ------------- ------- ----------
Owned facilities....................... 406.7 90% 78
Leased facilities...................... 43.2 10% 10
----- --- --
449.9 100% 88
===
Managed facilities..................... 80.2 13
----- ---
530.1 101
===== ===
-34-
<PAGE>
Merchandise Mart Properties
The Merchandise Mart Properties are a portfolio of seven properties
containing an aggregate of approximately 6.7 million square feet. The properties
are used for offices (34%), showrooms (63%) and retail stores (3%). The Company
acquired these assets in separate transactions in 1998. In April 1998, the
Company purchased four buildings containing approximately 5.4 million square
feet from the Kennedy Family, including the 3.4 million square foot Merchandise
Mart building in Chicago, the adjacent 350 North Orleans Street building, the
Washington Office Center and the adjacent Washington Design Center. In December
1998, the Company purchased the 1.3 million square foot Market Square Complex
and in a separate transaction purchased the National Furniture Mart in High
Point, North Carolina.
Office Space
The following table sets forth the percentage of the Merchandise Mart
Properties office revenues by tenant's industry:
Industry Percentage
-------- ----------
Government 40.4%
Service 20.3%
Telecommunications 16.2%
Insurance 12.9%
Pharmaceutical 4.9%
Other 5.3%
The average lease term of a tenant's lease is 10 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 included in rent based on surveys and
adjusted for subsequent utility rate increases. Leases also typically provide
for tenant improvement allowances for all or a portion of the tenant's initial
construction of its premises. None of the tenants in the Merchandise Mart
Properties segment accounted for more than 10% of the Company's total revenue.
Below is a listing of the Merchandise Mart Properties office tenants which
accounted for 2% or more of the Merchandise Mart Properties' revenues in 1998:
(in thousands, except percentages)
Percentage of
Merchandise Mart
Square Feet 1998 Properties
Tenant Leased Revenues Revenues
-----------------------------------------------------------------------------
General Services Administration 303 5,725 7%
Bankers Life and Casualty 303 3,695 4%
Ameritech 234 3,527 4%
Chicago Transit Authority 244 3,179 4%
CCC Information Services 144 2,541 3%
-35-
<PAGE>
As of March 1, 1999, the occupancy rate of the Merchandise Mart
Properties' office space was 95%. The following table sets forth the occupancy
rate and the average escalated rent per square foot for the Merchandise Mart
Properties' office space at the end of each of the past five years.
Rentable Average Escalated
Rent
Year End Square Feet Occupancy Rate Per Square Foot
-------- ----------- -------------- ---------------
1998 2,274,000 95% $ 19.68
1997 2,160,000 91% 19.50
1996 2,026,000 88% 19.42
1995 2,028,000 85% 19.34
1994 2,043,000 83% 18.21
The following table sets forth as of December 31, 1998 office lease
expirations for each of the next 10 years assuming that none of the tenants
exercise their renewal options.
<TABLE>
<CAPTION>
Annual Escalated
Percentage of Rent of Expiring Leases
Number of Square Feet of Total Leased ------------------------------------
Year Expiring Leases Expiring Leases Square Feet Total Per Square Foot
- - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999...................... 18 52,000 2.4% $ 1,034,000 $ 19.88
2000...................... 14 335,000 15.2% 8,884,000 26.52
2001...................... 9 41,000 1.9% 937,000 22.85
2002...................... 9 37,000 1.7% 1,118,000 30.22
2003...................... 5 70,000 3.2% 1,594,000 22.77
2004...................... 1 29,000 1.3% 693,000 23.89
2005...................... 1 42,000 1.9% 1,060,000 25.23
2006...................... 4 32,000 1.5% 1,202,000 37.56
2007...................... 9 439,000 19.9% 7,802,000 17.77
2008...................... 10 441,000 20.0% 7,898,000 17.91
</TABLE>
Showroom Space
The Merchandise Mart Properties' showroom space aggregates 4,177,000
square feet of which 2,611,000 square feet is located in the Merchandise Mart
building and 350 North Orleans in Chicago, 1,223,000 square feet is located in
the Market Square Complex (including the National Furniture Mart) in High Point,
North Carolina and 343,000 square feet is located in the Design Center in
Washington, D.C. The showroom space consists of 2,850,000 square feet of
permanent mart space (leased to manufacturers and distributors whose clients are
retailers, specifiers and end users), 966,000 square feet of permanent design
center space (leased to wholesalers whose principal clientele is interior
designers), and 361,000 square feet of temporary market suite space (used for
trade shows).
The showrooms provide manufacturers and wholesalers with permanent and
temporary space in which to display products for buyers, specifiers and end
users. The showrooms are also used for hosting trade shows for the contract
furniture, casual furniture, gift-ware, carpet, residential furnishings, crafts,
and design industries. The Merchandise Mart Properties own and operate five of
the leading furniture/gift-ware trade shows including the contract furniture
industry's largest trade show, the NeoCon Show, which attracts over 50,000
attendees annually and is hosted at the Merchandise Mart building in Chicago.
The Market Square Complex co-hosts the home furniture industry's semi-annual
market weeks which occupy over 8,800,000 square feet in the High Point, North
Carolina region.
-36-
<PAGE>
As of March 1, 1999 the occupancy rate of the Merchandise Mart
Properties' showroom space was 95%. The following table sets forth the occupancy
rate and the average escalated rent per square foot for this space at the end of
each of the past five years.
Average Annual
Rentable Square Escalated Rent
Year End Feet Occupancy Rate Per Square Foot
- - - ------------ ------------------- ---------------- ----------------
1998 4,177,000 95% $ 21.50
1997 2,817,000 93% 20.94
1996 2,825,000 88% 20.65
1995 2,953,000 75% 22.07
1994 2,906,000 73% 22.35
The following table sets forth as of December 31, 1998 showroom lease
expirations for each of the next 10 years assuming that none of the tenants
exercise their renewal options.
<TABLE>
<CAPTION>
Annual Escalated
Percentage of Rent of Expiring Leases
Number of Square Feet of Total Leased ----------------------------------
Year Expiring Leases Expiring Leases Square Feet Total Per Square Foot
---- --------------- --------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
1999...................... 260 526,000 12.9% $ 8,200,000 $ 15.59
2000...................... 277 651,000 16.0% 12,533,000 19.25
2001...................... 230 620,000 15.3% 9,371,000 15.11
2002...................... 129 377,000 9.3% 7,028,000 18.64
2003...................... 128 473,000 11.6% 9,814,000 20.75
2004...................... 35 244,000 6.0% 4,104,000 16.82
2005...................... 21 146,000 3.6% 3,348,000 22.93
2006...................... 27 134,000 3.3% 3,458,000 25.81
2007...................... 25 163,000 4.0% 3,433,000 21.12
2008...................... 29 157,000 3.9% 3,184,000 20.28
</TABLE>
Retail Stores
The Merchandise Mart Properties' portfolio also contains approximately
200,000 square feet of retail stores which were 66% occupied at March 1, 1999.
Merchandise Mart in Chicago
The Merchandise Mart in Chicago is a 25-story industry building. Built
in 1930, the Merchandise Mart is one of the largest buildings in the nation,
containing over 4,000,000 gross square feet of which approximately 3,440,000
square feet is rentable.
-37-
<PAGE>
As of March 1, 1999, the occupancy rate of the Merchandise Mart in
Chicago was 96%. The following table sets forth the occupancy rate and the
average escalated rent per square foot at the end of each of the past five
years.
Average Annual
Rentable Square Escalated Rent
Year End Feet Occupancy Rate Per Square Foot
- - - ------------ ------------------- ---------------- ----------------
1998 3,440,000 96% $ 21.50
1997 3,411,000 96% 20.94
1996 3,404,000 94% 20.65
1995 3,404,000 82% 22.07
1994 3,401,000 78% 22.35
The following table sets forth as of December 31, 1998 lease
expirations at the Merchandise Mart in Chicago for each of the next 10 years
assuming that none of the tenants exercise renewal options.
<TABLE>
<CAPTION>
Annual Escalated
Percentage of Rent of Expiring Leases
Number of Square Feet of Total Leased ----------------------------------
Year Expiring Leases Expiring Leases Square Feet Total Per Square Foot
---- --------------- --------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
1999...................... 136 242,000 7.3% $ 4,997,000 $ 20.65
2000...................... 136 385,000 11.6% 9,591,000 24.91
2001...................... 100 196,000 5.9% 4,928,000 25.14
2002...................... 70 197,000 6.0% 4,780,000 24.26
2003...................... 84 311,000 9.4% 6,885,000 22.14
2004...................... 33 173,000 5.2% 4,134,000 23.90
2005...................... 20 182,000 5.5% 4,249,000 23.35
2006...................... 29 139,000 4.2% 3,527,000 25.37
2007...................... 29 459,000 13.9% 8,693,000 18.94
2008...................... 19 503,000 15.2% 9,545,000 18.98
</TABLE>
The aggregate undepreciated tax basis of depreciable real property at
the Merchandise Mart in Chicago for Federal income tax purposes was
approximately $165,000,000 as of December 31, 1998, and depreciation for such
property is computed for Federal income tax purposes on the straight-line method
over thirty-nine years.
For the 1997 tax year, the tax rate in Chicago for commercial real
estate is $8.84 for $100 assessed value which results in real estate taxes of
$9,156,000 for the Merchandise Mart.
-38-
<PAGE>
Merchandise Mart Properties:
The following table sets forth certain information for the Merchandise
Mart Properties owned by the Company as of December 31, 1998.
<TABLE>
<CAPTION>
Year
Originally Approximate Annualized Annualized
Developed Land Leasable Number Base Rent Escalated Rent
or Area Building Square of per per Sq. Ft. Percent
Location Acquired (Acres) Feet Tenants Sq. Ft. (1) (2) Leased (1)
- - - -------------------------------------------------------------------------------------------------------------------------------
ILLINOIS
<S> <C> <C> <C> <C> <C> <C> <C>
Merchandise Mart, Chicago 1930 6.7 3,440,000 743 $ 20.70 $ 21.59 97%
350 North Orleans, Chicago 1977 4.3 1,117,000 328 17.83 18.04 87%
WASHINGTON, D.C.
Washington Office Center 1990 1.2 388,000 25 27.30 28.64 97%
Washington Design Center 1919 1.2 387,000 76 23.05 23.31 96%
Other 1.3 93,000 8 8.38 10.43 87%
HIGH POINT, NORTH CAROLINA
Market Square Complex 1902 - 13.1 1,069,000 164 8.66 10.34 99%
1989
National Furniture Mart 1964 0.7 243,000 31 11.99 11.99 100%
------- ---------- ------
Total Merchandise Mart Properties 28.5 6,737,000 1,375 18.58 19.45 95%
======= ========== ======
</TABLE>
<TABLE>
<CAPTION>
Lease
Principal Tenants Expiration/
(50,000 square feet or Option Encumbrances
Location more) Expiration (thousands)
- - - -----------------------------------------------------------------------------------------
ILLINOIS
<S> <C> <C> <C>
Merchandise Mart, Chicago Baker, Knapp & Tubbs 2007/2013 $ 250,000
Bankers Life & Casualty 2008/2018
CCC Information Services 2008/2018
Chicago Teachers Union 2005
Chicago Transit Authority 2007/2027
Holly Hunt 2003
Monsanto 2007
Office of the Special 2005
Deputy
Steelcase 2007
350 North Orleans, Chicago 21st Century Cable 2012/2022 --
Ameritech 2011/2021
Art Institute of Illinois 2009/2019
Bank of America 2008/2018
Chicago Transit Authority 2007/2017
Sports Channel 2007/2017
WASHINGTON, D.C.
Washington Office Center General Services 2000/2010 50,878
Administration
Washington Design Center 24,225
Other --
HIGH POINT, NORTH CAROLINA
Market Square Complex Century Furniture Company 2004 45,302
La-Z-Boy 2004
National Furniture Mart 13,831
---------
Total Merchandise Mart Properties $ 384,236
=========
<FN>
(1) Represents annualized monthly base rent excluding rent for leases which had
not commenced as of December 31, 1998, which are included in percent leased.
(2) Represents annualized monthly base rent including tenant pass-throughs of
operating expenses (exclusive of tenant electricity costs) and real estate
taxes.
</FN>
</TABLE>
-39-
<PAGE>
Alexander's Properties
The following table shows as of December 31, 1998 the location,
approximate size and leasing status of each of the properties owned by
Alexander's in which the Company has a 29.3% interest.
<TABLE>
<CAPTION>
Approximate Approximate
Area in Leasable Square Average Significant Lease
Square Footage/ Annualized Tenants (30,000 Expiration/
Feet/ or Number Base Rent Percent square feet or Option
Location Acreage of Floors Per Sq. Foot Leased more) Expiration
- - - -------- ------- --------- ------------ ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Properties
New York:
Kings Plaza Regional Shopping Center
Brooklyn............................. 24.3 acres 289,000 $10.00 100% Sears 2023/2033
477,000 40.63 90% 110 mall tenants Various
---------
766,000/4(1)(2) 29.07 94%
Rego Park--Queens.................... 4.8 acres 351,000/3(1) 28.76 100% Bed Bath & 2013
Beyond
Circuit City 2021
Marshalls 2008/2021
Old Navy 2007/2021
Sears 2021
Fordham Road--Bronx.................. 92,211 SF 303,000/5 -- --
Flushing--Queens (3)................. 44,975 SF 177,000/4(1) 16.74 100% Caldor(4) 2027
Third Avenue--Bronx.................. 60,451 SF 173,000/4 5.00 100% An affiliate 2023
--------- of Conway
1,770,000
=========
Redevelopment Properties
New York:
Lexington Avenue- Manhattan........... 84,420 SF (5)
Rego Park II--Queens.................. 6.6 acres --
New Jersey:
Paramus, New Jersey................ 30.3 acres (6)
<FN>
(1) Excludes parking garages.
(2) Excludes 330,000 square foot Macy's store, owned and operated by Federated Department Stores, Inc..
(3) Leased by the Company through January 2027.
(4) Caldor announced that it is closing all of its stores and rejected this lease effective March 29, 1999.
(5) Alexander's is razing the existing buildings and is evaluating redevelopment plans for this site which may
involve developing a large multi-use building.
(6) Alexander's has approvals to develop a shopping center at this site containing 550,000 square feet.
</FN>
</TABLE>
-40-
<PAGE>
Alexander's estimates that its capital expenditures for redevelopment
projects at the above properties will include: (i) approximately $100,000,000
for the redevelopment of its Paramus property, (ii) approximately $30,000,000 to
renovate the mall and $15,000,000 to renovate the Macy's store at its Kings
Plaza Regional Shopping Center and (iii) more than $300,000,000 to develop its
Lexington Avenue site. While Alexander's anticipates that financing will be
available after tenants have been obtained for these redevelopment projects,
there can be no assurance that such financing will be obtained, or if obtained,
that such financings will be on terms that are acceptable to the Company. In
addition, it is uncertain as to when these projects will commence.
Hotel Pennsylvania
The Company owns an 80% interest in the Hotel Pennsylvania, which is
located on Seventh Avenue opposite Madison Square Garden in Manhattan, New York.
The property is owned through a joint venture with Planet Hollywood
International, Inc. The venture intends to refurbish the hotel. Under the terms
of the mortgage on this property, in connection with the refurbishment, the
Company is required to escrow $37,000,000 prior to September 30, 1999. The Hotel
Pennsylvania contains approximately 800,000 square feet of hotel space with
1,700 rooms and 400,000 square feet of retail and office space. The Company
manages the property's retail and office space, and manages the hotel with Hotel
Properties Limited.
The following table presents rental information for the hotel:
Year Ended December 31,
--------------------------
1998 1997
---------- ---------
Average occupancy rate.................. 79% 78%
Average daily rate...................... $ 99 $ 93
As of December 31, 1998, the property's retail and office space was 86%
and 55% occupied. 26 tenants occupy the retail and commercial space. Annual rent
per square foot of retail and office space in 1998 were $41 and $16.
Newkirk Joint Ventures
In July and September 1998, the Company invested an aggregate of
$56,000,000 for a 30% share in joint ventures with affiliates of Apollo Real
Estate Investment Fund III, L.P., collectively Newkirk Joint Ventures
("Newkirk"). Newkirk owns various equity and debt interests relating to 120
limited partnerships which own real estate primarily net leased to credit rated
tenants. The Company has issued letters of credit of $15,600,000 in connection
with these joint ventures.
In March 1999, the Company and its joint venture partner completed an
acquisition of additional equity interests in certain limited partnerships. The
Company's additional investment of $52,435,000 consisted of $47,790,000 in
Operating Partnership Units and $4,645,000 in cash.
Dry Warehouse/Industrial Properties
The Company's dry warehouse/industrial properties consist of eight
buildings containing approximately 2.0 million square feet. At December 31,
1998, the occupancy rate of the properties was 82%. The average term of a
tenant's lease is three to five years. Average annual rent per square foot at
December 31, 1998 was $3.19.
Insurance
The Company 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 Company believes that the Company's insurance coverage
conforms to industry norms.
-41-
<PAGE>
Item 3. Legal Proceedings
The Company 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 adverse effect on the Company's financial condition or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of Vornado or
the Operating Partnership during the fourth quarter of the year ended December
31, 1998.
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 of Vornado 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
Name Age during past five years with Vornado unless otherwise stated)
- - - ---- --- ---------------------------------------------------------------------------------------
<S> <C> <C>
Steven Roth................ 57 Chairman of the Board, Chief Executive Officer and Chairman of the Executive
Committee of the Board; the Managing General Partner of Interstate Properties, an
owner of shopping centers and an investor in securities and partnerships; Chief
Executive Officer of Alexander's, Inc. since March 2, 1995 and a Director since 1989.
Michael D. Fascitelli...... 42 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.
Joseph Macnow.............. 53 Executive Vice President--Finance and Administration since January 1998; Vice
President-Chief Financial Officer from 1985 to January 1998; Vice President--Chief
Financial Officer of Alexander's, Inc. since August 1995
Irwin Goldberg............. 54 Vice President--Chief Financial Officer since January 1998; Partner at Deloitte &
Touche LLP from September 1978 to January 1998.
David R. Greenbaum......... 47 Chief Executive Officer of the Mendik Division since April 15, 1997 (date of the
Company's acquisition); President of Mendik Realty (the predecessor to the Mendik
Division) from 1990 until April 15, 1997.
Joseph Hakim............... 50 Chief Executive Officer of the Merchandise Mart Division since April 1, 1998 (date of
the Company's acquisition); President and Chief Executive Officer of Merchandise Mart
Properties, Inc., the main operating subsidiary of Joseph P. Kennedy Enterprises,
Inc. (the predecessor to the Merchandise Mart Division) from 1992 to April 1, 1998
Daniel F. McNamara(1)...... 52 Chief Executive Officer of the Cold Storage Division (AmeriCold Logistics) since
October 1997 (the date of the Company's acquisition), Chief Executive Officer of
URS Logistics, Inc. (one of the predecessors to the Cold Storage Division) from March
1996 to October 1997 and Executive Vice President and Chief Operating Officer of
Value Rent-A-Car a wholly owned subsidiary of Mitsubishi Motors prior to March 1996.
Richard T. Rowan........... 52 Vice President-Retail Real Estate Division since January 1982.
<FN>
(1) As of March 17, 1999, Mr. McNamara is an employee of the partnership which
purchased the non-real estate assets of AmeriCold Logistics.
</FN>
</TABLE>
-42-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established public trading market for the units for the
Operating Partnership. At December 31, 1998, there were 195 unitholders of
record.
Item 6. Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except unit and per unit amounts)
<S> <C> <C> <C> <C> <C>
Operating Data
Revenues:
Property rentals..................................... $ 425,496 $ 168,321 $ 87,424 $ 80,429 $ 70,755
Expense reimbursements............................... 74,737 36,652 26,644 24,091 21,784
Other income......................................... 9,627 4,158 2,819 4,198 1,459
--------- --------- -------- -------- --------
Total Revenues............................................ 509,860 209,131 116,887 108,718 93,998
--------- --------- -------- ---------- --------
Expenses:
Operating............................................ 207,171 74,745 36,412 32,282 30,223
Depreciation and amortization........................ 59,227 22,983 11,589 10,790 9,963
General and administrative........................... 28,610 13,580 5,167 6,687 6,495
Amortization of officer's deferred
compensation expense............................... -- 22,917 2,083 -- --
--------- --------- -------- -------- --------
Total Expenses............................................ 295,008 134,225 55,251 49,759 46,681
------- --------- -------- -------- --------
Operating Income.......................................... 214,852 74,906 61,636 58,959 47,317
Income applicable to Alexander's.......................... 3,123 7,873 7,956 3,954 --
Income from partially-owned entities...................... 32,025 4,658 1,855 788 --
Interest and other investment income...................... 24,074 23,767 6,643 5,733 8,132
Interest and debt expense................................. (114,686) (42,888) (16,726) (16,426) (14,209)
Net gain from insurance settlement
and condemnation proceedings........................... 9,649 -- -- -- --
Minority interest......................................... (651) -- -- -- --
--------- --------- -------- -------- --------
Net Income................................................ 168,386 68,316 61,364 53,008 41,240
Preferred unit distributions.............................. (21,690) (15,549) -- -- --
Preferential allocations.................................. (15,532) (7,293) -- -- --
--------- --------- -------- -------- --------
Net income applicable to Class A units.................... $ 131,164 $ 45,474 $ 61,364 $ 53,008 $ 41,240
======== ========= ========== ======== ========
Net income per Class A unit--basic(1).................. $ 1.62 $ .83 $ 1.26 $ 1.13 $ .95
Net income per Class A unit--diluted(1)................ $ 1.59 $ .79 $ 1.25 $ 1.12 $ .94
Cash distributions declared for Class A units.......... $ 1.64 $ 1.36 $ 1.22 $ 1.12 $ 1.00
Year Ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except unit and per unit amounts)
Balance Sheet Data
Total assets........................................... $ 4,425,779 $ 2,524,089 $ 565,204 $ 491,496 $ 393,538
Real estate, at cost................................... 3,315,891 1,564,093 397,298 382,476 365,832
Accumulated depreciation............................... 226,816 173,434 151,049 139,495 128,705
Debt................................................... 2,051,000 956,654 232,387 233,353 234,160
Total partners' capital................................ 1,782,678 1,313,762 276,257 194,274 116,688
</TABLE>
-43-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(All of the amounts presented are in thousands, except share amounts
and percentages)
Overview
The Company's net income was $168,386 in the year ended December 31,
1998, as compared to $68,316 in the prior year, an increase of $100,721.
EBITDA, as defined,(1) was $427,088 in the year ended December 31, 1998, as
compared to $150,426 in the prior year, an increase of $276,662. The
Company's net income was $61,364 and its EBITDA was $87,048 in the year
ended December 31, 1996 when it operated in only one segment.
Below is a summary of net income and EBITDA by segment for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------------
Cold Merchandise
Total Office Retail Storage Mart Other(2)
--------- ------ ------ ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenues................................ $509,860 247,499 $167,155 -- 86,521 $ 8,685
Total expenses................................ 295,008 151,573 70,334 -- 50,761 22,340
------- ------- ------- ------ ------ ------
Operating income.............................. 214,852 95,926 96,821 -- 35,760 (13,655)
Income applicable to Alexander's ............. 3,123 -- -- -- -- 3,123
Income from partially-owned entities.......... 32,025 10,854 258 15,191 (1,969) 7,691
Interest and other investment income.......... 24,074 4,467 2,159 -- 639 16,809
Interest and debt expense..................... (114,686) (25,175) (32,249) -- (18,711) (38,551)
Net gain from insurance settlement
and condemnation proceeding............... 9,649 -- -- -- -- 9,649
Minority interest............................. (651) (651) -- -- -- --
-------- ------- ------- ------ ------ -------
Net income.................................... 168,386 85,421 66,989 15,191 15,719 (14,934)
Minority interest............................. 651 651 -- -- -- --
Interest and debt expense (5)................. 164,478 40,245 32,709 26,541 18,711 46,272
Depreciation and amortization (5)............. 104,299 39,246 15,520 33,117 9,899 6,517
Net gain from insurance Settlement
and condemnation proceeding............... (9,649) -- -- -- -- (9,649)
Straight-lining of rents (5).................. (16,132) (6,845) (3,203) -- (4,882) (1,202)
Other......................................... 15,055 (79) -- 8,872(3) -- 6,262(4)
-------- ------- ------- ------ -------- --------
EBITDA........................................ $427,088 158,639 $112,015 83,721 $ 39,447 $33,266
======== ======= ======== ====== ======== ========
December 31, 1997
-------------------------------------------------------------------------------
Cold Merchandise
Total Office Retail Storage Mart Other(2)
--------- ------ ------ ------- ----------- --------
Total revenues................................ $209,131 $ 80,846 $120,299 -- -- $ 7,986
Total expenses................................ 134,225 50,186 46,204 -- -- 37,835
-------- -------- -------- ------- ------- -------
Operating income.............................. 74,906 30,660 74,095 -- -- (29,849)
Income applicable to Alexander's ............. 7,873 -- -- -- 7,873
Income from partially-owned entities.......... 4,658 1,015 -- $1,720 -- 1,923
Interest and other investment income.......... 23,767 6,834 2,296 -- -- 14,637
Interest and debt expense..................... (42,888) (9,009) (19,893) -- -- (13,986)
Net gain from insurance settlement
and condemnation proceeding............... -- -- -- -- -- --
-------- -------- -------- ------- ------- -------
Net income.................................... 68,316 29,500 56,498 1,720 -- (19,402)
Interest and debt expense (5)................. 54,395 13,707 19,893 5,839 -- 14,956
Depreciation and amortization (5)............. 31,972 12,813 11,706 4,182 -- 3,271
Net gain from insurance Settlement
and condemnation proceeding............... -- -- -- -- -- --
Straight-lining of rents (5).................. (3,932) (645) (2,558) -- -- (729)
Other......................................... (325) 1,303 970 17 -- (2,615)
-------- -------- -------- ------- ------- -------
EBITDA........................................ $ 150,426 $56,678 $ 86,509 $11,758 -- $(4,519)
========= ======== ======== ======= ======= =======
</TABLE>
Footnotes 1-5 are explained on the following page.
-44-
<PAGE>
(1) EBITDA represents net income before interest, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses on
sales of real estate and the effect of straight-lining of property
rentals for rent escalations. Management considers EBITDA a supplemental
measure for making decisions and assessing the performance of its
segments. EBITDA may not be comparable to similarly titled measures
employed by other companies.
(2) Other includes (i) the operations of the Company's warehouse and
industrial properties, (ii) investments in the Hotel Pennsylvania,
Alexander's, and Newkirk Joint Ventures, (iii) corporate general and
administrative expenses and (iv) unallocated investment income and
interest and debt expense.
(3) Includes adding back of (i) $4,287 of income taxes and related items,
which are considered non-recurring because of the expected conversion of
the Cold Storage Companies to REITS and (ii) non-recurring unification
costs of $4,585.
(4) Primarily represents the Company's equity in Alexander's loss from the
write-off of the carrying value of Alexander's Lexington Avenue
buildings.
(5) Interest and debt expense, depreciation and amortization and
straight-lining of rents included in the reconciliation of net income to
EBITDA reflects amounts which are netted in income from partially-owned
entities.
-45-
<PAGE>
Results of Operations
Years Ended December 31, 1998 and December 31, 1997
Below are the details of the changes by segment in EBITDA. The change
in the Cold Storage EBITDA is discussed in Income from partially-owned
<TABLE>
<CAPTION>
Cold Merchandise
Total Office Retail Storage Mart Other
------- -------- -------- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997 $150,426 $ 56,678 $ 86,509 $ 11,758 $ -- $ (4,519)(1)
1998 Operations:
Same store operations(2) 32,502 4,279 4,382 411 -- 23,430(1)
Acquisitions 244,160 97,682 21,124 71,552 39,447 14,355
-------- -------- -------- -------- ------ --------
Year ended December 31, 1998 $427,088 $158,639 $112,015 $ 83,721 $ 39,447 $ 33,266
======== ======== ======== ======= ====== ========
% increase in same
store operations 5.5% 7.5% 5.1% 3.5% * 2.8%(1)
<FN>
* not applicable
(1) EBITDA for "Other" and in "Total" for the year ended December 31, 1997
reflects the amortization of a deferred payment due to an officer of
$22,917; the percentage increases in same store operations have been
adjusted to exclude the increase in EBITDA in 1998 resulting therefrom.
(2) Represents operations which were owned for the same period in each year.
</FN>
</TABLE>
Revenues
The Company's revenues, which consist of property rentals, tenant
expense reimbursements and other income were $509,860 in the year ended December
31, 1998, compared to $209,131 in the prior year, an increase of $300,729. These
increases by segment resulted from:
<TABLE>
<CAPTION>
Date of Merchandise
Acquisition Total Office Retail Mart Other
----------- ----- ------ ------ ---- -----
<S> <C> <C> <C> >C> <C> <C>
Property Rentals:
Acquisitions:
Mendik RELP December 1998 $ 4,126 $ 4,126
20 Broad Street August 1998 4,399 4,399
689 Fifth Avenue August 1998 1,333 1,333
770 Broadway July 1998 5,713 5,713
40 Fulton Street June 1998 3,561 3,561
Merchandise Mart
Properties April 1998 82,509 $ 82,509
150 E. 58th Street March 1998 13,021 13,021
One Penn Plaza February 1998 53,991 53,991
Westport January 1998 2,355 2,355
Green Acres Mall December 1997 22,449 $22,449
640 Fifth Avenue December 1997 5,312 5,312
90 Park Avenue May 1997 9,251 9,251
Mendik April 1997 25,313 25,313
Montehiedra Shopping Center April 1997 2,935 2,935
----------- ----------- ---------- ----------
236,268 128,375 25,384 82,509
----------- ----------- ---------- ----------
Leasing activity, including $1,740
of step-ups in Retail 20,907 16,508 4,106 $ 293
----------- ----------- ---------- ---------- --------
Total increase in property rentals 257,175 144,883 29,490 82,509 293
----------- ----------- ---------- ---------- --------
Tenant expense reimbursements:
Increase in tenant expense
reimbursements due to
acquisitions 34,526 16,112 15,759 2,655
Other 3,559 2,292 1,373 (106)
----------- ----------- ---------- ---------- --------
Total increase in tenant expense
reimbursements 38,085 18,404 17,132 2,655 (106)
----------- ----------- ---------- ---------- --------
Other income 5,469 3,366 234 1,357 512
----------- ----------- ---------- ---------- --------
Total increase in revenues $ 300,729 $ 166,653 $ 46,856 $ 86,521 $ 699
=========== =========== ========== ========== ========
</TABLE>
-46-
<PAGE>
Expenses
The Company's expenses were $295,008 in the year ended December 31, 1998,
compared to $134,225 in the prior year, an increase of $160,783. These increases
by segment resulted from:
<TABLE>
<CAPTION>
Merchandise
Total Office Retail Mart Other
-------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Operating:
Acquisitions $121,297 $ 67,545 $ 15,339 $ 38,413 $ --
Same store operations 11,129 5,751 5,185 -- 193
-------- -------- -------- -------- --------
132,426 73,296 20,524 38,413 193
-------- -------- -------- -------- --------
Depreciation and
amortization:
Acquisitions 35,586 22,630 3,057 9,899 --
Same store operations 658 47 549 -- 62
-------- -------- -------- -------- --------
36,244 22,677 3,606 9,899 62
-------- -------- -------- -------- --------
General and administrative: 15,030(2) 5,414 --(1) 2,449 7,167(1)
-------- -------- -------- -------- --------
Amortization of
officer's deferred
compensation expense (22,917) -- -- -- (22,917)(3)
-------- -------- -------- -------- --------
$160,783 $101,387 $ 24,130 $ 50,761 (15,495)
======== ======== ======== ======== ========
<FN>
(1) Retail general and administrative expenses are included in corporate expenses which are not allocated.
(2) Of this increase: (i) $6,631 is attributable to acquisitions, (ii) $4,641 resulted from payroll, primarily for additional
employees and corporate office expenses, and (iii) $3,758 resulted from professional fees.
(3) The Company recognized an expense of $22,917 in the prior year representing the amortization of the deferred payment
due to the Company's President, which was fully amortized at December 31, 1997.
</FN>
</TABLE>
Income (loss) applicable to Alexander's (loan interest income, equity in
income (loss) and depreciation) was $3,123 in the year ended December 31, 1998,
compared to $7,873 in the prior year, a decrease of $4,750. This decrease
resulted primarily from (i) the Company's equity in the write-off of the
carrying value of Alexander's Lexington Avenue building, of $4,423, partially
offset by (ii) income from the commencement of leases at Alexander's Rego Park
and Kings Plaza store properties and (iii) income from Alexander's acquisition
of the remaining 50% interest in the Kings Plaza Mall.
Income from partially-owned entities was $32,025 in the year ended December
31, 1998, compared to $4,658 in the prior year, an increase of $27,367. This
increase by segment resulted from:
<TABLE>
<CAPTION>
Date of Cold Merchandise
Acquisitions: Acquisition Total Office Retail Storage Mart Other
----------- ----- ------ ------ ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Cold Storage:
Americold and URS October 1997 $ 7,137 $ -- $ -- $ 7,137 $ -- $ --
Freezer Services June 1998 3,218 -- -- 3,218 -- --
Carmar Group July 1998 2,960 -- -- 2,960 -- --
Charles E. Smith
Commercial Realty L.P. October 1997 4,669 4,669 -- -- -- --
Hotel Pennsylvania September 1997 2,623 -- -- -- -- 2,623
Newkirk Joint Ventures July 1998 3,412 -- -- -- -- 3,412
Mendik partially-owned
office buildings April 1997 2,852 2,852 -- -- -- --
Merchandise Mart
Management Company April 1998 (1,969) -- -- -- (1,969) --
Caguas November 1998 258 -- 258 -- -- --
Other 2,207 2,318 -- 156 -- (267)
------- ------- ------ -------- --------- --------
$27,367 $ 9,839 $ 258 $ 13,471 $ (1,969) $ 5,768
======= ======= ====== ======== ========== =======
</TABLE>
-47-
<PAGE>
Interest and other investment income (interest income on mortgage loans
receivable, other interest income, dividend income and net gains on marketable
securities) was $24,074 for the year ended December 31, 1998, compared to
$23,767 in the prior year, an increase of $307. This increase resulted primarily
from gains on the sale of marketable securities of $2,395, partially offset by a
decrease in interest income due to lower average investments this year.
Interest and debt expense was $114,686 for the year ended December 31,
1998, compared to $42,888 in the prior year, an increase of $71,798. This
increase resulted primarily from debt in connection with acquisitions.
In the third quarter of 1998, the Company recorded a net gain of
$9,649, in connection with an insurance settlement and condemnation proceeding
(see Note 11 to the Consolidated Financial Statements).
The minority interest is comprised of a 40% interest in 20 Broad Street
of $651 for the year ended December 31, 1998.
Preferential allocations to unit holders were $15,532 for the year ended
December 31, 1998, compared to $7,293 in the prior year, an increase of $8,239.
This increase resulted primarily from the issuance of certain Series B-1, B-2
and C-1 Convertible Preferred units in connection with acquisitions and the
issuance of Series D-1 Cumulative Redeemable Preferred units to an institutional
investor.
The preferred unit distributions of $21,690 for the year ended December
31, 1998 and $15,549 for the period from April 15, 1997 to December 31, 1997
apply to Vornado's $3.25 Series A Convertible Preferred Shares issued in April
and December 1997 and include accretion of expenses of issuing them.
Years Ended December 31, 1997 and December 31, 1996
The Company's revenues, which consist of property rentals, tenant
expense reimbursements and other income, were $209,131 in the year ended
December 31, 1997, compared to $116,887 in the prior year, an increase of
$92,244. This increase was primarily comprised of $90,520 of revenues from
properties acquired in 1997.
Property rentals were $168,321 in the year ended December 31, 1997,
compared to $87,424 in the prior year, an increase of $80,897. This increase
resulted from:
1997 Acquisitions:
Mendik........................................... $ 56,958
90 Park Avenue................................... 9,874
Montehiedra shopping center...................... 6,386
Riese............................................ 2,485
Green Acres Mall................................. 937
------------
76,640
Full year effect of a 1996 Acquisition............... 472
Shopping center leasing activity..................... 1,907
Step-ups in shopping center leases................... 1,878
------------
$ 80,897
============
Tenant expense reimbursements were $36,652 in the year ended December
31, 1997, compared to $26,644 in the prior year, an increase of $10,008. This
increase was primarily comprised of $11,320 of reimbursements from tenants at
properties acquired in 1997, partially offset by a reduction in reimbursements
at the Company's other properties due to lower expenses passed through to
tenants.
Operating expenses were $74,745 in the year ended December 31, 1997,
as compared to $36,412 in the prior year, an increase of $38,333. This increase
was primarily comprised of $39,645 of expenses from properties acquired in 1997,
partially offset by lower snow removal costs and repairs and maintenance at the
Company's other properties.
Depreciation and amortization expense increased in 1997 as compared to
1996, primarily as a result of acquisitions.
General and administrative expenses were $13,580 in the year ended
December 31, 1997 compared to $5,167 in the prior year, an increase of $8,413.
This increase resulted primarily from (i) Mendik Division payroll and corporate
office expenses of $2,760, (ii) cash compensation attributable to the employment
of the Company's President of $2,350 and (iii) professional fees of $1,641.
-48-
<PAGE>
The Company recognized expense of $22,917 in the year ended December
31, 1997 and $2,083 in the prior year representing the amortization of the
$25,000 deferred payment due to the Company's President.
Income applicable to Alexander's (loan interest income, equity in
income and depreciation) was $7,873 in the year ended December 31, 1997,
compared to $7,956 in the prior year, a decrease of $83. This decrease resulted
primarily from a $327 reduction in loan interest income due to the reset of the
interest rate on the loan, partially offset by an increase in equity in
non-recurring income.
Income from partially-owned entities was $4,658 in the year ended
December 31, 1997, compared to $1,855 in the prior year, an increase of $2,803.
This increase consists of: (i) $1,720 from the Cold Storage Companies, (ii) $424
from partially owned properties acquired as part of the Mendik Transaction,
(iii) $1,055 from the Company's 40% interest in Hotel Pennsylvania and (iv) $85
from the Company's 15% interest in Charles E. Smith Commercial Realty L.P.,
partially offset by (v) lower management fee income.
Interest and other investment income (interest income on mortgage
loans receivable, other interest income, dividend income and net gains on
marketable securities) was $23,767 for the year ended December 31, 1997,
compared to $6,643 in the prior year, an increase of $17,124. Of this increase,
$9,047 resulted primarily from income earned on higher average investments
(resulting from proceeds from stock offerings and temporary borrowings) and
$7,901 resulted from investments in mortgage loans receivable.
Interest and debt expense was $42,888 for the year ended December 31,
1997, compared to $16,726 in the prior year, an increase of $26,162. Of this
increase, (i) $13,369 resulted from borrowings under the Company's revolving
credit facility and a term loan, (ii) $9,009 resulted from debt on the
properties acquired in the Mendik Transaction and (iii) $3,784 resulted from
borrowings related to the acquisition of the Montehiedra Town Center in April
1997.
The preferential allocations to Class C, D and E unitholders in the
Operating Partnership aggregated $7,293 for the year ended December 31, 1997.
The preferred unit distributions of $15,549 apply to the 6.5%
preferred shares issued in April 1997 and include accretion of expenses of
issuing them of $1,918.
The Company operates in a manner intended to enable Vornado 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.
Liquidity and Capital Resources
Cash Flows for the Years Ended December 31, 1998, 1997 and 1996
Years Ended December 31, 1998
Cash flows provided by operating activities of $189,406 was primarily
comprised of (i) income of $158,737 (net income of $168,386 less net gain from
insurance settlement and condemnation proceeding of $9,649), (ii) adjustments
for non-cash items of $11,474, and (iii) the net change in operating assets and
liabilities of $18,544. The adjustments for non-cash items are primarily
comprised of (i) depreciation and amortization of $59,227, partially offset by
(ii) the effect of straight-lining of rental income of $17,561 and (iii) equity
in net income of partially-owned entities of $32,025.
Net cash used in investing activities of $1,257,367 was primarily comprised
of (i) acquisitions of real estate of $896,800 (see detail below), (ii)
investments in partially-owned entities of $308,000 (see detail below), (iii)
capital expenditures of $68,085 (see detail below) and investments in securities
of $73,513 (including purchase of Capital Trust Preferred Stock of $48,700),
partially offset by (v) proceeds from the repayment of mortgage loans receivable
of $57,600.
-49-
<PAGE>
Acquisitions of real estate and investments in partially-owned entities
were comprised of:
<TABLE>
<CAPTION>
Value of
Vornado Shares
Cash Debt or Units Issued Assets Acquired
------------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Real Estate:
Merchandise Mart Properties $ 187,000 $ 327,000 $ 116,000 $ 630,000
One Penn Plaza Office Building 317,000 93,000 -- 410,000
770 Broadway Office Building 131,000 -- 18,000 149,000
150 East 58th Street Office Building 118,000 -- -- 118,000
40 Fulton Street Office Building 55,000 -- -- 55,000
689 Fifth Avenue Office Building 33,000 -- -- 33,000
Mendik RELP Properties 31,000 46,000 29,000 106,000
Market Square Complex 11,000 60,000 44,000 115,000
Other 13,800 -- -- 13,800
---------- ---------- ----------- -------------
$ 896,800 $ 526,000 $ 207,000 $ 1,629,800
========== ========== =========== =============
Investments in Partially-Owned Entities:
Hotel Pennsylvania (acquisition of additional
40% interest increasing ownership to 80%) $ 22,000 $ 48,000 $ -- $ 70,000
570 Lexington Avenue Office Building
(increased interest from 5.6% to
approximately 50%) 32,300 4,900 -- 37,200
Acquisition of Freezer Services, Inc. (60%
interest) 58,000 16,000 6,000 80,000
Reduction in Cold Storage Companies
debt (60% interest) 44,000 -- -- 44,000
Acquisition of Carmar Group (60% interest) 86,400 8,400 -- 94,800
Investment in Newkirk Joint Ventures 56,000 -- -- 56,000
Las Catalinas Mall (50% interest) -- 38,000 -- 38,000
Other 9,300 -- -- 9,300
---------- ---------- ----------- -------------
$ 308,000 $ 115,300 $ 6,000 $ 429,300
========== ========== =========== =============
</TABLE>
Capital expenditures were comprised of:
<TABLE>
<CAPTION>
New York
City Merchandise
Office Retail Mart Other Total
----------- ------------ ----------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Expenditures to maintain the assets........... $ 4,975 $ 3,138 $ 5,273 $ 1,074 $ 14,460
Tenant allowances and leasing commissions....... 46,187 2,397 5,041 -- 53,625
-------- ------- ----------- -------- --------
$ 51,162 $ 5,535 $ 10,314 $ 1,074 $ 68,085
======== ======= =========== ======== ========
</TABLE>
-50-
<PAGE>
Net cash provided by financing activities of $879,815 was primarily
comprised of (i) proceeds from borrowings of $1,427,821, (ii) proceeds from the
issuance of Vornado common shares of $445,247 and (iii) proceeds from the
issuance of Vornado preferred shares of $85,313, partially offset by (iv)
repayment of borrowings of $883,475, (v) distributions to Class A unitholders of
$154,440 and (vi) preferred unit distributions of $18,816.
Year Ended December 31, 1997
Cash flows provided by operating activities of $115,473 was comprised
of (i) net income of $68,316, (ii) adjustments for non-cash items of $32,430 and
(iii) the net change in operating assets and liabilities of $14,727. The
adjustments for non-cash items are primarily comprised of (i) amortization of
deferred officer's compensation expense of $22,917 and (ii) depreciation and
amortization of $24,460.
Net cash used in investing activities of $1,064,484 was primarily
comprised of (i) acquisitions of real estate of $887,423 (see detail below),
(ii) investments in mortgage loans receivable of $71,663 (see detail below),
(iii) capital expenditures of $23,789, (iv) restricted cash for tenant
improvements of $27,079 and (v) real estate deposits of $46,152. Acquisitions of
real estate and investments in mortgage loans receivable are comprised of:
<TABLE>
<CAPTION>
Value of
Vornado
Shares
or
Debt Units
Cash Assumed Issued Assets Acquired
----------- -------------- ------------- ------------------
<S> <C> <C> <C> <C>
Real Estate:
Mendik Transaction.................................... $ 263,790 $ 215,279 $ 177,000 $ 656,069
60% interest in Cold Storage Companies................ 243,846 376,800 -- 620,646
Green Acres Mall...................................... -- 125,000 102,015 227,015
90 Park Avenue office building........................ 185,000 -- -- 185,000
Montehiedra shopping center........................... 11,000 63,000 -- 74,000
40% interest in Hotel Pennsylvania.................... 17,487 48,000 -- 65,487
640 Fifth Ave. office building........................ 64,000 -- -- 64,000
15% interest in Charles E. Smith Commercial
Realty L.P.......................................... 60,000 -- -- 60,000
Riese properties...................................... 26,000 -- -- 26,000
1135 Third Avenue and other........................... 16,300 -- -- 16,300
--------- --------- ---------- -----------
887,423 828,079 279,015 1,994,517
--------- --------- --------- -----------
Mortgage loans receivable:
Riese properties...................................... 41,649 -- -- 41,649
20 Broad Street....................................... 27,000 -- -- 27,000
909 Third Ave. and other, net......................... 3,014 -- -- 3,014
--------- --------- --------- -----------
71,663 -- -- 71,663
--------- --------- --------- -----------
Total Acquisitions........................................ $ 959,086 $ 828,079 $ 279,015 $ 2,066,180
========= ========= ========= ===========
</TABLE>
Net cash provided by financing activities of $1,215,269 was primarily
comprised of proceeds from (i) borrowings of $770,000 (ii) issuance of Vornado
common shares of $688,672, and (iii) issuance of Vornado preferred shares of
$276,000, partially offset by (iv) repayment of borrowings of $409,633, (v)
distributions to Class A unitholders of $77,461, (vi) preferred unit
distributions of $15,549 and (vii) the repayment of borrowings on U.S. Treasury
obligations of $9,636.
-51-
<PAGE>
Year Ended December 31, 1996
Cash flows provided by operating activities of $70,703 was comprised
of (i) net income of $61,364 and (ii) adjustments for non-cash items of $9,972,
less (iii) the net change in operating assets and liabilities of $633. The
adjustments for non-cash items are primarily comprised of depreciation and
amortization of $12,586 and amortization of deferred officers compensation
expense of $2,083, partially offset by the effect of straight-lining of rental
income of $2,676 and equity in income from Alexander's of $1,108. The net change
in "Leasing fees receivable" and "Deferred leasing fee income" included in item
(iii) above reflects a decrease of $1,717 resulting from the rejection of a
lease by an Alexander's tenant in March 1996 and an increase of $1,738 resulting
from the releasing of a portion of this space. "Leasing fees receivable" of
$2,500 were collected during this period.
Net cash provided by investing activities of $14,912 was comprised of
(i) proceeds from sale or maturity of securities available for sale of $46,734,
partially offset by (ii) the Company's investment in a mortgage note receivable
of $17,000 and (iii) capital expenditures of $14,822 (including $8,923 for the
purchase of an office building).
Net cash used in financing activities of $15,046 was primarily
comprised of (i) distributions to Class A unitholders of $59,558, (ii) the net
repayment of borrowings on U.S. Treasury obligations of $34,239, (iii) the net
repayment on mortgages of $966, partially offset by (iv) net proceeds from the
issuance of common shares of $73,060 and (v) the proceeds from the exercise of
stock options of $6,657.
Cash increased during the period from December 31, 1995 to December
31, 1996, from $19,127 to $89,696, primarily as the result of the issuance of
common shares of Vornado in the fourth quarter of 1996 as noted above.
Certain Cash Requirements
In January 1999, the Company acquired the leasehold interest in 888 Seventh
Avenue for approximately $100,000 including $55,000 of indebtedness. Further, in
1999, under the mortgage for the Hotel Pennsylvania, in connection with the
redevelopment, the Company is required to escrow $37,000.
The Company has budgeted approximately $39,805 for capital expenditures
(excluding acquisitions) over the next year as follows:
<TABLE>
<CAPTION>
New York Merchandise
City Office Retail Cold Storage Mart Total
------------- ----------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Expenditures to maintain the assets $ 3,600 $2,480 $ 3,000(1) $ 3,000 $ 12,080
Tenant allowances and leasing commissions 22,175 2,000 -- 6,550 30,725
---------- ------ ------- ------- --------
$ 25,775 $4,480 $ 3,000 $ 9,550 $ 42,805
========== ====== ======= ======= ========
</TABLE>
(1) Represents the Company's 60% share of the Vornado/Crescent Partnership's
obligation to fund up to $5,000 of capital expenditures per annum.
Tenant allowances and leasing commissions for the New York City Office
properties approximate $21.00 per square foot for renewal space and $52.00 per
square foot for vacant space. Historically, approximately two-thirds of existing
tenants renew their leases.
In addition to the capital expenditures reflected above, the Company is
currently engaged in or considering certain multi-year development and
redevelopment projects for which it has budgeted approximately $387 million as
outlined in the "Development and Redevelopment Projects" section of Item
1--Business (Items (i) through (vi)). The $387 million does not include amounts
for other projects which are also included in the "Development and Redevelopment
Projects" section of Item 1--Business, as no budgets for them have been
finalized. There can be no assurance that any of the above projects will be
ultimately completed, completed on time or completed for the budgeted amount.
No cash requirements have been budgeted for the capital expenditures
and amortization of debt of CESCR, Newkirk or Alexander's, which are partially
owned by the Company. These investees are expected to fund their own cash
requirements. Newkirk and Alexander's are not expected to distribute any cash to
the Company in 1999. In 1999, the Company expects to receive at a minimum,
preferred distributions from CESCR of approximately $13.9 million (7,679,365
preferred units at $1.81 per unit) and common distributions of approximately
$3.5 million (2,500,000 common units at $1.40 per unit - current dividend rate).
The minimum preferred distribution rate increases by .25% each year for the next
three years.
-52-
<PAGE>
In July 1997, the Company obtained a $600,000 unsecured three-year
revolving credit facility. In February 1998, the facility was increased to
$1,000,000. At December 31, 1998, the Company had approximately $687,250
outstanding under the facility.
In February 1998, the Company completed a $160,000 refinancing of the
Green Acres Mall and prepaid the then existing $118,000 debt on the property.
The new 10-year debt matures in March 2008 and bears interest at 6.75%.
In June 1998, the Company completed a $275,000 refinancing of its One
Penn Plaza office building and borrowed $170,000 pursuant thereto. In the third
quarter of 1998, the Company borrowed the remaining $105,000. The debt matures
in June 2002, is prepayable at anytime, and bears interest at LIBOR + 1.25%
(currently 6.35%). This debt replaced the $93,000 bridge-mortgage loan financing
put in place when the property was acquired.
In April 1998, the Cold Storage Companies completed a $550,000 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
of bridge financing, which replaced high yield debt assumed at the date of
acquisition.
In October 1998, the Company completed its spin-off of Vornado
Operating Company, which the Company capitalized with an equity contribution of
$25,000 of cash. In addition, Vornado entered into a $75,000 revolving credit
agreement with Vornado Operating Company.
On March 12, 1999 the Vornado/Crescent Partnerships sold all of the
non-real estate assets of the Cold Storage Companies encompassing the operations
of the cold storage business for approximately $48,000 to a new partnership
owned 60% by Vornado Operating Company and 40% by Crescent Operating Inc.
In November and December of 1998, the Company sold an aggregate of
$87,500 of 8.5% Series D-1 Cumulative Redeemable Preferred Units in the
Operating Partnership to an institutional investor in a private placement,
resulting in net proceeds of approximately $85,300. The perpetual Preferred
Units may be called without penalty at the option of the Company commencing on
November 12, 2003.
In February 1999, the Company completed a $165,000 refinancing of its
Two Penn Plaza office building and prepaid the then existing $80,000 debt on the
property. The new 5-year debt matures in February 2004 and bears interest at
7.08%.
In February 1999, the Company also exercised its option to extend the
maturity date on the $250,000 loan on its Chicago Merchandise Mart building from
March 31, 1999 to September 30, 1999. In connection therewith, the Company paid
a fee of 1/8%.
On March 17, 1999, Vornado completed the sale of 3 million 8.5% Series
B Cumulative Redeemable Preferred Shares, at a price $25.00 per share, pursuant
to an effective registration statement with net proceeds of approximately
$72,200. Further on March 22, 1999, 400,000 shares were sold when the
underwriters exercised their over-allotment option resulting in additional net
proceeds of $9,700. The perpetual preferred shares may be called without penalty
at the option of Vornado commencing on March 17, 2004. An equivalent number of
units were issued by Vornado for the shares sold.
The Company has an effective shelf registration under which it can
offer an aggregate of $1.5 billion of equity securities and an aggregate of $1.0
billion of debt securities.
The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an on-going basis for more than the next twelve months;
however, capital outlays for significant acquisitions will require funding from
borrowings or equity offerings.
-53-
<PAGE>
Acquisition Activity
As a result of acquisitions, the book value of the Company's assets
have grown from $2,524,089 at December 31, 1997 to $4,425,779 at December 31,
1998.
The Company's future success will be affected by its ability to
integrate the assets and businesses it acquires and to effectively manage those
assets and businesses. The Company currently expects to continue to grow at a
relatively fast pace. However, its ability to do so will be dependent on a
number of factors, including, among others, (a) the availability of reasonably
priced assets that meet the Company's acquisition criteria and (b) the price of
Vornado's common stock, the rates at which the Company is able to borrow money
and, more generally, the availability of financing on terms that, in the
Company's view, make such acquisitions financially attractive.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999
Because the Company does not currently utilize derivatives or engage in
significant hedging activities, management does not anticipate that
implementation of this statement will have a material effect on the Company's
financial statements.
In April, 1998 the American Institute of Certified Public Accountants
Issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities", (98-5) which is effective for the Company in the first quarter of
1999. The Company has no deferred organization costs or other deferred start-up
costs as defined in 98-5, and therefore adoption of 98-5 will have no impact in
the first quarter of 1999.
Year 2000 Issues
Year 2000 compliance programs and information systems modification were
initiated by the Company in early 1998 to address the risk posed by the year
2000 issue. The Company developed a plan to address their affected informational
(accounting, billing, payroll) and operational (refrigeration, HVAC, security,
elevators, lighting, energy management) systems. The Company's plan also
considers statements from outside vendors as to their year 2000 readiness.
The Company and its partially-owned entities have completed their
initial assessment, inventory and planning phases of their plan and have
determined that the majority of their systems, including all mission critical
systems are already year 2000 compliant. The Company anticipates that any issues
encountered with informational or operational systems will be remediated. The
Company expects that where appropriate, all mission critical systems will be
tested by June 30, 1999. The cost of the Company's year 2000 plan was not
material to 1998 operations and is not expected to be material to 1999
operations.
The Company believes that its exposure may be the failure of third
parties (i.e., energy providers) in meeting their commitments which may result
in temporary business interruption at the Company's buildings, retail centers,
mart properties, cold storage warehouses and other real estate related
properties. The Company has contingency plans for its own day to day
informational and operational systems and is in the process of updating these
plans. Failure of third parties with which the Company conducts business to
successfully respond to their year 2000 issues may have an adverse effect on the
Company.
Economic Conditions
Substantially all of the Company's office, retail and permanent
showroom 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 Company's leases contain provisions that require the
tenant to reimburse the Company for the tenant's share of common area charges
(including roof and structure in strip shopping centers, unless it is the
tenant's direct responsibility) and real estate taxes or for increases of such
expenses over a base amount, thus offsetting, in part, the effects of inflation
on such expenses.
Inflation did not have a material effect on the Company's results for
the periods presented.
-54-
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
At December 31, 1998, the Company has $1,426,777,000 of variable rate
debt at a weighted average rate of 6.55% and $624,223,000 of fixed rate debt
bearing interest at a weighted average rate of 7.00%. A one-percent increase in
the base used to determine the interest rate of the variable rate debt would
result in a $14,268,000 decrease in the Company's net income ($.18 per diluted
share). The fair value of the Company's debt at December 31, 1998, based on
discounted cash flows at the current rate at which similar loans would be made
to borrowers with similar credit ratings for the remaining term of such debt
approximates its carrying value.
In July 1998, the Company entered into an interest rate cap agreement
to reduce the impact of changes in interest rates on its $275,000,000 One Penn
Plaza loan. The agreement caps the Company's interest rate in the event that
LIBOR increases above 8.5% through January 20, 2000 and 9% thereafter, until the
termination date of the cap agreement on July 30, 2001 (the debt matures in June
2002). The Company is exposed to credit loss in the event of nonperformance by
the other parties to the interest rate cap agreement. However, the Company does
not anticipate nonperformance by the counterparty. The fair value of the
interest rate cap agreement at December 31, 1998 approximates its cost.
-55-
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report.................................................................................. 57
Consolidated Balance Sheets at December 31, 1998 and 1997..................................................... 58
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996........................ 59
Consolidated Statements of Partners' Capital for the years ended December 31, 1998, 1997 and 1996............. 60
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.................... 61
Notes to Consolidated Financial Statement..................................................................... 62
</TABLE>
Item 9. Changes In and Disagreements With Independent Auditors on Accounting
and Financial Disclosure
Not applicable.
-56-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners
Vornado Realty L.P.
Saddle Brook, New Jersey
We have audited the accompanying consolidated balance sheets of Vornado
Realty L.P. as of December 31, 1998 and 1997, and the related consolidated
statements of income, partners' capital and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedules listed in the Index at Item 14. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Vornado Realty L.P. at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 24, 1999
-57-
<PAGE>
VORNADO REALTY L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
---------------- -------------
(amounts in thousands except unit amounts)
ASSETS
<S> <C> <C>
Real estate, at cost:
Land ................................................................................ $ 743,324 $ 436,274
Buildings and improvements........................................................... 2,561,383 1,118,334
Leasehold improvements and equipment................................................. 11,184 9,485
----------- -----------
Total 3,315,891 1,564,093
Less accumulated depreciation and amortization....................................... (226,816) (173,434)
------------ -----------
Real estate, net................................................................ 3,089,075 1,390,659
Cash and cash equivalents, including U.S. government obligations under
repurchase agreements of $56,500 and $8,775.......................................... 167,808 355,954
Restricted cash......................................................................... 44,195 27,079
Marketable securities................................................................... 77,156 34,469
Investments and advances to partially-owned entities, including
Alexander's of $104,038 and $108,752................................................. 827,840 482,787
Due from officers....................................................................... 17,165 8,625
Accounts receivable, net of allowance for doubtful accounts
of $3,044 and $658................................................................... 35,517 16,663
Mortgage loans receivable............................................................... 10,683 88,663
Receivable arising from the straight-lining of rents.................................... 49,711 24,127
Deposits in connection with real estate acquisitions.................................... 22,947 47,275
Other assets............................................................................ 83,682 47,788
----------- -----------
$ 4,425,779 $ 2,524,089
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes and mortgages payable............................................................. $ 1,363,750 $ 586,654
Revolving credit facility............................................................... 687,250 370,000
Accounts payable and accrued expenses................................................... 109,925 36,538
Officer's compensation payable.......................................................... 35,628 25,000
Deferred leasing fee income............................................................. 10,051 9,927
Other liabilities....................................................................... 3,196 3,641
----------- -----------
Total liabilities....................................................................... 2,209,800 1,031,760
----------- -----------
Minority interest....................................................................... 12,925 --
----------- -----------
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 ($289,462 in total);
issued 5,789,239 and 5,789,315 units................................................. 282,758 279,884
General Partner units issued and outstanding, 85,076,542 and 72,164,654 units........ 1,656,611 1,149,272
Limited partnership units; issued and outstanding 8,851,736
and 5,681,124 units................................................................ 420,376 178,567
Accumulated deficit.................................................................. (132,837) (109,561)
------------ -----------
2,226,908 1,498,162
Accumulated other comprehensive loss................................................. (18,957) (840)
Due from officers for purchase of common shares of beneficial interest............... (4,897) (4,993)
------------ -----------
Total partners' capital......................................................... 2,203,054 1,492,329
----------- -----------
$ 4,425,779 $ 2,524,089
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-58-
<PAGE>
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
--------- --------- ---------
(amounts in thousands except per unit amounts)
<S> <C> <C> <C>
Revenues:
Property rentals......................................................... $ 425,496 $ 168,321 $ 87,424
Expense reimbursements................................................... 74,737 36,652 26,644
Other income (including fee income from
related parties of $2,327, $1,752 and $2,569)........................ 9,627 4,158 2,819
--------- --------- ---------
Total revenues............................................................... 509,860 209,131 116,887
--------- --------- ---------
Expenses:
Operating................................................................ 207,171 74,745 36,412
Depreciation and amortization............................................ 59,227 22,983 11,589
General and administrative............................................... 28,610 13,580 5,167
Amortization of officer's deferred compensation expense.................. -- 22,917 2,083
--------- --------- ---------
Total expenses............................................................... 295,008 134,225 55,251
--------- ----------- ---------
Operating income............................................................. 214,852 74,906 61,636
Income applicable to Alexander's............................................. 3,123 7,873 7,956
Income from partially-owned entities......................................... 32,025 4,658 1,855
Interest and other investment income......................................... 24,074 23,767 6,643
Interest and debt expense.................................................... (114,686) (42,888) (16,726)
Net gain from insurance settlement and
condemnation proceeding.................................................. 9,649 -- --
Minority interest............................................................ (651) -- --
--------- --------- ---------
Net income................................................................... 168,386 68,316 61,364
Preferred unit distributions (including accretion of issuance
expenses of $2,874 in 1998 and $1,918 in 1997)........................... (21,690) (15,549) --
Preferential allocations..................................................... (15,532) (7,293) --
--------- --------- ---------
NET INCOME applicable to Class A units....................................... $ 131,164 $ 45,474 $ 61,364
========= ========= =========
NET INCOME PER Class A unit-BASIC............................................ $ 1.62 $ .83 $ 1.26
========= ========= =========
NET INCOME PER Class A unit-DILUTED.......................................... $ 1.59 $ .79 $ 1.25
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
-59-
<PAGE>
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Accumulated
Limited General Other
Preferred Partnership Partner Comprehensive
Units Units Units Deficit Income (Loss)
----- ----- ----- ------- -------------
(amounts in thousands except unit amounts)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996............. $280,201 $ (79,380) $ (1,362)*
Net Income........................... -- 61,364 --
Net proceeds from issuance of Class A
units............................. 73,060 -- --
Distributions to Class A unitholders
($1.22 per unit).................. -- (59,558) --
Class A units issued under
employees' share plans............ 6,657 -- --
Change in unrealized gains
on securities available for sale.. -- -- 364
Forgiveness of amount due from -- -- --
officers.......................... -------- ---------- ----------
Balance, December 31, 1996........... 359,918 (77,574) (998)
Net income........................... -- 68,316 --
Distributions to preferred unitholders
($2.37 per unit).................. -- (15,549) --
Net proceeds from issuance of
preferred units (including
accretion of $1,918).............. $277,918 -- -- --
Preferential allocations to -- -- (7,293) --
unitholders..........................
Units issued in connection with the
Mendik acquisition................... -- $178,567 -- -- --
Net proceeds from issuance of Class A
units............................. -- -- 688,672 -- --
Units issued in connection with
Arbor acquisition................. 1,966 -- 100,049 -- --
Distributions to Class A unitholders
($1.36 per unit).................. -- -- -- (77,461) --
Class A units issued in
connection with an employment
agreement and employees' share plans -- -- 633 -- --
Change in unrealized gains
on securities available for sale.. -- -- -- -- 158
Forgiveness of amount due from -- -- -- --
officers.......................... ------- ------- -------- ---------- ---------
Balance, December 31, 1997........... 279,884 178,567 1,149,272 (109,561) (840)
Net Income........................... -- -- -- 168,386 --
Dividends paid on preferred units
($2.37 per unit).................. -- -- -- (21,690) --
Distributions to Class A unitholders
($1.64 per unit).................. -- -- -- (131,110) --
Net proceeds from issuance
of Class A units.................. -- -- 444,563 -- --
Preferential allocations to
unitholders....................... -- -- -- (15,532) --
Limited partnership units issued in
connection with acquisitions...... -- 190,962 -- -- --
Net proceeds from issuance of
limited partnership units......... -- 85,312 -- -- --
Class A units issued in connection
with Mendik RELP
properties acquisition............ -- -- 29,063 -- --
Class A units issued under
employees' share plan............. -- -- 909 -- --
Conversion of limited partnership
units to general partner units.... -- (32,780) 32,780 -- --
Capital contribution to
Vornado Operating Company........ -- (1,685) -- (23,330) --
Accretion of issuance expenses on
preferred units................... 2,874 -- -- -- --
Class A units issued in connection
with dividend reinvestment plan... -- -- 24 -- --
Change in unrealized (losses)
on securities available for sale.. -- -- -- -- (5,047)
Appreciation of securities held
in officer's deferred
compensation trust................ -- -- -- -- (10,464)
Pension obligations.................. -- -- -- -- (2,606)
Forgiveness of amount due
from Officers..................... -- -- -- -- --
------- ------- --------- ---------- ---------
Balance, December 31, 1998 $282,758 $420,376 $1,656,611 $ (132,837) $ (18,957)
======== ======== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Due (to) Total
from Partners' Comprehensive
Officers Capital Income
-------- ------- ------
(amounts in thousands except unit amount)
<S> <C> <C> <C>
Balance, January 1, 1996............. $ (5,185) $ 194,274
Net Income........................... 61,364 $ 61,364
Net proceeds from issuance of Class A
units............................. -- 73,060 --
Distributions to Class A unitholders
($1.22 per unit).................. -- (59,558) --
Class A units issued under
employees' share plans............ -- 6,657 --
Change in unrealized gains
on securities available for sale.. -- 364 364
Forgiveness of amount due from
officers.......................... 96 96 --
------- -------- ---------
Balance, December 31, 1996........... (5,089) 276,257 $ 61,728
=========
Net income........................... -- 68,316 $ 68,316
Distributions to preferred unitholders
($2.37 per unit).................. -- (15,549) --
Net proceeds from issuance of
preferred units (including
accretion of $1,918).............. -- 277,918 --
Preferential allocations to
unitholders....................... -- (7,293) --
Units issued in connection with the
Mendik acquisition................... -- 178,567 --
Net proceeds from issuance of Class A
units............................. -- 688,672 --
Units issued in connection with
Arbor acquisition................. -- 102,015 --
Distributions to Class A unitholders
($1.36 per unit).................. -- (77,461) --
Class A units issued in
connection with an employment
agreement and employees' share plans -- 633 --
Change in unrealized gains
on securities available for sale.. -- 158 158
Forgiveness of amount due from
officers.......................... 96 96 --
------- --------- ---------
Balance, December 31, 1997........... (4,993) 1,492,329 $ 68,474
=========
Net Income........................... -- 168,386 $ 168,386
Dividends paid on preferred units
($2.37 per unit).................. -- (21,690) --
Distributions to Class A unitholders
($1.64 per unit).................. -- (131,110) --
Net proceeds from issuance
of Class A units.................. -- 444,563 --
Preferential allocations to
unitholders....................... -- (15,532) --
Limited partnership units issued in
connection with acquisitions...... -- 190,962 --
Net proceeds from issuance of
limited partnership units......... -- 85,312 --
Class A units issued in connection
with Mendik RELP
properties acquisition............ -- 29,063 --
Class A units issued under
employees' share plan............. -- 909 --
Conversion of limited partnership
units to general partner units.... -- -- --
Capital contribution to
Vornado Operating Company........ -- (25,015) --
Accretion of issuance expenses on
preferred units................... -- 2,874 --
Class A units issued in connection
with dividend reinvestment plan... -- 24 --
Change in unrealized (losses)
on securities available for sale.. -- (5,047) (5,047)
Appreciation of securities held
in officer's deferred
compensation trust................ -- (10,464) (10,464)
Pension obligations.................. -- (2,606) (2,606)
Forgiveness of amount due
from Officers..................... 96 96 --
------- -------- ---------
Balance, December 31, 1998 $ (4,897) $2,203,054 $ 150,269
</TABLE>
* Represents unrealized losses on securities available for sale.
See notes to consolidated financial statements.
-60-
<PAGE>
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
----------- ----------- -----------
(amounts in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income...................................................... $ 168,386 $ 68,316 $ 61,364
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization (including debt issuance
costs)..................................................... 59,227 24,460 12,586
Amortization of officer's deferred compensation expense....... -- 22,917 2,083
Straight-lining of rental income.............................. (17,561) (7,075) (2,676)
Minority interest............................................. 651 -- --
Equity in loss (income) of Alexander's........................ 3,363 (2,188) (1,108)
Equity in income of partially-owned entities.................. (32,025) (4,658) --
Gain on marketable securities................................. (1,530) (1,026) (913)
Gain from insurance settlement and condemnation............... (9,649) -- --
Changes in operating assets and liabilities..................... 18,544 14,727 (633)
----------- ----------- -----------
Net cash provided by operating activities........................... 189,406 115,473 70,703
----------- ----------- -----------
Cash Flows from Investing Activities:
Acquisitions of real estate and other........................... (896,800) (887,423) --
Investments in partially-owned entities......................... (308,000) -- --
Investments in mortgage loans receivable........................ (6,620) (71,663) (17,000)
Repayment of mortgage loans receivable.......................... 57,600 -- --
Cash restricted for tenant improvements......................... (14,716) (27,079) --
Additions to real estate........................................ (68,085) (23,789) (14,822)
Real estate deposits and other.................................. 26,988 (46,152) --
Purchases of securities available for sale...................... (73,513) (8,378) --
Proceeds from sale or maturity of securities available for sale. 25,779 -- 46,734
----------- ----------- -----------
Net cash (used in) provided by investing activities................. (1,257,367) (1,064,484) 14,912
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from borrowings........................................ 1,427,821 770,000 10,000
Repayments on borrowings........................................ (883,475) (409,633) (10,966)
Costs of refinancing debt....................................... (11,418) (3,038) --
Proceeds from issuance of Class A units......................... 445,247 688,672 73,060
Proceeds from issuance of preferred units....................... -- 276,000 --
Proceeds from issuance of limited partnership units............. 85,313 -- --
Proceeds from borrowings on U.S. Treasury obligations........... -- -- 10,000
Repayment of borrowings on U.S. Treasury obligations............ -- (9,636) (44,239)
Distributions to Class A unitholders............................ (154,440) (77,461) (59,558)
Preferred unit distributions.................................... (18,816) (15,549) --
Preferential allocations........................................ (11,229) (4,719) --
Exercise of options............................................. 812 633 6,657
----------- ----------- -----------
Net cash provided by (used in) financing activities................. 879,815 1,215,269 (15,046)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents................ (188,146) 266,258 70,569
Cash and cash equivalents at beginning of year...................... 355,954 89,696 19,127
----------- ----------- -----------
Cash and cash equivalents at end of year............................ $ 167,808 $ 355,954 $ 89,696
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest...................................... $ 111,089 $ 38,968 $ 15,695
=========== =========== ===========
Non-Cash Transactions:
Financing in connection with acquisitions....................... $ 526,000 $ 403,279 $ --
Class A units issued in connection with acquisitions............ 29,000 102,015 --
Units issued in connection with acquisitions.................... 184,000 177,000 --
Deferred officer's compensation expense and related liability... -- -- 25,000
Unrealized (loss) gain on securities available for sale......... (5,047) 158 364
Appreciation of securities held in officer's deferred
compensation trust............................................ (10,464) -- --
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
Vornado Realty L.P. (the "Operating Partnership," including the
operations of Vornado Realty Trust prior to the conversion described below) is a
Delaware limited partnership. Operations commenced 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. As a result,
Vornado now conducts its business through the Operating Partnership. Vornado is
the sole general partner of, and owned approximately 85% of the limited
partnership common interest in, the Operating Partnership at March 17, 1999. All
references to the "Company" refer to Vornado and its consolidated subsidiaries,
including the Operating Partnership.
The Company currently owns directly or indirectly:
Office Building Properties ("Office"):
(i) all or portions of 21 office building properties in the New York City
metropolitan area (primarily Manhattan) containing approximately 12.5
million square feet;
(ii) a 34% limited partnership interest in Charles E. Smith Commercial Realty
L.P. ("CESCR"), a limited partnership, which owns interests in and
manages approximately 10.7 million square feet of office properties in
Northern Virginia and Washington D.C., and manages an additional 14.6
million square feet of office and other commercial properties in the
Washington, D.C. area;
Retail Properties ("Retail"):
(iii) 59 shopping center properties in seven states and Puerto Rico containing
approximately 12.2 million square feet, including 1.4 million square
feet built by tenants on land leased from the Company;
Cold Storage Companies ("Cold Storage"):
(iv) a 60% interest in partnerships that own 88 warehouse facilities
nationwide with an aggregate of approximately 450 million cubic feet of
refrigerated, frozen and dry storage space; (excludes 13 additional
warehouses containing approximately 30 million cubic feet managed by the
Cold Storage Companies - see "Spin-off of Vornado Operating Company");
Merchandise Mart Properties:
(v) the Merchandise Mart properties containing approximately 6.7 million
square feet, including the 3.4 million square foot Merchandise Mart in
Chicago;
Other Real Estate Investments:
(vi) approximately 29.3% of the outstanding common stock of Alexander's, Inc.
("Alexander's"), which has eight properties in the New York City
metropolitan area;
(vii) an 80% interest in the Hotel Pennsylvania, a New York City hotel which
contains 800,000 square feet of space with 1,700 rooms and 400,000
square feet of retail and office space;
(viii) eight dry warehouse/industrial properties in New Jersey containing
approximately 2.0 million square feet; and
(ix) other real estate and investments.
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<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Spin-off of Vornado Operating Company
General
Vornado Operating Company ("Vornado Operating"), was incorporated on
October 30, 1997, as a wholly owned subsidiary of the Company. In order to
maintain its status as a REIT for federal income tax purposes, the Company is
required to focus principally on investment in real estate assets. Accordingly,
the Company is prevented from owning certain assets and conducting certain
activities that would be inconsistent with its status as a REIT. Vornado
Operating was formed to own assets that Vornado could not itself own and conduct
activities that Vornado could not itself conduct. Vornado Operating is intended
to function principally as an operating company, in contrast to the Company's
principal focus on investment in real estate assets. Vornado Operating is able
to do so because it is taxable as a regular "C" corporation rather than a REIT.
Vornado Operating will seek to become the operator of businesses
conducted at properties it leases from the Company, as contemplated by the
Intercompany Agreement between the Company and Vornado Operating (the
"Intercompany Agreement"), referred to below. Vornado Operating expects to rely
exclusively on the Company to identify business opportunities and currently
expects that those opportunities will relate in some manner to the Company and
its real estate investments rather than to unrelated businesses.
The Distribution
On October 16, 1998, the Operating Partnership made a distribution (the
"Distribution") of one share of common stock, par value $.01 per share (the
"Common Stock"), of Vornado Operating for 20 units of limited partnership
interest of the Operating Partnership (including units owned by Vornado) held of
record as of the close of business on October 9, 1998 and Vornado in turn made a
distribution of the Common Stock it received to the holders of its common shares
of beneficial interest. While no Common Stock was distributed in respect of the
Vornado's $3.25 Series A Convertible Preferred Shares, the Company adjusted the
Conversion Price to take into account the Distribution. Vornado Operating's
Common Stock is listed on the American Stock Exchange under the symbol "VOO".
Capital Contribution and Revolving Credit Agreement.
The Company initially capitalized Vornado Operating with an equity
contribution of $25,000,000 of cash. As part of its formation, Vornado Operating
was granted a $75,000,000 unsecured five-year revolving credit facility from
Vornado (the "Revolving Credit Agreement"). Borrowings under the Revolving
Credit Agreement bear interest at a floating rate per annum equal to LIBOR plus
3%. Commencing January 1, 1999, Vornado Operating pays the Company a commitment
fee equal to 1% per annum on the average daily unused portion of the facility.
Amounts may be borrowed under the Revolving Credit Agreement, repaid and
reborrowed from time to time on a revolving basis (so long as the principal
amount outstanding at any time does not exceed $75,000,000). Only interest and
commitment fees are payable under the Revolving Credit Agreement until it
expires. The Revolving Credit Agreement prohibits Vornado Operating from
incurring indebtedness to third parties (other than certain purchase money debt
and certain other exceptions) and prohibits Vornado Operating from paying
dividends. Debt under the Revolving Credit Agreement is recourse to Vornado
Operating.
Intercompany Agreement.
The Company and Vornado Operating have entered into the Intercompany
Agreement pursuant to which, among other things, (a) the Company will under
certain circumstances offer Vornado Operating an opportunity to become the
lessee of certain real property owned now or in the future by the Company (under
mutually satisfactory lease terms) and (b) Vornado Operating will not make any
real estate investment or other REIT-Qualified Investment unless it first offers
the Company the opportunity to make such investment and the Company has rejected
that opportunity.
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<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the Intercompany Agreement, the Company has agreed to provide
Vornado Operating with certain administrative, corporate, accounting, financial,
insurance, legal, tax, data processing, human resources and operational
services. For these services, Vornado Operating will compensate the Company in
an amount determined in good faith by the Company as the amount an unaffiliated
third party would charge Vornado Operating for comparable services and will
reimburse the Company for certain costs incurred and paid to third parties on
behalf of Vornado Operating. For the period from October 16, 1998 (commencement
date) to December 31, 1998, approximately $50,000 of compensation for such
services was charged pursuant to the Intercompany Agreement.
Vornado Operating and the Company each have the right to terminate the
Intercompany Agreement if the other party is in material default of the
Intercompany Agreement or upon 90 days written notice to the other party at any
time after December 31, 2003. In addition, the Company has the right to
terminate the Intercompany Agreement upon a change in control of Vornado
Operating.
Vornado Operating's Management.
Messrs. Roth, Fascitelli, West and Wight are directors of Vornado
Operating. Mr. Roth is also Chairman of the Board and Chief Executive Officer of
Vornado Operating, Mr. Fascitelli is also President of Vornado Operating, and
certain other members of the Company's senior management hold a corresponding
position with Vornado Operating.
The Cold Storage Companies.
On October 31, 1997, partnerships (the "Vornado/Crescent Partnerships")
in which affiliates of the Company have a 60% interest and affiliates of
Crescent Real Estate Equities Company have a 40% interest acquired each of
Americold Corporation ("Americold") and URS Logistics, Inc. ("URS"). In June
1998, the Vornado/Crescent Partnerships acquired the assets of Freezer Services,
Inc. and in July 1998 acquired the Carmar Group (Americold, URS, Freezer
Services, Inc. and the Carmar Group, collectively, the "Cold Storage
Companies").
On March 12, 1999, the Vornado/Crescent Partnerships sold all of the
non-real estate assets of the Cold Storage Companies encompassing the operations
of the cold storage business for approximately $48,000,000 to a new partnership
owned 60% by Vornado Operating Company and 40% by Crescent Operating Inc. The
new partnership leases the underlying cold storage warehouses used in this
business from the Vornado/Crescent Partnerships which continue to own the real
estate. The leases have a 15 year term with two-five year renewal options and
provide for the payment of fixed base rent and percentage rent based on customer
revenues. The new partnership is required to pay for all costs arising from the
operation, maintenance and repair of the properties, as well as property capital
expenditures in excess of $5,000,000 annually. Fixed base rent and percentage
rent for the initial lease year is projected to be approximately $151 million.
The new partnership has the right to defer a portion of the rent for up to three
years beginning on March 12, 1999 to the extent that available cash, as defined
in the leases, is insufficient to pay such rent.
Disposition and Acquisition of Interest in CESCR
On December 31, 1998, the Company sold approximately 1.7% of the
outstanding partnership units of CESCR, (a Delaware limited partnership that
owns interests in and manages approximately 10.7 million square feet of office
properties in Crystal City, Arlington, Virginia, a suburb of Washington, D.C.,
and manages an additional 14.6 million square feet of office and other
commercial properties in the Washington, D.C. area), to Vornado Operating
Company, for an aggregate purchase price of approximately $12,900,000 or $34 per
unit (which is the price at which CESCR issued partnership units in October 1998
in connection with a significant "roll-up" transaction). The purchase price was
funded out of Vornado Operating's working capital. After giving effect to this
purchase, the Company owned approximately 9.6% of CESCR as of December 31, 1998.
In connection with this purchase, the Company granted to Vornado Operating an
option to require the Company to repurchase all of the CESCR units at the price
at which Vornado Operating purchased the CESCR units, plus a cumulative return
on such amount at a rate of 10% per annum. The option was exercised on March 4,
1999. Accordingly, the Company reacquired the CESCR units from Vornado Operating
for $13,200,000.
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<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial
statements include the accounts of Vornado Realty L.P. as well as interests
acquired that individually (or in the aggregate with prior interests) exceed a
50% interest and the Company exercises unilateral control. 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 net equity in 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.
Management has made estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Real Estate: Real estate is carried at cost, net of accumulated
depreciation and amortization. Betterments, major renewals and certain costs
directly related to the acquisition, improvement and leasing of real estate are
capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation is provided on a straight-line basis over the assets estimated
useful lives which range from 7 to 40 years. Tenant allowances are amortized on
a straight-line basis over the lives of the related leases.
The Company's properties are reviewed for impairment if events or
changes in circumstances indicate that the carrying amount of the property may
not be recoverable. In such an event, a comparison is made of the current and
projected operating cash flows of each such property into the foreseeable future
on an undiscounted basis, to the carrying amount of such property. Such carrying
amount would be adjusted, if necessary, to reflect an impairment in the value of
the asset.
Cash and Cash Equivalents: Cash and cash equivalents consist of highly
liquid investments purchased with original maturities of three months or less.
Cash and cash equivalents does not include cash restricted for tenant
improvements at the Company's Two Penn Plaza office building of $25,708,000 and
cash restricted in connection with an officer's deferred compensation payable of
$4,823,000.
Marketable Securities: The Company has classified debt and equity
securities which it intends to hold for an indefinite period of time as
securities available for sale, equity securities it intends to buy and sell on a
short term basis as trading securities and its preferred stock investment in
Capital Trust as securities held to maturity. Unrealized gains and losses are
included in earnings for trading securities and as a component of shareholder's
equity and other comprehensive income for securities available for sale.
Realized gains or losses on the sale of securities are recorded based on average
cost.
At December 31, 1998 and 1997, marketable securities had an aggregate
cost of $83,043,000 and $34,950,000 and an aggregate market value of $77,156,000
and $34,469,000 (of which $6,826,000 and $7,583,000 represents trading
securities). The securities held to maturity of $48,530,000 are reported at
amortized cost. Gross unrealized gains and losses were $513,000 and $6,400,000
at December 31, 1998 and $1,583,000 and $2,064,000 at December 31, 1997.
Mortgage Loans Receivable: The Company evaluates the collectibility of
both interest and principal of each of its loans, if circumstances warrant, to
determine whether it is impaired. A loan is considered to be impaired, when
based on current information and events, it is probable that the Company will be
unable to collect all amounts due according to the existing contractual terms.
When a loan is considered to be impaired, the amount of the loss accrual is
calculated by comparing the recorded investment to the value determined by
discounting the expected future cash flows at the loan's effective interest
rate. Interest on impaired loans is recognized on a cash basis.
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<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Officers Compensation Payable: In July 1998, the Emerging Issues Task
Force (EITF) of the Financial Accounting Standards Board issued EITF 97-14
"Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held
in a Rabbi Trust and Invested" (EITF 97-14). EITF 97-14 applies to the Company's
accounting treatment of the Officers Compensation Payable as reflected in the
balance sheet. The transition guidance of EITF 97-14 required the Company to
record a charge to equity of $10,464,000 which represents the appreciation in
the value of Vornado's stock from the date the trust was established (at which
time the price of Vornado's stock was $21.75 per share) to September 30, 1998
(at which time the price of Vornado's stock was $33.13 per share). In subsequent
periods, appreciation in Vornado's stock price above $33.13 will be recognized
as compensation expense and if the price fluctuates between $33.13 and $21.75,
equity would be adjusted. For the quarter ended December 31, 1998, approximately
$340,000 was recognized as compensation expense as the price per share of
Vornado stock at December 31, 1998 was $33.50.
Fair Value of Financial Instruments: All financial instruments of the
Company are reflected in the accompanying consolidated balance sheets at amounts
which, in management's estimation, based upon an interpretation of available
market information and valuation methodologies (including discounted cash flow
analyses with regard to fixed rate debt) are considered appropriate, and
reasonably approximate their fair values. Such fair value estimates are not
necessarily indicative of the amounts that would be realized upon disposition of
the Company's financial instruments.
Deferred Charges: Direct financing costs are deferred and amortized
over the terms of the related agreements as a component of interest expense.
Direct costs related to leasing activities are capitalized and amortized on a
straight-line basis over the lives of the related leases. All other deferred
charges are amortized on a straight-line basis in accordance with the terms of
the agreements to which they relate.
Revenue Recognition: Base rents, additional rents based on tenants'
sales volume and reimbursement of the tenants' share of certain operating
expenses are generally recognized when due from tenants. The straight-line basis
is used to recognize base rents under leases entered into after November 14,
1985, which provide for varying rents over the lease terms.
Income Taxes: No provision has been made for income taxes in the
accompanying consolidated financial statements of the Operating Partnership
since such taxes, if any, are the responsibility of the individual partners. The
Company operates in a manner intended to enable Vornado 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
shareholders an amount greater than its taxable income. Therefore, no provision
for Federal income taxes is required. Dividend distributions for the year ended
December 31, 1998, were characterized for Federal income tax purposes as
ordinary income (81%), return of capital (17%) and capital gain (2%). The
distributions for the tax years ended December 31, 1997 and 1996 were
characterized for Federal income tax purposes as ordinary income.
The net basis of the Company's assets and liabilities for tax purposes
is approximately $920,000,000 lower than the amount reported for financial
statement purposes.
Amounts Per Unit: Basic earnings per unit is computed based on average
units outstanding. Diluted earnings per unit considers the effect of options,
warrants and convertible securities. All unit and per unit information has also
been adjusted for a 2-for-1 unit split in October 1997.
Stock Options: The Company accounts for stock-based compensation using
the intrinsic value method. Under the intrinsic value method compensation cost
is measured as the excess, if any, of the quoted market price of Vornado's stock
at the date of grant over the exercise price of the option granted. Compensation
cost for stock options, if any, is recognized ratably over the vesting period.
The Company's policy is to grant options with an exercise price equal to the
quoted market price of Vornado's stock on the grant date. Accordingly, no
compensation cost has been recognized for the Company's stock option plans. An
equivalent number of units are issued when options are exercised.
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<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Acquisitions
The Company completed approximately $2.4 billion of real estate
acquisitions or investments from January 1, 1998 through March, 1999 and $2.0
billion in 1997. These acquisitions were consummated through subsidiaries or
preferred stock affiliates of the Company and were recorded under the purchase
method of accounting. Related net assets and results of operations have been
included in these financial statements since their respective dates of
acquisition. 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 certain of which are not yet complete.
Accordingly, the initial valuations are subject to change as such information is
finalized. The Company believes that any such change will not be significant
since the allocations were principally to real estate. The following are the
details of the acquisitions or investments by segment:
Office:
Mendik Transaction
In April 1997, Vornado consummated the acquisition of interests in all
or a portion of seven Manhattan office buildings and the management company held
by Bernard H. Mendik, David R. Greenbaum and certain entities controlled by them
(the "Mendik Group") and certain of their affiliates, which is operated as the
Mendik Division. The properties acquired include (i) four wholly owned
properties: Two Penn Plaza, Eleven Penn Plaza, 1740 Broadway and 866 U.N. Plaza
and (ii) three partially owned properties: Two Park Avenue (40% interest), 330
Madison Avenue (24.8% interest) and 570 Lexington Avenue (5.6% interest). The
consideration for the transaction was approximately $656,000,000, including
$264,000,000 in cash, $177,000,000 in the limited partnership units of the
Operating Partnership ("Minority Interests") and $215,000,000 in indebtedness.
90 Park Avenue
In May 1997, the Company acquired a mortgage loan from a consortium of
banks collateralized by an office building located at 90 Park Avenue, Manhattan,
New York. On August 21, 1997, the Company entered into an agreement with the
owners of 90 Park Avenue pursuant to which the Company restructured the
mortgage, took title to the land and obtained a 43-year lease on the building
under which the Company manages the building and receives the building's cash
flow. As part of the restructuring, the amount of the debt was adjusted from the
face value of $193,000,000 to the May 1997 acquisition cost of $185,000,000, the
maturity date of the debt was extended to August 31, 2022 and the interest rate
was set at 7.5%. The Company purchased the land from the borrower for
$8,000,000, which was further applied to reduce the debt to $177,000,000. This
investment is classified as real estate.
20 Broad Street
In September 1997, the Company purchased, at a discount, a mortgage on
an office building at 20 Broad Street in Manhattan, New York for $27,000,000.
The mortgage, which was in default, yielded approximately 12%. In August 1998,
the Company acquired the Mendik Group's 60% interest in the leasehold for
approximately $600,000 of Operating Partnership Units. In a related transaction,
the Company sold a 40% interest in the mortgage to the other unrelated owner of
the property for $10,800,000. The purchase from the Mendik Group includes a
provision for a future earn-out, capped at $4,400,000 in additional units, based
on leasing activity through December 31, 2004.
Charles E. Smith Commercial Realty Investment ("CESCR")
In October 1997, the Company acquired a 15% limited partnership
interest in CESCR for $60,000,000. CESCR owns interests in and manages
approximately 10.7 million square feet of office properties in Northern Virginia
and Washington, D.C. and manages an additional 14.6 million square feet of
office and other commercial properties in the Washington, D.C. area. In October
1998, CESCR issued partnership units in connection with a significant roll-up
transaction reducing the Company's limited partnership interest to 11.3%.
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<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On December 31, 1998, the Company sold approximately 1.7% of the
outstanding partnership units of CESCR to Vornado Operating for an aggregate
price of approximately $12,900,000. In connection with this purchase, the
Company granted Vornado Operating an option to require the Company to repurchase
the units. The option was exercised on March 4, 1999. Accordingly, the Company
reacquired the CESCR units from Vornado Operating for $13,200,000.
On March 4, 1999 the Company made an additional $242,000,000 investment
in CESCR by contributing to CESCR the land under certain CESCR office properties
in Crystal City, Arlington, Virginia and partnership interests in certain CESCR
subsidiaries. The Company acquired these assets from Commonwealth Atlantic
Properties, Inc, ("CAPI"), an affiliate of Lazard Freres Real Estate Investors
L.L.C., immediately prior to the contribution to CESCR. Together with the
Company's investment in CESCR made in 1997 and the units it reacquired from
Vornado Operating Company, Vornado now owns approximately 34% of CESCR's limited
partnership units. In addition, the Company acquired from CAPI for $8,000,000
the land under a Marriott Hotel located in Crystal City.
The purchase price was paid to CAPI by Vornado issuing $250,000,000 of
6% Convertible Preferred Units of the Company's operating partnership. The
Preferred Units are convertible at $44 per unit and the coupon increases to
6.50% over the next three years and then fixes at 6.75% in year eight. The
Company will appoint one of three members to CESCR's Board of Managers,
increasing under certain circumstances to two of four members in March 2002.
In connection with these transactions, the Company agreed to make a
five-year $41,000,000 loan to CAPI with interest at 8%, increasing to 9% ratably
over the term. The loan is secured by approximately $55,000,000 of the Company's
units issued to CAPI as well as certain real estate assets.
640 Fifth Avenue
In December 1997, the Company acquired 640 Fifth Avenue, a Manhattan
office building located at the corner of 51st Street, for approximately
$64,000,000.
Westport Corporate Office Park
In January 1998, the Company acquired the Westport Corporate Office
Park from a limited partnership that included members of the Mendik Group. The
purchase price was approximately $14,000,000 consisting of $6,000,000 of cash
and an $8,000,000 mortgage loan for the two buildings.
One Penn Plaza
In February 1998, the Company acquired a long-term leasehold interest
in One Penn Plaza, a Manhattan office building for approximately $410,000,000.
150 East 58th Street
In March 1998, the Company acquired 150 East 58th Street (the
"Architects and Design Center"), a Manhattan office building, for approximately
$118,000,000.
570 Lexington Avenue - additional investment
In April 1998, the Company increased its interest from 5.6% to
approximately 50% in 570 Lexington Avenue, an office building located in midtown
Manhattan. The Company purchased the additional interest for approximately
$37,200,000, including $4,900,000 of existing debt.
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VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
888 Seventh Avenue and 40 Fulton Street
In June, 1998, the Company entered into an agreement to acquire the
leasehold interest in 888 Seventh Avenue, a 46 story office building located in
midtown Manhattan, and simultaneously acquired 40 Fulton Street, a 29 story
office building located in downtown Manhattan. The aggregate consideration for
both buildings is approximately $154,500,000. The acquisition of 888 Seventh
Avenue was completed in January 1999.
770 Broadway
In July 1998, the Company acquired 770 Broadway, a Manhattan office
building, for approximately $149,000,000, including $18,000,000 of Operating
Partnership Units.
689 Fifth Avenue
In August 1998, the Company acquired 689 Fifth Avenue, a 84,000 square
foot Manhattan specialty building for approximately $33,000,000 from a
partnership that included Bernard H. Mendik, a former trustee of the Company.
Mendik Real Estate Limited Partnership Properties
In November 1998, the Company completed the acquisition of certain
properties from the Mendik Real Estate Limited Partnership ("Mendik RELP"). The
acquired real estate assets include (i) a leasehold interest in the Saxon Woods
Corporate Center located at 550/600 Mamaroneck Avenue, in Harrison, New York,
(ii) the remaining 60% interest in an office building located at Two Park
Avenue, in Manhattan (the Company already owned 40%) and (iii) a leasehold
interest in an office building located at 330 West 34th Street, also in
Manhattan. The aggregate purchase price of approximately $106,000,000, consists
of $31,000,000 of cash, $29,000,000 of Vornado's common shares and $46,000,000
of debt. An equivalent number of units were issued to Vornado for the shares
issued.
Retail:
Montehiedra Town Center
In April 1997, the Company acquired The Montehiedra Town Center
("Montehiedra"), a shopping center, located in San Juan, Puerto Rico, for
approximately $74,000,000, of which $63,000,000 was newly issued ten-year
indebtedness.
Arbor Property Trust
In December 1997, the Company acquired Arbor Property Trust ("Arbor")
for approximately 2,936,000 common shares of beneficial interest of Vornado and
39,400 Series A Convertible Preferred Shares of Vornado. The approximate value
of the transaction was $225,000,000, subject to property level debt of
$125,000,000. Arbor was a single property real estate investment trust which
owned the Green Acres Mall, a super-regional enclosed shopping mall complex
situated in Nassau County, Long Island, New York, approximately one mile east of
the borough of Queens, New York.
Las Catalinas Mall
In October 1998, the Company completed the acquisition of Kmart
Corporation's ("Kmart") 50% interest in the Las Catalinas Mall located in
Caguas, Puerto Rico (adjacent to San Juan). In addition, the Company acquired
75% and the Company's partner in the Mall acquired 25% of Kmart's anchor store.
The Company's purchase price of $38,000,000 was fully financed with 15 year
debt.
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<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cold Storage
In October 1997, two partnerships in which preferred stock affiliates
of the Company have 60% interests and affiliates of Crescent Real Estate
Equities Company have 40% interests acquired Americold Corporation ("Americold")
and URS Logistics, Inc. ("URS") from affiliates of Kelso & Company, Inc. and
other owners. Americold and URS are cold storage and logistics warehouse
companies. The consideration for these transactions totaled approximately
$1,000,000,000, including $628,000,000 of indebtedness. The Company's share of
the purchase price was approximately $600,000,000.
In June 1998, a partnership in which the Company owns a 60% interest
through a preferred stock affiliate acquired the assets of Freezer Services,
Inc., consisting of nine cold storage warehouses in the central United States
for approximately $133,000,000, including $107,000,000 in cash and $26,000,000
in indebtedness. The Company's share of this investment was $80,000,000.
Additionally, in July 1998, the Carmar Group cold storage warehouse business was
acquired for approximately $158,000,000, including $144,000,000 in cash and
$14,000,000 in indebtedness. The Company's share of this investment was
$95,000,000. Carmar owns and operates five cold storage distribution warehouses
in the midwest and southeast United States. See "Subsequent Events".
Merchandise Mart Properties:
The Merchandise Mart Properties
In April 1998, the Company acquired a real estate portfolio from the
Kennedy Family for approximately $630,000,000, consisting of $187,000,000 in
cash, $116,000,000 in Operating Partnership Units, $77,000,000 in existing debt
and $250,000,000 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 included the acquisition of
Merchandise Mart Properties, Inc., which manages the properties and owns and
operates trade shows.
Market Square Complex
In December 1998, the Company completed the acquisition of the 1.07
million square foot Market Square Complex of showrooms in High Point, North
Carolina. The consideration was approximately $97,000,000 consisting of
$46,000,000 in debt, $44,000,000 in Operating Partnership Units and 6.5%
Preferred Operating Partnership Units convertible at $43.74 per unit and
$7,000,000 of cash. The acquired real estate assets include the Market Square,
Hamilton Market and Furniture Plaza showroom buildings and the High Point
Holiday Inn hotel.
In a second transaction, the Company acquired the 243,000 square foot
National Furniture Mart, which is adjacent to the forementioned properties, in
High Point. The price was approximately $17,700,000 consisting of $3,800,000 in
cash and $13,900,000 in debt.
Other Real Estate Investments:
Riese Transaction
In June 1997, the Company acquired four properties for approximately
$26,000,000. The properties were previously owned by affiliates of the Riese
Organization. These properties are located in midtown Manhattan. The Company
also made a $41,000,000 mortgage loan to Riese affiliates cross-collateralized
by ten other Manhattan properties. The mortgage loan which had a five-year term
and an initial interest rate of 9.75% increasing annually, was repaid in May
1998.
-70-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Hotel Pennsylvania
In September 1997, the Company acquired a 40% interest in the Hotel
Pennsylvania, which is located on Seventh Avenue opposite Madison Square Garden
in Manhattan, New York. The property was acquired in a joint venture with Hotel
Properties Limited and Planet Hollywood International, Inc. from a group of
partnerships. Under the joint venture agreement, Hotel Properties Limited and
Planet Hollywood International, Inc. had 40% and 20% interests, respectively.
The joint venture acquired the hotel for approximately $159,000,000, of which
$120,000,000 was newly issued five-year financing. The Company's share of the
purchase price was approximately $64,000,000. In May 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 $70,000,000,
including $48,000,000 of existing debt. The Company manages the property's
retail and office space, and manages the hotel with Hotel Properties Limited.
Newkirk Joint Ventures
In July and September 1998, the Company invested an aggregate of
$56,000,000 for a 30% share in joint ventures with affiliates of Apollo Real
Estate Investment Fund III, L.P., collectively Newkirk Joint Ventures
("Newkirk"). Newkirk owns various equity and debt interests relating to 120
limited partnerships which own real estate primarily net leased to credit rated
tenants. The Company has issued letters of credit of $15,600,000 in connection
with these joint ventures.
In March 1999, the Company and its joint venture partner completed an
acquisition of additional equity interests in certain limited partnerships. The
Company's additional investment of $52,435,000 consisted of $47,790,000 in
Operating Partnership Units and $4,645,000 in cash.
YMCA Development
In September 1997, the Company and its joint venture partner entered
into an agreement with the YMCA to develop a property now occupied by the YMCA.
The property overlooks Central Park and is located between West 63rd and 64th
Streets in Manhattan, New York. The transaction closed in February 1999.
Pursuant to the agreement, the joint venture entity, of which the
Company owns 80%, will develop a 40 story mixed-use complex. The YMCA will own
and use approximately 94,000 square feet of the new building and the joint
venture intends to sell the remaining 119,000 square foot portion of the
building as residential condominiums. The project is expected to cost
approximately $96,000,000 which will be funded by the Company and is expected to
be completed in 2001.
To date, the Company has expended approximately $6,400,000 in
connection with this transaction, and has provided the YMCA with letters of
credit totalling $7,750,000.
The Company will receive a preferential return on its funds invested
and the return of its funds invested prior to the other joint venture partner
receiving any distribution.
-71-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pro Forma Information
The unaudited pro forma information set forth below presents (i) the
condensed consolidated operating results for the Company for the years ended
December 31, 1998 and 1997 as if (a) the acquisitions described above and the
financings attributable thereto had occurred on January 1, 1997 and (ii) the
condensed consolidated pro forma balance sheet data of the Company as of
December 31, 1998, as if the acquisitions and financings subsequent to December
31, 1998 (See "Subsequent Events") had occurred on December 31, 1998.
Condensed Pro Forma Consolidated Operating Results (unaudited)
<TABLE>
<CAPTION>
Pro Forma Year Ended December 31,
------------------------------------------
1998 1997
---------- ----------
<S> <C> <C>
(amounts in thousands except per unit amounts)
Revenues........................................ $ 643,700 $ 602,900
========== ==========
Net income...................................... $ 213,300 $ 189,500
Preferred unit distributions.................... (21,700) (20,700)
Preferential allocations........................ (40,900) (40,800)
---------- ----------
Net income applicable to Class A units.......... $ 150,700 $ 128,000
========== ==========
Net income per Class A units-basic.............. $ 1.77 $ 1.50
========== ==========
Net income per Class A units-diluted............ $ 1.73 $ 1.47
========== ==========
</TABLE>
Pro Forma revenues and net income applicable to Class A units after
giving effect only to the acquisitions and financings completed prior to
December 31, 1998 were $611,965 and $125,381 for the year ended December 31,
1998 and $574,602 and 105,251 for the year ended December 31, 1997. The pro
forma results for the year ended December 31, 1997, include non-recurring lease
cancellation income of $14,350,000, partially offset by related expenses of
$2,775,000.
Condensed Pro Forma Consolidated Balance Sheet Data (Unaudited)
(amounts in thousands):
December 31,
1998
Total assets................................. $ 4,775,800
===========
Total liabilities............................ $ 2,309,800
Minority interest............................ 12,900
Total partners' capital...................... 2,453,100
-----------
Total liabilities and partners' capital...... $ 4,775,800
===========
-72-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Investments in Partially-Owned Entities
The Company's investments in partially-owned entities and income
recognized from such investments is disclosed below. Summarized financial data
is provided for (i) investments in entities which exceed 10% of the Company's
total assets and (ii) investments in which the Company's share of partially-
owned entities pre-tax income exceeds 10% of the Company's net income.
Balance Sheet Data:
<TABLE>
<CAPTION>
Company's Investment Total Assets Total Debt Total Equity
------------------------ ----------------------- ---------------------- ---------------------
1998 1997 1998 1997 1998 1997 1998 1997
------------ ----------- --------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(amounts in thousands)
Investments:
Cold Storage
Companies ........... $ 459,172 $ 243,846 $1,743,212 $1,481,405 $ 642,714 $ 638,047 $ 737,344 $ 404,227
========== ========== ========== ========== ========== ==========
Alexander's ............. 104,038 108,752 $ 317,043 $ 235,074 $ 277,113 $ 208,087 $ 6,974 $ 13,029
========== ========== ========== ========== ========== ==========
Charles E. Smith
Commercial
Realty L.P. ......... 49,151 60,437
Hotel Pennsylvania ...... 47,813 20,152
Newkirk Joint
Ventures ............ 58,665 --
Mendik Partially-
Owned Office
Buildings ........... 59,902 37,209
Vornado Management.Corp.,
Mendik
Management
Company, Merchandise
Mart Properties, Inc.
and other ........... 49,099 12,391
$ 827,840 $ 482,787
========== ==========
</TABLE>
-73-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Below is a summary of the debt of partially owned entities as of December 31,
1998, none of which is guaranteed by the Company.
<TABLE>
<CAPTION>
Amount of
Partially-Owned
Entities Debt
-------------
(dollars in thousands)
<S> <C>
Cold Storage (60% owned by Vornado):
Mortgage notes payable collateralized by 58 Cold Storage warehouses, due
in 2008, requires amortization based on a 25 year term with interest
at 6.89% (prepayable after May 2000 with yield maintenance)................................. 545,273
Other notes and mortgages payable.............................................................. 97,441
Alexander's (29.3% owned by Vornado):
Term loan secured by all of Alexander's assets except for the Kings Plaza Regional
Shopping Center, due in 2000 with interest at a blended rate of 12.00%. The portion
financed by Vornado ($45,000) bears interest at 14.18% (prepayable without penalty)......... 65,000
Kings Plaza Regional Shopping Center mortgage payable, due in 2001, with interest at LIBOR
plus 1.25% (6.53% at December 31, 1998) (prepayable without penalty)........................ 90,000
Construction loan payable collateralized by Rego Park, due in 1999, with interest at
LIBOR plus 1.00% (6.03% at December 31, 1998) (prepayable without penalty).................. 75,000
Other notes and mortgages payable.............................................................. 47,113
Charles E. Smith Commercial Realty L.P. (9.6% owned by Vornado (1)):
26 mortgages payable due from 1999 through 2015, with interest from
2.25% to 9.89% at December 31, 1998 (2 are prepayable without
penalty, 2 are prepayable with a 1% penalty and 22 are prepayable
with yield maintenance)..................................................................... 786,413
6 mortgages payable (partially owned properties) due from 1999 through 2013,
with interest from 6.51% to 10.00% at December 31, 1998 (1 is prepayable
without penalty and 5 are prepayable with yield maintenance) (2)............................ 156,463
Unsecured line of credit due in 1999, with interest
at 6.77% at December 31, 1998 (prepayable without penalty).................................. 26,000
Hotel Pennsylvania (80% owned by Vornado):
Mortgage payable, due in 2002, with interest at LIBOR plus 1.60%
(6.82% at December 31, 1998) (prepayable without penalty)...................................... 120,000
Mendik Partially Owned Office Buildings:
330 Madison Avenue (25% owned by Vornado) mortgage note payable, due in 2008,
with interest at 6.52% (prepayable after May 2000 with yield maintenance).................. 60,000
Other notes and mortgages payable (49.9% owned by Vornado)..................................... 34,425
Las Catalinas Mall mortgage notes payable, due in 2013 with interest at 6.97%
(50% owned by Vornado) (prepayable after December 2002 with yield maintenance)................ 70,941
</TABLE>
(1) On March 4, 1999, the Company increased its ownership interest to 34%.
(2) As of March 4, 1999, CESCR's interest in these properties increased to
approximately 100% and accordingly, CESCR's proportionate share of the
applicable debt increased from $156,463 to $316,023.
-74-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Statement Data:
<TABLE>
<CAPTION>
Company's Income
from Partially Owned Entities Total Revenues Net Income (loss)
------------------------------ ------------------------------ ---------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(amounts in thousands)
Income Applicable to
Alexander's ............. $ 3,123 $ 7,873 $ 7,956 $ 51,663 $ 25,369 $ 21,833 $ (6,055)* $ 7,466* $ 24,699*
======== ======== ======== ======== ======== ======== ======== ======== ========
Income from Other Partially-
Owned Investments:
Cold Storage Companies ...... $ 15,191 $ 1,720 $ -- $567,867 $ 78,699 $ -- $ 16,988 $ 90 $ --
======== ======== ======== ======== ======== ========
Hotel Pennsylvania .......... 3,678 1,055 --
Newkirk Joint Ventures ..... 2,712 -- --
Charles E. Smith Commercial
Realty L.P. ............. 4,754 85 --
Mendik Partially-Owned Office
Buildings ............... 3,276 424 --
Vornado Management
Corp.,
Mendik Management
Company, Merchandise
Mart Properties, Inc. ...
and other ............... 2,414 1,374 1,855
-------- -------- --------
$ 32,025 $ 4,658 $ 1,855
======== ======== ========
</TABLE>
- - - ------------
* 1998 net loss includes the write-off of the carrying value of the Lexington
Avenue buildings of $15,096. 1997 net income includes income from the
condemnation of a portion of a property of $8,914. 1996 income includes
income from discontinued operations of $11,602 and a non-recurring gain of
$14,372.
Alexander's
The Company owns 29.3% of the outstanding shares of common stock of
Alexander's. In March 1995, the Company lent Alexander's $45,000,000. The loan,
which was originally scheduled to mature in March 1998, has been renewed for two
additional one year periods and currently matures in March 2000. The interest
rate was reset in March 1999 from 13.87% per annum to 14.18% per annum.
The investment in and loans and advances to Alexander's are comprised
of:
December 31,
----------------------
1998 1997
--------- ---------
(amounts in thousands)
Common stock, net of $2,196,000 and $1,596,000
of accumulated depreciation of buildings....... $ 53,157 $ 54,931
Loan receivable.................................... 45,000 45,000
Deferred loan origination income................... -- (83)
Leasing fees and other receivables................. 5,441 6,576
Equity in income................................... 222 1,894
Deferred expenses.................................. 218 434
--------- ---------
$ 104,038 $ 108,752
========= =========
-75-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income applicable to Alexander's is comprised of:
Year Ended December 31,
(amounts in thousands) -------------------------------------------
1998 1997 1996
------------ ----------- -----------
Interest income.............. $ 5,395 $ 6,293 $ 6,848
Equity in (loss) income...... (2,272) 1,580 1,108
------------ ----------- -----------
$ 3,123 $ 7,873 $ 7,956
=========== =========== ===========
Alexander's is managed by and its properties are leased by the Company,
pursuant to agreements with a one-year term expiring in March of each year which
are automatically renewable. The annual management fee payable to the Company by
Alexander's is equal to the sum of (i) $3,000,000, (ii) 3% of the gross income
from the Kings Plaza Mall, plus (iii) 6% of development costs with minimum
guaranteed fees of $750,000 per annum.
The leasing agreement provides for the Company to generally receive a
fee of (i) 3% of sales proceeds and (ii) 3% of lease rent for the first ten
years of a lease term, 2% of lease rent for the eleventh through the twentieth
years of a lease term and 1% of lease rent for the twenty-first through
thirtieth year of a lease term. Subject to the payment of rents by Alexander's
tenants, the Company is due $5,145,000 at December 31, 1998. Such amount is
receivable annually in an amount not to exceed $2,500,000 until the present
value of such installments (calculated at a discount rate of 9% per annum)
equals the amount that would have been paid had it been paid on September 21,
1993, or at the time the transactions which gave rise to the commissions
occurred, if later.
As of December 31, 1998, Interstate Properties owned approximately
15.2% of the common shares of beneficial interest of the Company 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 the Company and are also directors of Alexander's.
Cold Storage
Investment represented a 60% interest in partnerships held by preferred
stock affiliates. Income recognized from the Cold Storage Companies is comprised
of:
(amounts in thousands) Year Ended December 31,
---------------------------
1998 1997*
----------- -----------
60% share of equity in
net income.................. $ 10,249 $ 1,000
Management fee (40% of
1% per annum of the
Total Combined Assets
(as defined))............... 4,942 720
----------- -----------
$ 15,191 $ 1,720
=========== ===========
* Period from November 1, 1997 (date of acquisition) to December 31, 1997.
See "Subsequent Events".
-76-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Mendik Partially-Owned Office Buildings
These investments represented the Company's interests in the
partially-owned properties included in the Mendik Transaction: Two Park Avenue
(40% interest), 330 Madison Avenue (24.8% interest) and 570 Lexington Avenue
(5.6% interest).
In April 1998, the Company increased its interest in 570 Lexington
Avenue to approximately 50%. Income for the year ended December 31, 1998 is
comprised of equity in net income of 570 Lexington at 5.6% until the additional
investment was made in April 1998, at which time equity in net income was
recorded at approximately 50%. In November 1998, the Company acquired the
remaining 60% interest in Two Park Avenue. Income for the year ended December
31, 1998 is comprised of equity in net income of Two Park Avenue until November,
1998 at which time, the property was accounted for on a consolidated basis for
the remainder of 1998.
Vornado Management Corp., Mendik Management Company and Merchandise Mart
Properties Inc.
These investments represent non-voting interest in preferred stock
affiliates. Income is comprised of equity in the net income of these preferred
stock affiliates.
-77-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Debt
Following is a summary of the Company's debt:
<TABLE>
<CAPTION>
December 31,
-----------------------
(amounts in thousands) 1998 1997
---------- ----------
<S> <C> <C>
Notes and Mortgage Payable:
Fixed Interest:
Mortgage payable cross collateralized by an aggregate of 44 shopping
centers and warehouse/industrial properties, due in 2000 with
interest at 6.36% (prepayable with yield maintenance) ....................... $ 227,000 $ 227,000
Eleven Penn Plaza mortgage payable, due in 2007, requires amortization
based on a 25 year term with interest at 8.39% (prepayable after 2003
with yield maintenance) ..................................................... 53,901 54,612
866 UN Plaza mortgage payable, due in 2004, with interest at 7.79%
(prepayable without penalty) ................................................ 33,000 33,000
Monteheidra Town Center mortgage pass-through certificates, due in
2007 ($52,014) and 2009 ($10,167), requires amortization based on 30
year term with interest at 8.23% (prepayable after August 1999 with
yield maintenance) .......................................................... 62,181 62,698
Washington Office Center mortgage payable, due in 2004, requires
amortization based on a 25 year term with interest at 6.80%
(prepayable with yield maintenance) ......................................... 50,878 --
Green Acres Mall and Plaza mortgage payable, due in 2008, requires
amortization based on a 30 year term with interest at 6.75%
(prepayable after May 2000 with yield maintenance) .......................... 158,575 --
Other mortgages payable ....................................................... 38,688 11,344
---------- ----------
624,223 388,654
Variable Interest:
Two Penn Plaza mortgage payable, due in 2005, interest at LIBOR plus
.63% (6.22% at December 31, 1998) (prepayable without penalty) .............. 80,000 80,000
Green Acres Mall and Plaza, collateralized notes, due on August 19,
1998, interest at LIBOR plus .78% (6.40% at
December 31, 1997) .......................................................... -- 118,000
Merchandise Mart mortgage payable, due in September 1999, interest at
LIBOR plus 1.35% (6.90% at December 31, 1998) (prepayable
without penalty) ............................................................ 250,000 --
Washington Design Center mortgage payable, due in 2000, requires
amortization based on a 25 year term with interest at LIBOR plus
1.35% (6.90% at December 31, 1998) (prepayable without penalty) ............. 24,225 --
Two Park Avenue mortgage payable, due in 2000, interest at LIBOR plus
1.50% (6.74% at December 31, 1998) (prepayable without penalty) ............. 65,000 --
One Penn Plaza mortgage payable, due in 2002, interest at LIBOR plus
1.25% (6.35% at December 31, 1998) (prepayable after June 1999 without
penalty) .................................................................... 275,000 --
Eight individual notes or mortgages payable collateralized by the Market Square
Complex with maturity dates ranging from 1999
through 2003 and interest rates ranging from 7.25% to 8.25% at
December 31, 1998 ........................................................... 45,302 --
---------- ----------
Total notes and mortgages payable ........................................... 1,363,750 586,654
Unsecured revolving credit facility, interest at LIBOR plus .89% (6.44% at
December 31, 1998) (prepayable without penalty) ................................. 687,250 370,000
---------- ----------
Total Debt .................................................................. $2,051,000 $ 956,654
========== ==========
</TABLE>
-78-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The net carrying value of properties collateralizing the notes and
mortgages amounted to $2,114,246,000 at December 31, 1998. As at December 31,
1998, the maturities for the next five years and thereafter are as follows:
(in thousands)
Year Ending December 31, Amount
------------------------ ------
1999........................................... $ 268,232
2000........................................... 1,010,014
2001........................................... 14,341
2002........................................... 275,840
2003........................................... 29,094
Thereafter..................................... 453,479
In July 1997, the Company obtained a $600,000,000 unsecured three-year
revolving credit facility. In February 1998, the facility was increased to
$1,000,000,000. The facility contains customary loan covenants including, among
others, limits on total outstanding indebtedness; maximum loan to value ratio;
minimum debt service coverage and minimum market capitalization requirements.
Interest is at LIBOR plus .70% to 1.00% depending on the Company's senior debt
rating. The credit facility has a competitive bid option program, which allows
the Company to hold auctions among banks participating in the facility for short
term borrowings of up to $500,000,000. The Company paid an origination fee in
July 1997 of .30%, origination and amendment fees in February 1998 of .39% and
pays a commitment fee quarterly over the remaining term of the facility ranging
from .15% to .20% on the facility amount.
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, requires amortization
based on a 30-year term, bears interest at 6.75% and may be defeased after 2001.
In June 1998, the Company completed a $275,000,000 refinancing of its
One Penn Plaza office building and borrowed $170,000,000 pursuant thereto. In
the third quarter of 1998, the Company borrowed the remaining $105,000,000. the
debt matures in June 2002, is prepayable at anytime, and bears interest at LIBOR
+ 1.25% (currently 6.35%). This debt replaced the $93,192,000 bridge-mortgage
loan financing put in place when the property was acquired. The Company entered
into an interest rate cap agreement to reduce the impact of changes in interest
rates on this loan. The agreement caps the Company's interest rate in the event
that LIBOR increases above 8.5% through January 20, 2000 and 9% thereafter,
until the termination date of the cap agreement on July 30, 2001. The Company is
exposed to credit loss in the event of nonperformance by the other parties to
the interest rate cap agreement. However, the Company does not anticipate
nonperformance by the counterparty. The fair value of the interest rate cap
agreement at December 31, 1998 approximates its cost.
In February 1999, the Company completed a $165,000,000 refinancing of
its Two Penn Plaza office building and prepaid the then existing $80,000,000
debt on the property. The new 5-year debt matures in February 2004 and bears
interest at 7.08%.
6. Partners' Capital
In April 1998, Vornado completed the sale of 10,000,000 common shares
of beneficial interest, par value $.04 per share pursuant to an effective
registration statement with net proceeds of approximately $401,000,000. 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 $44,000,000. An equivalent number of units were issued
to Vornado for the shares sold.
In connection with the acquisition of the Mendik RELP properties in
November 1998, Vornado issued 842,200 common shares with an approximate value of
$29,063,000. An equivalent number of units were issued to Vornado for the shares
issued.
During the year ended December 31, 1998, certain limited partners
converted their units into approximately 894,000 general partner units. The
value of these units were approximately $32,780,000.
-79-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In September 1998, the Company implemented a dividend reinvestment plan
which provides holders of record of Vornado common shares and the limited
partners of the Operating Partnership the opportunity to automatically reinvest
all or a portion of their cash distributions received on common shares and units
of the Operating Partnership into common shares. During the year ended December
31, 1998, 706 shares were issued and proceeds of approximately $24,000 were
received from dividend reinvestment.
In April 1997, Vornado completed its public offering of 5,750,000
Series A Convertible Preferred Shares of Beneficial Interest, liquidation
preference $50.00 per share. The preferred shares bear a coupon of 6 1/2% and
are convertible into common shares at $36.11 per share. The offering, net of
expenses, generated approximately $276,000,000 which was used to fund the cash
portion of the Mendik Transaction. In connection with the acquisition of Arbor
in December 1997, Vornado issued approximately 2,936,000 common shares and
39,400 Series A Convertible Preferred Shares of Beneficial Interest. The
approximate value of the shares issued at the time of the acquisition was
$102,000,000. An equivalent number of units were issued to Vornado for the
shares sold. Distributions on the preferred units in 1998 and 1997 were
approximately $21,690,000 and $15,549,000 (including accretion of expenses in
connection with the offering of $2,874,000 and $1,918,000).
On October 20, 1997, the Company paid a 100% unit dividend to
unitholders. All unit and per unit information has been adjusted to reflect this
two-for-one unit split.
In October 1997, Vornado sold 14,000,000 common shares and an
additional 2,100,000 common shares in November 1997 when the underwriters
exercised in full their over-allotment option. The shares were sold at a price
of $45.00 per share which, net of expenses, yielded approximately $688,672,000.
An equivalent number of units were issued to Vornado for the shares sold. The
net proceeds were used to repay $310,000,000 outstanding under the Company's
line of credit and to fund a portion of the purchase price of certain
acquisitions previously described.
7. Employees' Share Option Plan
Under the Omnibus Share Plan (the "Plan"), various officers and
employees have been granted incentive share options and non-qualified options to
purchase common shares of Vornado. Options granted are at prices equal to 100%
of the market price of Vornado's shares at the date of grant, 1,055,066 shares
vest on a graduated basis, becoming fully vested 27 months after grant,
3,500,000 shares (granted in connection with Mr. Fascitelli's employment
agreement) vest on a graduated basis becoming fully vested 60 months after grant
and 4,169,250 shares vest on a graduated basis, becoming fully vested 36 months
after grant. All options expire ten years after grant. An equivalent number of
units are issued when options are exercised.
The Plan also provides for the award of Stock Appreciation Rights,
Performance Shares and Restricted Stock, as defined, none of which have been
awarded as of December 31, 1998.
-80-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
If compensation cost for Plan awards had been determined based on fair
value at the grant dates, net income and income per unit would have been reduced
to the pro-forma amounts below, for the years ended December 31, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(amounts in thousands, except unit amounts)
Net income applicable to Class A units:
As reported.............................................. $ 131,164 $ 45,474 $ 61,364
Pro-forma................................................ 117,938 38,416 60,613
Net income per Class A unit applicable to Class A units:
Basic:
As reported............................................ $ 1.62 $ .83 $ 1.26
Pro-forma.............................................. 1.46 .70 1.24
Diluted:
As reported............................................ 1.59 .79 1.25
Pro forma.............................................. 1.43 .67 1.23
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Binomial option-pricing model with the following weighted-average
assumptions used for grants in the periods ending December 31, 1998, 1997 and
1996.
December 31,
------------------------------
1998 1997 1996
------- ------- -------
Expected volatility........................ 19% 25% 26%
Expected life.............................. 5 years 5 years 5 years
Risk-free interest rate.................... 4.6% 6.4% 5.6%
Expected dividend yield.................... 5.3% 3.4% 5.1%
A summary of the Plan's status, and changes during the years then
ended, is presented below:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
------------------------- -------------------------- ---------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares/Units Price Shares/Units Price Shares/Units Price
------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1................. 5,529,917 $ 24.43 4,139,386 $ 22.51 1,079,880 $ 12.27
Granted.................................. 3,436,250 44.99 1,521,500 29.99 3,741,500 23.14
Exercised................................ (41,851) 21.95 (33,969) 18.69 (681,994) 9.75
Cancelled................................ (200,000) 32.93 (97,000) 31.25 -- --
--------- --------- ------------
Outstanding at December 31............... 8,724,316 $ 32.35 5,529,917 $ 24.43 4,139,386 $ 22.51
========= ========= ============
Options exercisable at December 31....... 2,703,407 1,327,418 420,770
========= ========= ============
Weighted-average fair value of options
granted during the year ended
December 31 (per option)............. $ 5.33 $ 7.87 $ 4.75
========= ========= ============
</TABLE>
-81-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes information about options outstanding
under the Plan at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------- ---------------------------------------
Number Weighted-Average Number
Range of Outstanding at Remaining Weighted-Average Exercisable at Weighted-Average
Exercise Price December 31, 1998 Contractual Life Exercise Price December 31, 1998 Exercise Price
-------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$6 to $12 52,868 4.0 Years $11 52,868 $11
$17 to $19 536,769 6.1 Years 18 536,769 18
$23 3,500,000 7.9 Years 23 1,400,000 23
$26 289,929 8.1 Years 26 214,920 26
$30 764,800 8.2 Years 30 309,400 30
$32 to $36 195,500 8.5 Years 34 87,750 34
$38 to $40 241,500 9.4 Years 39 -- --
$41 to $44 132,700 9.2 Years 43 1,700 41
$45 2,745,250 9.1 Years 45 100,000 45
$48 265,000 9.1 Years 48 -- --
---------- ----------
$6 to $48 8,724,316 8.3 Years $32 2,703,407 $24
========== ==========
</TABLE>
Vornado shares available for future grant under the Plan at December 31, 1998
were 4,103,382.
In connection with the acquisition of Arbor in December 1997, the
Company issued 60,000 options to a third party outside of the Plan parameters.
These options were granted at $43.75 per unit and immediately vested. No expense
was incurred related to this issuance as it was accounted for as component of
the acquisition price.
8. Retirement Plan
In December 1997, benefits under the Plan were frozen. Prior to
December 31, 1997, the Company's qualified retirement plan covered all full-time
employees. The Plan provided annual pension benefits that were equal to 1% of
the employee's annual compensation for each year of participation. The funding
policy is in accordance with the minimum funding requirements of ERISA.
Pension expense includes the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
(amounts in thousands, except percentages)
Service cost--benefits earned during the period............... $ -- $ 115 $ 108
Interest cost on projected benefit obligation................. 594 607 544
Actual return on assets....................................... (334) (494) (179)
Net amortization and deferral................................. 51 347 (59)
------- ------- -------
Net pension expense........................................... $ 311 $ 575 $ 414
======= ======= =======
Assumptions used in determining the net
pension expense were:
Discount rate................................................. 6 3/4% 7 1/4% 7 1/2%
Rate of increase in compensation levels....................... --* 5 1/2% 5 1/2%
Expected rate of return on assets............................. 7% 7% 8%
</TABLE>
* Not applicable, as benefits under the Plan were frozen in December 1997.
-82-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table sets forth the Plan's funded status and the amount
recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
(amounts in thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation.................................. $ 8,853 $ 8,245
========= =========
Accumulated benefit obligation............................. $ 8,952 $ 8,337
========= =========
Projected benefit obligation............................... $ 8,952 $ 8,337
Plan assets at fair value.................................. 5,551 4,901
--------- ---------
Projected benefit obligation in excess of plan assets.......... 3,401 3,436
Unrecognized net obligations................................... (2,269) (1,086)
Adjustment required to recognize minimum liability............. 2,269 1,086
--------- ---------
Accrued pension costs.......................................... $ 3,401 $ 3,436
========= =========
</TABLE>
Plan assets are invested in U.S. government obligations and securities
backed by U.S. government guaranteed mortgages.
9. Leases
As lessor:
The Company leases space to tenants in shopping centers and office
buildings under operating leases. Most of the leases provide for the payment of
fixed base rentals payable monthly in advance. Shopping center leases provide
for the pass-through to tenants of real estate taxes, insurance and maintenance.
Office building leases generally require the tenants to reimburse the Company
for operating costs and real estate taxes above their base year costs. Shopping
center leases also provide for the payment by the lessee of additional rent
based on a percentage of the tenants' sales. As of December 31, 1998, future
base rental revenue under noncancellable operating leases, excluding rents for
leases with an original term of less than one year and rents resulting from the
exercise of renewal options, is as follows:
(in thousands)
Year Ending December 31: Amount
----------------------- ---------
1999.................................................. $ 474,990
2000.................................................. 454,327
2001.................................................. 422,600
2002.................................................. 394,066
2003.................................................. 354,323
Thereafter............................................ 2,287,595
These amounts do not include rentals based on tenants' sales. These
percentage rents approximated $2,493,000, $1,786,000 and $936,000 for the years
ended December 31, 1998, 1997 and 1996.
None of the Company's tenants, represented more than 10% of the
Company's total revenues for the year ended December 31, 1998.
-83-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As lessee:
The Company is a tenant under operating leases for certain properties.
These leases will expire principally during the next thirty years. Future
minimum lease payments under operating leases at December 31, 1998, are as
follows:
(in thousands)
Year Ending December 31: Amount
------------------------ --------
1999........................................................... $ 9,297
2000........................................................... 6,359
2001........................................................... 6,503
2002........................................................... 6,081
2003........................................................... 5,586
Thereafter..................................................... 122,700
Rent expense was $5,937,000, $2,001,000 and $1,465,000 for the years
ended December 31, 1998, 1997 and 1996.
10. Contingencies
At December 31, 1998, in addition to the $687,250,000 balance
outstanding under the Company's revolving credit facility, the Company had
utilized $100,165,000 of availability under the facility for letters of credit
and guarantees primarily related to pending acquisitions.
Each of the Company's properties has been subjected to varying degrees
of environmental assessment at various times. The environmental assessments did
not reveal any material environmental contamination. However, there can be no
assurance that the identification of new areas of contamination, 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
Company.
From time-to-time, the Company has disposed of substantial amounts of
real estate to third parties for which, as to certain properties, it remains
contingently liable for rent payments or mortgage indebtedness.
There are various legal actions against the Company in the ordinary
course of business. In the opinion of management, after consultation with legal
counsel, the outcome of such matters will not have a material effect on the
Company's financial condition, results of operations or cash flow.
11. Net Gain From Insurance Settlement and Condemnation Proceedings
In April 1997, the Company's Lodi shopping center was destroyed by a
fire. In the third quarter of 1998, the Company and its insurer agreed that the
estimated cost to reconstruct the shopping center is approximately $9,012,000
and the Company recorded a gain of $7,955,000 (the agreed upon amount, net of
the carrying value of the shopping center of $1,057,000). The insurance carrier
had previously advanced $5,550,000 to the Company. The reconstruction of the
shopping center is expected to be completed in 1999.
On September 1, 1998, Atlantic City condemned the Company's vacant
property. In the third quarter of 1998, the Company recorded a gain of
$1,694,000, (which reflects the condemnation award of $3,100,000, net of the
carrying value of the property of $1,406,000). The Company is contesting the
amount of the award.
-84-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Repurchase Agreements
The Company enters into agreements for the purchase and resale of U.S.
government obligations for periods of up to one week. The obligations purchased
under these agreements are held in safekeeping in the name of the Company by
various money center banks. The Company has the right to demand additional
collateral or return of these invested funds at any time the collateral value is
less than 102% of the invested funds plus any accrued earnings thereon.
13. Other Related Party Transactions
Pursuant to his employment contract, in December 1996 Mr. Fascitelli,
the President of the Company, received a deferred payment consisting of
$5,000,000 in cash and a $20,000,000 convertible obligation payable at the
Company's option in 919,540 of Vornado common shares or the cash equivalent of
their appreciated value but not less than $20,000,000. Accordingly, cash of
$5,000,000 and 919,540 Vornado common shares are being held in an irrevocable
trust (the fair value of this obligation was $35,628,000 at December 31, 1998).
During 1998, the Company made loans to Mr. Fascitelli aggregating
$7,600,000 in accordance with the terms of his employment contract. The loans
have a five-year term and bear interest, payable quarterly, at a weighted
average rate of 5.16% (based on the mid-term applicable federal rate provided
under the Internal Revenue Code).
At December 31, 1998, the loans due from Mr. Roth, Mr. Rowan and Mr.
Macnow in connection with their stock option exercises were $13,930,000
($4,897,000 of which is shown as a reduction in shareholders' equity), $144,000
and $130,000, respectively. The loans bear interest at a rate equal to the
broker call rate (6.50% at December 31, 1998) but not less than the minimum
applicable federal rate provided under the Internal Revenue Code. Interest on
the loan to Mr. Roth is payable quarterly. Mr. Roth's loan, is due in December
2002. The Company has agreed on each January 1st (commencing January 1, 1997) to
forgive one-fifth of the amounts due from Mr. Rowan and Mr. Macnow, provided
that they remain employees of the Company.
The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement for which the Company
receives a quarterly fee equal to 4% of base rent and percentage rent and
certain other commissions. The management agreement has a term of one year and
is automatically renewable unless terminated by either of the parties on sixty
days' notice at the end of the term. Although the management agreement was not
negotiated at arms length, the Company believes based upon comparable fees
charged by other real estate companies, that its terms are fair to the Company.
For the years ended December 31, 1998, 1997 and 1996, $1,365,000 and $1,184,000
and $2,074,000 of management fees were earned by the Company pursuant to the
management agreement.
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. Although the terms and conditions of the contracts
pursuant to which these services are provided were not negotiated at arms
length, the Company believes based upon comparable fees charged to other real
estate companies, that the terms and conditions of such contracts are fair to
the Company. The Company was charged fees in connection with these contracts of
$25,686,000 for the year ended December 31, 1998 and $9,965,000 for the period
from April 15, 1997 (date of acquisition of the Mendik portfolio) to December
31, 1997.
The common stock of the preferred stock affiliates which own interests
in the Cold Storage Companies, Hotel Pennsylvania and related management
companies is owned by Officers and Trustees of Vornado.
-85-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Preferential Allocations
The preferential allocations represent limited partners interests in
the Operating Partnership and are comprised of:
<TABLE>
<CAPTION>
Outstanding Preferred or
Units at Per Unit Annual Conversion Rate
December 31, Liquidation Distribution Into Class A
Unit Series 1998 Preference Rate Units
----------- ---- ---------- ---- -----
<S> <C> <C> <C> <C>
Class A........................... 1,887,781 -- $ 1.76 (a)
Class C........................... 3,534,098 -- $ 1.69 (b) 1.0 (c)
Class D........................... 1,332,596 -- $ 2.015 1.0 (d)
5.0% B-1 Convertible Preferred.... 899,566 $ 50.00 $ 2.75 .914
8.0% B-2 Convertible Preferred.... 449,783 $ 50.00 $ 4.00 .914
6.5% C-1 Convertible Preferred.... 747,912 $ 50.00 $ 3.25 1.1431
8.5% D-1 Cumulative Redeemable
Preferred....................... 3,500,000 $ 25.00 $ 2.125 (e)
</TABLE>
- - - -------------
(a) Class A units are convertible into one common share of beneficial interest
in Vornado or cash at Vornado's option.
(b) Class C unit holders participated in distributions at an annual rate of
$1.69, then pari passu with the Class A rate.
(c) Mandatory conversion of Class C units occurs after four consecutive
quarters of distributions of at least $.4225 per unit ($1.69 annually).
(d) Mandatory conversion of Class D units occurs after four consecutive
quarters of distributions of at least $.50375 per unit ($2.015 annually),
then pari passu with the Class A rate.
(e) Convertible into an equivalent Vornado 8.5% preferred share.
-86-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Earnings Per Class A Unit
The following table sets forth the computation of basic and diluted
earnings per Class A Unit:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
(amounts in thousands, except per unit amounts)
Numerator:
Net income.................................................... $ 168,386 $ 68,316 $ 61,364
Preferred unit distributions.................................. (21,690) (15,549) --
Preferential allocations...................................... (15,532) (7,293) --
----------- ----------- -----------
Numerator for basic and diluted earnings per Class A Unit--
net income applicable to Class A units...................... $ 131,164 $ 45,474 $ 61,364
=========== =========== ===========
Denominator:
Denominator for basic earnings per Class A unit--
weighted average units...................................... 80,724,132 55,097,656 48,854,832
Effect of dilutive securities:
Employee stock options...................................... 1,931,818 2,119,553 352,052
----------- ----------- -----------
Denominator for diluted earnings per Class A unit--adjusted
weighted average units and assumed conversions.............. 82,655,950 57,217,209 49,206,884
=========== =========== ===========
Net income per Class A unit--basic............................... $ 1.62 $ 0.83 $ 1.26
Net income per Class A unit--diluted.............................. $ 1.59 $ 0.79 $ 1.25
</TABLE>
16. Summary of Quarterly Results (Unaudited)
The following summary represents the results of operations for each
quarter in 1998 and 1997:
<TABLE>
<CAPTION>
Net Income Per
Net Income Class A Unit (1)
Applicable to -------------------
Revenue Class A Units Basic Diluted
------- ------------- ----- -------
<S> <C> <C> <C> <C>
(amounts in thousands, except unit amounts)
1998
March 31.............................................. $ 90,211 $ 26,064 $.36 $.35
June 30............................................... 128,523 30,894 .38 .37
September 30.......................................... 140,672 39,659 .47 .46
December 31........................................... 150,454 34,547 .41 .40
1997
March 31.............................................. $ 29,297 $ 9,690 $.19 $.18
June 30............................................... 50,662 8,933 .17 .17
September 30.......................................... 61,868 10,385 .20 .19
December 31........................................... 67,304 16,466 .26 .25
</TABLE>
- - - ------------
(1) The total for the year may differ from the sum of the quarters as a result
of weighting.
-87-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
17. Segment Information
The Company has four business segments: Office, Retail, Cold Storage
and Merchandise Mart Properties. Prior to April 1997, the Company operated in
one segment-retail real estate, primarily in the Northeast section of the United
States. Accordingly, selected financial information related to each segment is
presented for 1998 and 1997 only.
<TABLE>
<CAPTION>
(amounts in thousands)
December 31, 1998
-------------------------------------------------------------------------------------------
Cold Merchandise
Office Retail Storage Mart Other(2) Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 247,499 $ 167,155 $ -- $ 86,521 $ 8,685 $ 509,860
Total expenses 151,573 70,334 -- 50,761 22,340 295,008
----------- ----------- ----------- ----------- ----------- -----------
Operating income 95,926 96,821 -- 35,760 (13,655) 214,852
Income applicable to Alexander's -- -- -- -- 3,123 3,123
Income from partially-owned
entities 10,854 258 15,191 (1,969) 7,691 32,025
Interest and other investment
income 4,467 2,159 -- 639 16,809 24,074
Interest and debt expense (25,175) (32,249) -- (18,711) (38,551) (114,686)
Net gain from insurance
settlement and
condemnation proceeding -- -- -- -- 9,649 9,649
Minority interest (651) -- -- -- -- (651)
----------- ----------- ----------- ----------- ----------- -----------
Net income 85,421 66,989 15,191 15,719 (14,934) 168,386
Minority interest 651 -- -- -- -- 651
Interest and debt expense(5) 40,245 32,709 26,541 18,711 46,272 164,478
Depreciation and amortization(5) 39,246 15,520 33,117 9,899 6,517 104,299
Net gain from insurance
settlement and
condemnation proceeding -- -- -- -- (9,649) (9,649)
Straight-lining of rents(5) (6,845) (3,203) -- (4,882) (1,202) (16,132)
Other (79) -- 8,872(3) -- 6,262(4) 15,055
----------- ----------- ----------- ----------- ----------- -----------
EBITDA(1) $ 158,639 $ 112,015 $ 83,721 $ 39,447 $ 33,266 $ 427,088
=========== =========== =========== =========== =========== ===========
Balance sheet data:
Real estate, net $ 1,777,919 $ 565,723 $ -- $ 729,485 $ 15,948 $ 3,089,075
Investments and advances to
partially-owned entities 118,337 2,946 459,172 26,638 220,747 827,840
Capital expenditures:
Acquisitions 923,000 38,000 175,000 745,000 178,000 2,059,000
Other 51,162 5,535 12,463 10,314 1,074 80,548
</TABLE>
<TABLE>
<CAPTION>
(amounts in thousands)
December 31, 1997
-------------------------------------------------------------------------------------
Cold Merchandise
Office Retail Storage Mart Other(2) Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 80,846 $ 120,299 $ -- $ -- $ 7,986 $ 209,131
Total expenses 50,186 46,204 -- -- 37,835 134,225
----------- ----------- ----------- ----------- ----------- -----------
Operating income 30,660 74,095 -- -- (29,849) 74,906
Income applicable to Alexander's -- -- -- -- 7,873 7,873
Income from partially-owned
entities 1,015 -- 1,720 -- 1,923 4,658
Interest and other investment
income 6,834 2,296 -- -- 14,637 23,767
Interest and debt expense (19,893) -- -- -- (13,986) (42,888)
Net gain from insurance
settlement and
condemnation proceeding -- -- -- -- -- --
Minority interest -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income 29,500 56,498 1,720 -- 21,298 68,316
Minority interest -- -- -- -- -- --
Interest and debt expense(5) 13,707 19,893 5,839 -- 14,956 54,395
Depreciation and amortization(5) 12,813 11,706 4,182 -- 3,271 31,972
Net gain from insurance
settlement and
condemnation proceeding -- -- -- -- -- --
Straight-lining of rents(5) (645) (2,558) -- -- (729) (3,932)
Other 1,303 970 17 -- (2,615) (325)
----------- ----------- ----------- ----------- ----------- -----------
EBITDA(1) $ 56,678 $ 86,509 $ 11,758 $ -- $ (4,519) $ 150,426
=========== =========== =========== =========== =========== ===========
Balance sheet data:
Real estate, net $ 803,324 $ 564,214 $ -- $ -- $ 23,120 $ 1,390,659
Investments and advances to
partially-owned entities 105,586 4,451 243,846 -- 128,904 482,787
Capital expenditures:
Acquisitions 965,000 366,000 600,000 -- 64,000 1,995,000
Other 12,992 8,445 6,102 -- 2,352 29,891
</TABLE>
- - - ------------
See footnotes 1-5 on the next page.
-88-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Notes to segment information:
(1) EBITDA represents net income before interest, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses on
sales of real estate and the effect of straight-lining of property
rentals for rent escalations. Management considers EBITDA a supplemental
measure for making decisions and assessing the performance of its
segments. EBITDA may not be comparable to similarly titled measures
employed by other companies.
(2) Other includes (i) the operations of the Company's warehouse and
industrial properties, (ii) investments in the Hotel Pennsylvania,
Alexander's, and Newkirk Joint Ventures, (iii) corporate general and
administrative expenses and (iv) unallocated investment income and
interest and debt expense.
(3) Includes adding back of (i) $4,287 of income taxes and related items,
which are considered non-recurring because of the expected conversion of
the Cold Storage Companies to REITS and (ii) non-recurring unification
costs of $4,585.
(4) Primarily represents the Company's equity in Alexander's loss from the
write-off of the carrying value of Alexander's Lexington Avenue
buildings.
(5) Interest and debt expense, depreciation and amortization and
straight-lining of rents included in the reconciliation of net income to
EBITDA reflects amounts which are netted in income from partially-owned
entities.
18. Subsequent Events
Acquisition of 888 Seventh Avenue
On January 12, 1999, the Company completed the acquisition of 888
Seventh Avenue, a 46 story Manhattan office building for approximately
$100,000,000.
Additional Investment in Newkirk
In March 1999, the Company and its joint venture partner completed an
acquisition of additional equity interests in certain limited partnerships. The
Company's additional investment of $52,435,000 consisted of $47,790,000 in
Operating Partnership Units and $4,645,000 in cash.
Charles E. Smith Commercial Realty L.P.
On March 4, 1999, the Company made an additional $242,000,000
investment in CESCR by contributing to CESCR the land under certain CESCR office
properties in Crystal City, Arlington, Virginia and partnership interests in
certain CESCR subsidiaries. The Company acquired these assets from Commonwealth
Atlantic Properties, Inc. ("CAPI"), an affiliate of Lazard Freres Real Estate
Investors L.L.C., immediately prior to the contribution to CESCR. Together with
the Company's investment in CESCR made in 1997 and the units it reacquired on
March 4, 1999 from Vornado Operating Company, the Company owns approximately 34%
of CESCR's limited partnership units. In addition, the Company acquired from
CAPI for $8,000,000 the land under a Marriott Hotel located in Crystal City.
The purchase price was paid to CAPI by the Company issuing $250,000,000
of 6% Convertible Preferred Units of the Company's operating partnership. The
Preferred Units are convertible at $44 per unit and the coupon increases to
6.50% over the next three years and then fixes at 6.75% in year eight. The
Company will appoint one of three members to CESCR's Board of Managers,
increasing under certain circumstances to two of four members in March 2002.
In connection with these transactions, the Company made a five-year
$41,000,000 loan to CAPI with interest at 8%, increasing to 9% ratably over the
term. The loan is secured by approximately $55,000,000 of the Operating
Partnership's units issued to CAPI as well as certain real estate assets.
Offering of Preferred Shares
On March 17, 1999, Vornado completed the sale of 3 million 8.5% Series
B Cumulative Redeemable Preferred Shares, at a price $25.00 per share, pursuant
to an effective registration statement with net proceeds of approximately
$72,200,000. Further on March 22, 1999, 400,000 shares were sold when the
underwriters exercised their over-allotment option resulting in additional net
proceeds of $9,700,000. The perpetual preferred shares may be called without
penalty at the option of Vornado commencing on March 17, 2004. An equivalent
number of units were issued by Vornado for the shares sold.
-89-
<PAGE>
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Sale of Non-Real Estate Assets of AmeriCold Logistics
On March 12, 1999, the Vornado/Crescent Partnerships sold all of the
non-real estate assets of the Cold Storage Companies encompassing the operations
of the cold storage business for approximately $48,000,000 to a new partnership
owned 60% by Vornado Operating Company and 40% by Crescent Operating Inc. The
new partnership leases the underlying cold storage warehouses used in this
business from the Vornado/Crescent Partnerships which continue to own the real
estate. The leases have a 15 year term with two-five year renewal options and
provide for the payment of fixed base rent and percentage rent based on customer
revenues. The new partnership is required to pay for all costs arising from the
operation, maintenance and repair of the properties, as well as property capital
expenditures in excess of $5,000,000 annually. Fixed base rent and percentage
rent for the initial lease year is projected to be approximately $151 million.
The new partnership has the right to defer a portion of the rent for up to three
years beginning on March 12, 1999 to the extent that available cash, as defined
in the leases, is insufficient to pay such rent.
-90-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Operating Partnership is managed by Vornado, its general partner.
Information relating to trustees of Vornado will be contained in a definitive
Proxy Statement involving the election of trustees which Vornado will file with
the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934 not later than 120 days after December 31, 1998,
and such information is incorporated herein by reference. Information relating
to Executive Officers of Vornado appears at page 42 of this Annual Report on
Form 10-K.
Item 11. Executive Compensation
Information relating to Vornado's executive compensation will be
contained in Vornado's Proxy Statement referred to above in Item 10, "Directors
and Executive Officers of the Registrant", and such information is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information relating to security ownership of certain beneficial owners
and management will be contained in Vornado's Proxy Statement referred to in
Item 10, "Directors and Executive Officers of the Registrant", and such
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information relating to certain relationships and related transactions
will be contained in Vornado's Proxy Statement referred to in Item 10,
"Directors and Executive Officers of the Registrant", and such information is
incorporated herein by reference.
-91-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. The consolidated financial statements are set
forth in Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules.
The following financial statement schedules should be read in
conjunction with the financial statements included in Item 8 of this Annual
Report on Form 10-K.
Pages in this
Annual Report
on Form 10-K
------------
Independent Auditors' Report
II--Valuation and Qualifying Accounts--
years ended December 31, 1998, 1997 and 1996.............. 94
III--Real Estate and Accumulated Depreciation
as of December 31, 1998.................................. 95
Schedules other than those listed above are omitted because they are
not applicable or the information required is included in the consolidated
financial statements or the notes thereto.
The consolidated financial statements of Alexander's, Inc. for the year
ended December 31, 1996 are hereby incorporated by reference to Item 14(a)1 of
the 1996 Annual Report on Form 10-K of Alexander's, Inc. for the year ended
December 31, 1996.
3. The following exhibits listed on the Exhibit Index are
filed with this Annual Report on Form 10-K.
Exhibit No.
- - - -----------
12 Consolidated Ratios of Earnings to Fixed Charges and Combined
Fixed Charges and Preferred Share Dividend Requirements.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors to Incorporation by Reference.
27 Financial Data Schedule.
(b) Reports on Form 8-K and Form 8-K/A
During the last quarter of the period covered by this Annual Report on Form
10-K described below.
<TABLE>
<CAPTION>
Period Covered:
(Date of Earliest
Event Reported) Items Reported Date of Report
- - - --------------- -------------- --------------
<S> <C> <C>
October 22, 1998 Court approval of Mendik RELP litigation settlement; June 2, 1998
resignation of Bernard H. Mendik
November 30, 1998 Issuance of Series D-1 Preferred Units by November 12, 1998
Vornado Realty L.P.
</TABLE>
-92-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
By: /s/ Irwin Goldberg
---------------------------------
Irwin Goldberg, Vice President,
Chief Financial Officer
Date: March 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: /s/ Steven Roth Chairman of the Board of March 24, 1999
---------------------------------------- Trustees (Principal Executive
(Steven Roth) Officer)
By: /s/ Michael D. Fascitelli President and Trustee March 24, 1999
----------------------------------------
(Michael D. Fascitelli)
By: /s/ Irwin Goldberg Vice President-- March 24, 1999
---------------------------------------- Chief Financial Officer
(Irwin Goldberg)
By: /s/ David Mandelbaum Trustee March 24, 1999
----------------------------------------
(David Mandelbaum)
By: /s/ Stanley Simon Trustee March 24, 1999
----------------------------------------
(Stanley Simon)
By: /s/ Ronald G. Targan Trustee March 24, 1999
----------------------------------------
(Ronald G. Targan)
By: /s/ Russell B. Wight, Jr. Trustee March 24, 1999
----------------------------------------
(Russell B. Wight, Jr.)
By: /s/ Richard R. West Trustee March 24, 1999
----------------------------------------
(Richard R. West)
</TABLE>
-93-
<PAGE>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- - - ------------------------------------------- ------------ --------------- -------------------------------------- --------
Balance Additions Deductions Balance
at Beginning Charged Against -------------------------------------- at End
Description of Year Operations Description Amount of Year
- - - ----------- ------- ---------- ----------- ------ -------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Deducted from accounts receivable,
allowance for doubtful accounts..... $658 $2,547 Uncollectible accounts $161 $ 3,044
==== ====== written-off ==== =======
Year Ended December 31, 1997:
Deducted from accounts receivable,
allowance for doubtful accounts..... $575 $ 305 Uncollectible accounts $222 $ 658
==== ====== written-off ==== =======
Year Ended December 31, 1996:
Deducted from accounts receivable
allowance for doubtful accounts..... $578 $ 211 Uncollectible accounts $214 $ 575
==== ====== written-off ==== =======
</TABLE>
-94-
<PAGE>
<TABLE>
<CAPTION>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(amounts in thousands)
-------------------------- -------------- ------------------------------ ------------- --------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------------- -------------- ------------------------------ ------------- --------------------------------------
Initial cost to Gross amount at which
company(1) Costs carried at close of period
--------------------------- capitalized ---------------------------
Buildings subsequent
and to Buildings and
Description Encumbrances Land improvements acquisition Land improvements Total(2)
------------ ----------- ------------ ----------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Office Buildings
New York
One Penn Plaza
Manhattan $ 275,000 $ -- $ 412,169 $ 3,539 $ -- $ 415,708 $ 415,708
Two Penn Plaza,
Manhattan 80,000 53,615 164,903 38,131 53,615 203,034 256,649
770 Broadway
Manhattan -- 52,898 95,686 3,605 52,898 99,291 152,189
Eleven Penn Plaza,
Manhattan 53,901 40,333 85,259 5,816 40,333 91,075 131,408
Two Park Avenue
Manhattan 65,000 44,050 69,715 -- 44,050 69,715 113,765
90 Park Avenue,
Manhattan -- 8,000 175,890 4,624 8,000 180,514 188,514
330 West 34th Street
Manhattan -- -- 8,599 -- -- 8,599 8,599
1740 Broadway,
Manhattan -- 26,971 102,890 5,007 26,971 107,897 134,868
150 East 58th Street
Manhattan -- 39,303 80,216 45 39,303 80,261 119,564
866 United Nations Plaza,
Manhattan 33,000 32,196 37,534 2,543 32,196 40,077 72,273
640 Fifth Avenue,
Manhattan -- 38,224 25,992 424 38,224 26,416 64,640
40 Fulton Street
Manhattan -- 20,400 34,235 1,025 20,400 35,260 55,660
20 Broad Street
Manhattan -- -- 28,760 55 -- 28,815 28,815
689 Fifth Avenue
Manhattan -- 19,721 13,446 10 19,721 13,456 33,177
550/600 Mamaroneck
Avenue
Westchester 6,500 -- 21,770 30 -- 21,800 21,800
----------- ----------- ----------- ---------- -------- ----------- ---------
Total New York 513,401 375,711 1,357,064 64,854 375,711 1,421,918 1,797,629
----------- ----------- ----------- ---------- -------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(amounts in thousands)
-------------------------- --------------- -------------- -------------- -------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------------------------- --------------- -------------- -------------- -------------
Life on
which
depreciation
Accumulated in latest
depreciation income
and Date of Date statement
Description amortization construction(3) Acquired is computed
--------------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Office Buildings
New York
One Penn Plaza
Manhattan $ 9,552 1972 1998 39 Years
Two Penn Plaza,
Manhattan 8,240 1968 1997 39 Years
770 Broadway
Manhattan 1,224 1907 1998 39 Years
Eleven Penn Plaza,
Manhattan 3,940 1923 1997 39 Years
Two Park Avenue
Manhattan 3,416 1928 1998 39 Years
90 Park Avenue,
Manhattan 6,199 1964 1997 39 Years
330 West 34th Street
Manhattan 28 1925 1998 39 Years
1740 Broadway,
Manhattan 4,809 1950 1997 39 Years
150 East 58th Street
Manhattan 1,679 1969 1998 39 Years
866 United Nations Plaza,
Manhattan 1,693 1966 1997 39 Years
640 Fifth Avenue,
Manhattan 695 1950 1997 39 Years
40 Fulton Street
Manhattan 518 1987 1998 39 Years
20 Broad Street
Manhattan 305 1956 1998 39 Years
689 Fifth Avenue
Manhattan 129 1925 1998 39 Years
550/600 Mamaroneck
Avenue
Westchester 70 1971/1969 1998 39 Years
-----------
Total New York 42,497
-----------
</TABLE>
-95-
<PAGE>
<TABLE>
<CAPTION>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(amounts in thousands)
-------------------------- -------------- ------------------------------ ------------- --------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------------- -------------- ------------------------------ ------------- --------------------------------------
Initial cost to Gross amount at which
company(1) Costs carried at close of period
--------------------------- capitalized ---------------------------
Buildings subsequent
and to Buildings and
Description Encumbrances Land improvements acquisition Land improvements Total(2)
------------ ----------- ------------ ----------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Connecticut
Westport 8,000 4,544 9,753 369 4,544 10,122 14,666
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Connecticut 8,000 4,544 9,753 369 4,544 10,122 14,666
----------- ----------- ----------- ---------- -------- ----------- ---------
New Jersey
Paramus 250 -- 8,345 2,927 -- 11,272 11,272
----------- ----------- ----------- ---------- -------- ----------- ---------
Total New Jersey 250 -- 8,345 2,927 -- 11,272 11,272
--
Total Office Buildings 521,651 380,255 1,375,162 68,150 380,255 1,443,312 1,823,567
----------- ----------- ----------- ---------- -------- ----------- ---------
Merchandise Mart
Properties
Illinois
Merchandise Mart
Chicago 250,000 64,528 319,146 4,653 64,528 323,799 388,327
Apparel Center
Chicago -- 14,238 67,008 3,838 14,238 70,846 85,084
Washington D.C.
Washington Office 50,878 10,721 69,658 134 10,721 69,792 80,513
Center
Washington Design 24,225 12,276 40,662 1,660 12,276 42,322 54,598
Center
Other 9,174 6,273 45 9,174 6,318 15,492
North Carolina
Market Square Complex
High Point 45,302 11,969 85,478 -- 11,969 85,478 97,447
National Furniture
Mart
High Point 13,831 1,069 16,761 -- 1,069 16,761 17,830
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Merchandise Mart 384,236 123,975 604,986 10,330 123,975 615,316 739,291
----------- ----------- ----------- ---------- -------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(amounts in thousands)
-------------------------- --------------- -------------- -------------- -------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------------------------- --------------- -------------- -------------- -------------
Life on
which
depreciation
Accumulated in latest
depreciation income
and Date of Date statement
Description amortization construction(3) Acquired is computed
--------------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Connecticut
Westport 234 1980 1998 39 Years
-----------
Total Connecticut 234
-----------
New Jersey
Paramus 2,916 1967 1987 26 -- 40
-----------
Years
Total New Jersey 2,916
-----------
Total Office Buildings 45,647
-----------
Merchandise Mart
Properties
Illinois
Merchandise Mart
Chicago 6,043 1930 1998 40 Years
Apparel Center
Chicago 1,314 1977 1998 40 Years
Washington D.C.
Washington Office 1,323 1990 1998 40 Years
Center
Washington Design 801 1919 1998 40 Years
Center
Other 118 1998 40 Years
North Carolina
Market Square Complex
High Point 180 1902 -- 1989 1998 40 Years
National Furniture
Mart
High Point 27 1964 1998 40 Years
-----------
Total Merchandise Mart 9,806
-----------
</TABLE>
-96-
<PAGE>
<TABLE>
<CAPTION>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(amounts in thousands)
------------------------ -------------- ------------------------------ ------------- --------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------ -------------- ------------------------------ ------------- --------------------------------------
Initial cost to Gross amount at which
company(1) Costs carried at close of period
--------------------------- capitalized ---------------------------
Buildings subsequent
and to Buildings and
Description Encumbrances Land improvements acquisition Land improvements Total(2)
------------ ----------- ------------ ----------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers
New Jersey
Bordentown 3,276* 498 3,176 1,113 713 4,074 4,787
Bricktown 9,919* 929 2,175 9,180 929 11,355 12,284
Cherry Hill 9,706* 915 3,926 3,304 915 7,230 8,145
Delran 2,848* 756 3,184 2,421 756 5,605 6,361
Dover 3,635* 224 2,330 2,575 204 4,925 5,129
East Brunswick 8,205* 319 3,236 6,638 319 9,874 10,193
East Hanover 11,066* 376 3,063 3,539 477 6,501 6,978
East Hanover (Conran's) -- 1,756 8,706 -- 1,756 8,706 10,462
Hackensack -- 536 3,293 7,255 536 10,548 11,084
Jersey City 10,381* 652 2,962 1,798 652 4,760 5,412
Kearny (4) -- 279 4,429 (1,208) 290 3,210 3,500
Lawnside 5,708* 851 2,222 1,412 851 3,634 4,485
Lodi (5) 2,420* 245 1,981 -- 245 1,981 2,226
Manalapan 6,397* 725 2,447 4,945 725 7,392 8,117
Marlton 5,398* 1,514 4,671 605 1,611 5,179 6,790
Middletown 7,761* 283 1,508 3,944 283 5,452 5,735
Morris Plains 6,600* 1,254 3,140 3,317 1,104 6,607 7,711
North Bergen (4) -- 510 3,390 (955) 2,309 636 2,945
North Plainfield 3,109 500 13,340 354 500 13,694 14,194
Totowa 15,646* 1,097 5,359 10,941 1,163 16,234 17,397
Turnersville 2,116* 900 2,132 66 900 2,198 3,098
Union 15,975* 1,014 4,527 1,908 1,014 6,435 7,449
Vineland 2,358* 290 1,594 1,253 290 2,847 3,137
Watchung (4) -- 451 2,347 6,871 4,200 5,469 9,669
Woodbridge 8,792* 190 3,047 711 220 3,728 3,948
----------- ----------- ----------- ---------- -------- ----------- ---------
Total New Jersey 141,316 17,064 92,185 71,987 22,962 158,274 181,236
----------- ----------- ----------- ---------- -------- ----------- ---------
New York
14th Street and Union
Square, Manhattan -- 12,566 4,044 3,525 12,581 7,554 20,135
Albany (Menands) -- 460 1,677 2,756 460 4,433 4,893
Buffalo (Amherst) 4,863* 402 2,019 2,126 636 3,911 4,547
Freeport 8,021* 1,231 3,273 2,848 1,231 6,121 7,352
New Hyde Park 2,043* -- -- 126 -- 126 126
North Syracuse -- -- -- 23 -- 23 23
Rochester (Henrietta) 2,203* -- 2,124 1,156 -- 3,280 3,280
Rochester 2,832* 443 2,870 596 443 3,466 3,909
</TABLE>
<TABLE>
<CAPTION>
-------------------------- --------------- -------------- -------------- -------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------------------------- --------------- -------------- -------------- -------------
Life on
which
depreciation
Accumulated in latest
depreciation income
and Date of Date statement
Description amortization construction(3) Acquired is computed
--------------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Shopping Centers
New Jersey
Bordentown 3,723 1958 1958 7 -- 40 Years
Bricktown 4,669 1968 1968 22 -- 40 Years
Cherry Hill 5,106 1964 1964 12 -- 40 Years
Delran 2,900 1972 1972 16 -- 40 Years
Dover 2,851 1964 1964 16 -- 40 Years
East Brunswick 5,212 1957 1957 8 -- 33 Years
East Hanover 4,431 1962 1962 9 -- 40 Years
East Hanover (Conran's) 54 1979 1998 40 Years
Hackensack 4,585 1963 1963 15 -- 40 Years
Jersey City 3,605 1965 1965 11 -- 40 Years
Kearny (4) 1,088 1938 1959 23 -- 29 Years
Lawnside 2,127 1969 1969 17 -- 40 Years
Lodi (5) -- 1998 1975 (5)
Manalapan 3,741 1971 1971 14 -- 40 Years
Marlton 3,722 1973 1973 16 -- 40 Years
Middletown 2,713 1963 1963 19 -- 40 Years
Morris Plains 4,474 1961 1985 7 -- 19 Years
North Bergen (4) 100 1993 1959 30 Years
North Plainfield 4,384 1955 1989 21 -- 30 Years
Totowa 5,687 1957 1957 19 -- 40 Years
Turnersville 1,669 1974 1974 23 -- 40 Years
Union 5,001 1962 1962 6 -- 40 Years
Vineland 1,787 1966 1966 18 -- 40 Years
Watchung (4) 742 1994 1959 27 -- 30 Years
Woodbridge 2,895 1959 1959 11 -- 40 Years
-----------
Total New Jersey 77,266
-----------
New York
14th Street and Union
Square, Manhattan 800 1965 1993 36 -- 39 Years
Albany (Menands) 1,979 1965 1965 22 -- 40 Years
Buffalo (Amherst) 2,535 1968 1968 13 -- 40 Years
Freeport 2,780 1981 1981 15 -- 40 Years
New Hyde Park 123 1970 1976 6 -- 10 Years
North Syracuse 23 1967 1976 11 -- 12 Years
Rochester (Henrietta) 2,063 1971 1971 15 -- 40 Years
Rochester 2,427 1966 1966 10 -- 40 Years
</TABLE>
-97-
<PAGE>
<TABLE>
<CAPTION>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(amounts in thousands)
------------------------ -------------- ------------------------------ ------------- --------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------ -------------- ------------------------------ ------------- --------------------------------------
Initial cost to Gross amount at which
company(1) Costs carried at close of period
--------------------------- capitalized ---------------------------
Buildings subsequent
and to Buildings and
Description Encumbrances Land improvements acquisition Land improvements Total(2)
------------ ----------- ------------ ----------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Valley Stream (Green 165,574 138,691 99,586 1,653 140,069 99,861 239,930
Acres) ----------- ----------- ----------- ---------- -------- ----------- ---------
Total New York 185,536 153,793 115,593 14,809 155,420 128,775 284,195
----------- ----------- ----------- ---------- -------- ----------- ---------
Pennsylvania
Allentown 7,696* 70 3,446 10,183 334 13,365 13,699
Bensalem 3,967* 1,198 3,717 1,168 1,198 4,885 6,083
Bethlehem -- 278 1,806 3,873 278 5,679 5,957
Broomall 3,260* 734 1,675 1,630 850 3,189 4,039
Glenolden 4,245* 850 1,295 744 850 2,039 2,889
Lancaster 2,312* 606 2,312 2,643 606 4,955 5,561
Levittown 2,283* 193 1,231 132 193 1,363 1,556
10th and Market
Streets, Philadelphia -- 933 3,230 5,426 933 8,656 9,589
Upper Moreland 3,517* 683 2,497 498 683 2,995 3,678
York 1,463* 421 1,700 1,248 421 2,948 3,369
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Pennsylvania 28,743 5,966 22,909 27,545 6,346 50,074 56,420
----------- ----------- ----------- ---------- -------- ----------- ---------
Maryland
Baltimore (Belair Rd.) -- 785 1,333 3,146 785 4,479 5,264
Baltimore (Towson) 5,779* 581 2,756 722 581 3,478 4,059
Baltimore (Dundalk) 4,084* 667 1,710 3,209 667 4,919 5,586
Glen Burnie 2,299* 462 1,741 1,281 462 3,022 3,484
Hagerstown -- 168 1,453 885 168 2,338 2,506
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Maryland 12,162 2,663 8,993 9,243 2,663 18,236 20,899
----------- ----------- ----------- ---------- -------- ----------- ---------
Connecticut
Newington 3,042* 502 1,581 600 502 2,181 2,683
Waterbury 3,889* -- 2,103 1,463 667 2,899 3,566
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Connecticut 6,931 502 3,684 2,063 1,169 5,080 6,249
----------- ----------- ----------- ---------- -------- ----------- ---------
Massachusetts
Chicopee 1,999* 510 2,031 358 510 2,389 2,899
Springfield (4) -- 505 1,657 826 2,586 402 2,988
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Massachusetts 1,999 1,015 3,688 1,184 3,096 2,791 5,887
----------- ----------- ----------- ---------- -------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
-------------------------- --------------- -------------- -------------- -------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------------------------- --------------- -------------- -------------- -------------
Life on
which
depreciation
Accumulated in latest
depreciation income
and Date of Date statement
Description amortization construction(3) Acquired is computed
--------------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Valley Stream (Green 2,706 1956 1997 39 -- 40 Years
Acres) -----------
Total New York 15,436
-----------
Pennsylvania
Allentown 4,967 1957 1957 20 -- 42 Years
Bensalem 1,242 1972 1972 40 Years
Bethlehem 3,297 1966 1966 9 -- 40 Years
Broomall 1,993 1966 1966 9 -- 40 Years
Glenolden 1,055 1975 1975 18 -- 40 Years
Lancaster 3,025 1966 1966 12 -- 40 Years
Levittown 1,131 1964 1964 7 -- 40 Years
10th and Market
Streets, Philadelphia 857 1977 1994 27 -- 30 Years
Upper Moreland 1,939 1974 1974 15 -- 40 Years
York 1,715 1970 1970 15 -- 40 Years
-----------
Total Pennsylvania 21,221
-----------
Maryland
Baltimore (Belair Rd.) 2,977 1962 1962 10 -- 33 Years
Baltimore (Towson) 2,140 1968 1968 13 -- 40 Years
Baltimore (Dundalk) 2,723 1966 1966 12 -- 40 Years
Glen Burnie 1,798 1958 1958 16 -- 33 Years
Hagerstown 1,385 1966 1966 9 -- 40 Years
-----------
Total Maryland 11,023
-----------
Connecticut
Newington 1,554 1965 1965 9 -- 40 Years
Waterbury 1,810 1969 1969 21 -- 40 Years
-----------
Total Connecticut 3,364
-----------
Massachusetts
Chicopee 1,796 1969 1969 13 -- 40 Years
Springfield (4) 74 1993 1966 28 -- 30 Years
-----------
Total Massachusetts 1,870
-----------
</TABLE>
-98-
<PAGE>
<TABLE>
<CAPTION>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(amounts in thousands)
------------------------ -------------- ------------------------------ ------------- --------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------ -------------- ------------------------------ ------------- --------------------------------------
Initial cost to Gross amount at which
company(1) Costs carried at close of period
--------------------------- capitalized ---------------------------
Buildings subsequent
and to Buildings and
Description Encumbrances Land improvements acquisition Land improvements Total(2)
------------ ----------- ------------ ----------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Texas
Dallas
Lewisville 764* 2,433 2,271 676 2,469 2,911 5,380
Mesquite 3,445* 3,414 4,704 1,233 3,395 5,956 9,351
Skillman 1,987* 3,714 6,891 1,067 3,714 7,958 11,672
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Texas 6,196 9,561 13,866 2,976 9,578 16,825 26,403
----------- ----------- ----------- ---------- -------- ----------- ---------
Puerto Rico (San Juan)
Montehiedra 62,180 9,182 66,701 215 9,182 66,916 76,098
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Shopping Centers 445,063 199,746 327,619 130,022 210,416 446,971 657,387
----------- ----------- ----------- ---------- -------- ----------- ---------
Warehouse/Industrial
New Jersey
East Brunswick -- -- 4,772 2,867 7,639 7,639
East Hanover 8,210* 576 7,752 7,227 691 14,864 15,555
Edison 2,455* 705 2,839 1,241 704 4,081 4,785
Garfield -- 96 8,068 4,788 97 12,855 12,952
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Warehouse/
Industrial 10,665 1,377 23,431 16,123 1,492 39,439 40,931
----------- ----------- ----------- ---------- -------- ----------- ---------
Other Properties
New Jersey
Montclair -- 66 470 330 66 800 866
Rahway -- -- -- 25 -- 25 25
----------- ----------- ----------- ---------- -------- ----------- ---------
Total New Jersey -- 66 470 355 66 825 891
----------- ----------- ----------- ---------- -------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
-------------------------- --------------- -------------- -------------- -------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------------------------- --------------- -------------- -------------- -------------
Life on
which
depreciation
Accumulated in latest
depreciation income
and Date of Date statement
Description amortization construction(3) Acquired is computed
--------------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Texas
Dallas
Lewisville 830 1989 1990 25 -- 30 Years
Mesquite 1,659 1988 1990 24 -- 30 Years
Skillman 2,177 1988 1990 26 -- 30 Years
-----------
Total Texas 4,666
-----------
Puerto Rico (San Juan)
Montehiedra 2,913 1996 1997 40 Years
-----------
Total Shopping Centers 137,759
-----------
Warehouse/Industrial
New Jersey
East Brunswick 4,126 1972 1972 18 -- 40 Years
East Hanover 9,604 1963 -- 1967 1963 7 -- 40 Years
Edison 2,153 1954 1982 12 -- 25 Years
Garfield 9,098 1942 1959 11 -- 33 Years
-----------
Total Warehouse/
Industrial 24,981
-----------
Other Properties
New Jersey
Montclair 522 1972 1972 4 -- 15 Years
Rahway 25 1972 1972 14 Years
-----------
Total New Jersey 547
-----------
</TABLE>
-99-
<PAGE>
<TABLE>
<CAPTION>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(amounts in thousands)
------------------------ -------------- ------------------------------ ------------- --------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------ -------------- ------------------------------ ------------- --------------------------------------
Initial cost to Gross amount at which
company(1) Costs carried at close of period
--------------------------- capitalized ---------------------------
Buildings subsequent
and to Buildings and
Description Encumbrances Land improvements acquisition Land improvements Total(2)
------------ ----------- ------------ ----------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
New York
1135 Third Avenue -- 7,844 7,844 -- 7,844 7,844 15,688
Riese -- 19,277 7,348 20 19,276 7,369 26,645
----------- ----------- ----------- ---------- -------- ----------- ---------
Total New York -- 27,121 15,192 20 27,120 15,213 42,333
----------- ----------- ----------- ---------- -------- ----------- ---------
Total Other Properties -- 27,187 15,662 375 27,186 16,038 43,224
----------- ----------- ----------- ---------- -------- ----------- ---------
Leasehold Improvements
and Equipment 11,491 11,491 11,491
TOTAL --
DECEMBER 31, 1998 $ 1,361,615 $ 732,540 $ 2,346,860 $236,491 $743,324 $ 2,572,567 $3,315,891
=========== =========== =========== ========== ======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
-------------------------- --------------- -------------- -------------- -------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------------------------- --------------- -------------- -------------- -------------
Life on
which
depreciation
Accumulated in latest
depreciation income
and Date of Date statement
Description amortization construction(3) Acquired is computed
--------------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
New York
1135 Third Avenue 196 1997 40 Years
Riese 283 1911--1987 1997 39 Years
-----------
Total New York 479
-----------
Total Other Properties 1,026
-----------
Leasehold Improvements
and Equipment 7,597 3 -- 20 Years
TOTAL --
DECEMBER 31, 1998 $ 226,816
===========
</TABLE>
*These encumbrances are cross collateralized under a blanket mortgage in the
amount of $227,000,000 at December 31, 1998.
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) The net basis of the company's assets and liabilities for tax
purposes is approximately $920,000,000 lower than the amount reported for
financial statement 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.
5) Building was destroyed by fire and is being rebuilt.
-100-
<PAGE>
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(amounts in thousands)
The following is a reconciliation of real estate assets and accumulated
depreciation:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1998 1997 1996
------------- --------------- ------------
<S> <C> <C> <C>
Real Estate
Balance at beginning of period.................. $ 1,564,093 $ 397,298 $382,476
Additions during the period:
Land.......................................... 308,261 374,996 --
Buildings & improvements...................... 1,464,595 792,397 14,822
------------ ----------- --------
3,336,949 1,564,691 397,298
Less: Cost of assets written-off............... 21,058 598 --
------------ ----------- --------
Balance at end of period........................ $ 3,315,891 $ 1,564,093 $397,298
============ =========== ========
Accumulated Depreciation
Balance at beginning of period $ 173,434 $ 151,049 $139,495
Additions charged to operating expenses......... 59,227 22,983 11,589
------------ ----------- --------
232,661 174,032 151,084
Less: Accumulated depreciation on assets
written-off..................................... 5,845 598 35
------------ ----------- --------
Balance at end of period........................... $ 226,816 $ 173,434 $151,049
============ =========== ========
</TABLE>
-101-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No.
- - - -------
<S> <C> <C>
3.1 -- Amended and Restated Declaration of Trust of Vornado, amended April 3, 1997--Incorporated by
reference to Exhibit 3.1 of Vornado's Registration Statement on Form S-8 (File No. 333-29011),
filed on June 12, 1997......................................................................... *
3.2 -- Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of
Assessments and Taxation of Maryland on April 22, 1998 - Incorporated by reference to Exhibit
3.1 of Vornado's Current Report on Form 8-K, dated April 22, 1998 (File No. 001-11954), filed
on April 28, 1998.............................................................................. *
3.3 -- Articles Supplementary Classifying Vornado's $3.25 Series A Preferred Shares of Beneficial
Interest, liquidation preference $50.00 per share - Incorporated by reference to Exhibit 4.1
of Vornado's Current Report on Form 8-K, dated April 3, 1997 (File No. 001-11954), filed on
April 8, 1997.................................................................................. *
3.4 -- Articles Supplementary Classifying Vornado's Series D-1 8.5% Cumulative Redeemable Preferred
Shares of Beneficial Interest, no par value (the "Series D-1 Preferred Shares") - Incorporated
by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated November 12, 1998
(File No. 001-11954), filed on November 30, 1998............................................... *
3.5 -- Articles Supplementary Classifying Additional Series D-1 Preferred Shares - Incorporated by
reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K/A, dated November 12, 1998
(File No. 001-11954), filed on February 9, 1999................................................ *
3.6 -- Articles Supplementary Classifying 8.5% Series B Cumulative Redeemable Preferred Shares of
Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by
reference to Exhibit 3.3 of Vornado's Current Report on Form 8-K, dated March 3, 1999 (File
No. 001-11954), filed on March 17, 1999........................................................ *
3.7 -- By-laws of Vornado, as amended on April 28, 1997 - Incorporated by reference to Exhibit 3(b) of
Vornado's Quarterly Report on Form 10-Q for the period ended March 31, 1997
(File No. 001-11954), filed on May 14, 1997.................................................... *
3.8 -- Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated
as of October 20, 1997 - Incorporated by reference to Exhibit 3.4 of Vornado's Annual Report
on Form 10-K for the year ended December 31, 1997 filed on March 31, 1998 (the "1997 10-K").... *
3.9 -- Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty
L.P., dated as of December 16, 1997--Incorporated by reference to Exhibit 3.5 of the 1997 10-K. *
3.10 -- Second Amendment to Second Amendment and Restated Agreement of Limited Partnership of the
Operating Partnership of the Operating Partnership, dated as of April 1, 1998 - Incorporated
by reference to Exhibit 3.5 of Vornado's Registration Statement on Form S-3 (File No.
333-50095), filed on April 14, 1998............................................................ *
</TABLE>
- - - -------------
* Incorporated by reference
-102-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No.
- - - -------
<S> <C> <C>
3.11 -- Third Amendment to Second Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, dated as of November 12, 1998 - Incorporated by reference to Exhibit 3.2 of
Vornado's Current Report on Form 8-K, dated November 12, 1998 (File No. 001-11954), filed on
November 30, 1998.............................................................................. *
3.12 -- Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, dated as of November 30, 1998 - Incorporated by reference to Exhibit
3.1 of Vornado's Current Report on Form 8-K, dated December 1, 1998 (File No. 001-11954),
filed on February 9, 1999...................................................................... *
3.13 -- Exhibit A, dated as of December 22, 1998, to Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership - Incorporated by reference to Exhibit 3.4 of
Vornado's Current Report on Form 8-K/A, dated November 12, 1998 (File No. 001-11954), filed on
February 9, 1999............................................................................... *
3.14 -- Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, dated as of March 3, 1999 - Incorporated by reference to Exhibit 3.1 of Vornado's
Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999... *
3.15 -- Exhibit A to Second Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, dated as of March 11, 1999 - Incorporated by reference to Exhibit 3.2 of
Vornado's Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March
17, 1999....................................................................................... *
4.1 -- Instruments defining the rights of security holders (see Exhibits 3.1 through 3.15 of this
Annual Report on Form 10-K)
4.2 -- Indenture dated as of November 24, 1993 between Vornado Finance Corp. and Bankers Trust Company,
as Trustee - Incorporated by reference to Vornado's current Report on Form 8-K dated
November 24, 1993 (File No. 001-11954), filed December 1, 1993................................. *
4.3 -- Specimen certificate representing Vornado's Common Shares of Beneficial Interest, par value
$0.04 per share - Incorporated by reference to Exhibit 4.1 of Amendment No. 1 to Registration
Statement on Form S-3 (File No. 33-62395), filed on October 26, 1995........................... *
4.4 -- Specimen certificate representing Vornado's $3.25 Series A Preferred Shares of Beneficial
Interest, liquidation preference $50.00 per share - Incorporated by reference to Exhibit 4.2
of Vornado's Current Report on Form 8-K, dated April 3, 1997 (File No. 001-11954), filed on
April 8, 1997.................................................................................. *
4.5 -- Specimen certificate evidencing Vornado's Series B 8.5% Cumulative Redeemable Preferred Shares
of Beneficial Interest - Incorporated by reference to Exhibit 4.2 of Vornado's Registration
Statement on Form 8-A (File No. 001-11954), filed on March 15, 1999.............................. *
10.1 -- Second Amendment, dated as of June 12, 1997, to Vornado's 1993 Omnibus Share Plan, as amended -
Incorporated by reference to Vornado's Registration Statement on Form S-8 (File No. 333-29011)
filed on June 12, 1997......................................................................... *
10.2 -- Master Agreement and Guaranty, between Vornado, Inc. and Bradlees New Jersey, Inc. dated as of
May 1, 1992 - Incorporated by reference to Vornado's Quarterly Report on Form 10-Q for quarter
ended March 31, 1992 (File No. 001-11954), filed May 8, 1992................................... *
</TABLE>
- - - ----------
* Incorporated by reference
-103-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No.
- - - -------
<S> <C> <C>
10.3** -- 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's Current Report on
Form 8-K dated November 24, 1993 (File No. 001-11954), filed December 1, 1993.................. *
10.4** -- 1985 Stock Option Plan as amended - Incorporated by reference to Vornado's Quarterly Report on
Form 10-Q for quarter ended May 2, 1987 (File No. 001-11954), filed June 9, 1987............... *
10.5** -- Form of Stock Option Agreement for use in connection with incentive stock options issued
pursuant to Vornado, Inc. 1985 Stock Option Plan - Incorporated by reference to Vornado's
Quarterly Report on Form 10-Q for quarter ended October 26, 1985 (File No. 001-11954), filed
December 9, 1985............................................................................... *
10.6** -- Form of Stock Option Agreement for use in connection with incentive stock options issued
pursuant to Vornado, Inc. 1985 Stock Option Plan--Incorporated by reference to Vornado's
Quarterly Report on Form 10-Q for quarter ended May 2, 1987 (File No. 001-11954), filed
June 9, 1987................................................................................... *
10.7** -- Form of Stock Option Agreement for use in connection with incentive stock options issued
pursuant to Vornado, Inc. 1985 Stock Option Plan--Incorporated by reference to Vornado's
Quarterly Report on Form 10-Q for quarter ended October 26, 1985 (File No. 001-11954), filed
December 9, 1985............................................................................... *
10.8** -- Employment Agreement between Vornado Realty Trust. and Joseph Macnow dated January 1, 1998 -
Incorporated by reference to Exhibit 10.7 of Vornado's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (File No. 001-11954), filed November 12, 1998................. *
10.9** -- Employment Agreement between Vornado Realty Trust and Richard Rowan dated January 1, 1998 -
Incorporated by reference to Exhibit 10.8 of Vornado's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (File No. 001-11954), filed November 12, 1998................. *
10.10** -- Employment Agreement between Vornado Realty Trust and Irwin Goldberg, dated December 11, 1997 -
Incorporated by reference to Exhibit 10.10 of Vornado's Annual Report on Form 10-K/A for the
year ended December 31, 1997 (File No. 001-11954), filed on April 14, 1998..................... *
10.11** -- Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli dated December 2,
1996 - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 001-11954), filed March 13, 1997.................................. *
10.12 -- Promissory Notes from Steven Roth to Vornado, Inc. dated December 29, 1992 and January 15, 1993
- Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 001-11954), filed February 16, 1993................................ *
10.13 -- Registration Rights Agreement between Vornado, Inc. and Steven Roth Dated December 29, 1992 -
Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 001-11954), filed February 16, 1993................................ *
</TABLE>
- - - -----------
* Incorporated by reference
** Management contract or compensatory plan
-104-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No.
- - - -------
<S> <C> <C>
10.14 -- Stock Pledge Agreement between Vornado, Inc. and Steven Roth dated December 29, 1992 -
Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 001-11954), filed February 16, 1993................................ *
10.15 -- Promissory Note from Steven Roth to Vornado Realty Trust dated April 15, 1993 and June 17, 1993
- Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 001-11954), filed March 24, 1994................................... *
10.16 -- Promissory Note from Richard Rowan to Vornado Realty Trust - Incorporated by reference to
Vornado's Annual Report on Form 10-K for the year ended December 31, 1993 (File
No. 001-11954), filed March 24, 1994........................................................... *
10.17 -- Promissory Note from Joseph Macnow to Vornado Realty Trust - Incorporated by reference to
Vornado's Annual Report on Form 10-K for the year ended December 31, 1993 (File
No. 001-11954), filed March 24, 1994........................................................... *
10.18 -- Management Agreement between Interstate Properties and Vornado, Inc. dated July 13, 1992
-Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 001-11954), filed February 16, 1993................................ *
10.19 -- Real Estate Retention Agreement between Vornado, Inc., Keen Realty Consultants, Inc. and
Alexander's, Inc., dated as of July 20, 1992 - Incorporated by reference to Vornado's Annual
Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed
February 16, 1993.............................................................................. *
10.20 -- Amendment to Real Estate Retention Agreement dated February 6, 1995 - Incorporated by reference
to Vornado's Annual Report on Form 10-K for the year ended December 31, 1994 (File No.
001-11954), filed March 23, 1995............................................................... *
10.21 -- Stipulation between Keen Realty Consultants Inc. and Vornado Realty Trust re: Alexander's
Retention Agreement - Incorporated by reference to Vornado's annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 001-11954), filed March 24, 1994.................... *
10.22 -- Stock Purchase Agreement, dated February 6, 1995, among Vornado Realty Trust and Citibank, N.A.
Incorporated by reference to Vornado's Current Report on Form 8-K dated February 6, 1995
(File No. 001-11954), filed February 21, 1995.................................................. *
10.23 -- Management and Development Agreement, dated as of February 6, 1995 - Incorporated by reference
to Vornado's Current Report on Form 8-K dated February 6, 1995 (File No. 001-11954), filed
February 21, 1995............................................................................... *
10.24 -- Standstill and Corporate Governance Agreement, dated as of February 6, 1995 - Incorporated by
reference to Vornado's Current Report on Form 8-K dated February 6, 1995 (File No. 001-11954),
filed February 21, 1995........................................................................ *
10.25 -- Credit Agreement, dated as of March 15, 1995, among Alexander's Inc., as borrower, and Vornado
Lending Corp., as lender - Incorporated by reference from Annual Report on Form 10-K for the
year ended December 31, 1994 (File No. 001 - 11954), filed March 23, 1995...................... *
10.26 -- 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's Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 001-11954), filed March 23, 1995..................................................... *
10.27 -- Revolving Credit Agreement dated as of February 27, 1995 among Vornado Realty Trust, as
borrower, and Union Bank of Switzerland, as Bank and Administrative Agent - Incorporated by
reference to Exhibit 10(F)9 of Vornado's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 001-11954), filed March 23, 1995................................... *
</TABLE>
- - - ---------
* Incorporated by reference
-105-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No.
- - - -------
<S> <C> <C>
10.28 -- Form of Intercompany Agreement between Vornado Realty L.P. and Vornado Operating, Inc.
-Incorporated by reference to Exhibit 10.1 of Amendment No. 1 to Vornado Operating, Inc.'s
Registration Statement on Form S-11 (File No. 333-40701), filed on January 23, 1998............ *
10.29 -- Form of Revolving Credit Agreement between Vornado Realty L.P. and Vornado Operating, Inc.,
together with related form of Note - Incorporated by reference to Exhibit 10.2 of Amendment
No. 1 to Vornado Operating, Inc.'s Registration Statement on Form S-11 (File No.333-40701)..... *
10.30 -- Amended and Restated Revolving Credit Agreement, dated as of February 23, 1998, between
Vornado Realty L.P., as Borrower, Vornado Realty Trust, as General Partner and Union Bank of
Switzerland (New York Branch), as Bank, the other banks signatory hereto, each as a bank,
Union Bank of Switzerland (New York Branch), as Administrative Agent and Citicorp Real Estate,
Inc., The Chase Manhattan Bank and Nationsbank, as Syndication Agents - Incorporated by
reference to Exhibit 10.29 of the 1997 10-K.................................................... *
10.31 -- Registration Rights Agreement, dated as of April 15, 1997, between Vornado Realty Trust and the
holders of Units listed on Schedule A thereto - Incorporated by reference to Exhibit 10.2 of
Vornado's Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997............. *
10.32 -- Noncompetition Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust, the
Mendik Company, L.P., and Bernard H. Mendik - Incorporated by reference to Exhibit 10.3 of
Vornado's Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997............. *
10.33 -- Employment Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust, The Mendik
Company, L.P. and David R. Greenbaum - Incorporated by reference to Exhibit 10.4 of Vornado's
Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997....................... *
10.34 -- Agreement, dated September 28, 1997, between Atlanta Parent Incorporated, Portland Parent
Incorporated and Crescent Real Estate Equities, Limited Partnership - Incorporated by
reference to Exhibit 99.6 of Vornado's Current Report on Form 8-K (File No. 001-11954), filed
on October 8, 1997............................................................................. *
10.35 -- Contribution Agreement between Vornado Realty Trust, Vornado Realty L.P. and The Contributors
Signatory - thereto - Merchandise Mart Properties, Inc. (DE) and Merchandise Mart Enterprises,
Inc. Incorporated by reference to Exhibit 10.34 of Vornado's Annual Report on Form 10-K/A for
the year ended December 31, 1997 (File No. 001-11954), filed on April 8, 1998.................. *
10.36 -- Sale Agreement executed November 18, 1997, and effective December 19, 1997, between MidCity
Associates, a New York partnership, as Seller, and One Penn Plaza LLC, a New York Limited
liability company; as purchaser. Incorporated by reference to Exhibit 10.35 of Vornado's Annual
Report on Form 10-K/A for the year ended December 31, 1997 (File No. 001-11954), filed on April
8, 1998........................................................................................ *
10.37 -- Promissory Notes from Michael D. Fascitelli to Vornado Realty Trust dated March 2, 1998 and
April 30, 1998. Incorporated by reference to Exhibit 10.37 of Vornado's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 (File No. 001-11954), filed May 13, 1998 *
10.38 -- Credit Agreement dated as of June 22, 1998 among One Penn Plaza, LLC, as Borrower, The Lenders
Party Hereto, The Chase Manhattan Bank, as Administrative Agent Incorporated by reference to
Exhibit 10 of Vornado's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(File No. 001-11954), filed August 13, 1998.................................................... *
10.39 -- Registration Rights Agreement, dated as of April 1, 1998 between Vornado and the Unit Holders
named herein - Incorporated by reference to Exhibit 10.2 of Amendment No. 1 to Vornado's
Registration Statement on Form S-3 (File No. 333-50095), filed on May 6, 1998.................. *
</TABLE>
- - - ---------
* Incorporated by reference
-106-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No.
- - - -------
<S> <C> <C>
10.40 -- Underwriting Agreement, dated April 9, 1998, among Vornado, Vornado Realty L.P. and
Goldman, Sachs & Co. - Incorporated by reference to Exhibit 1.1 of Vornado's Current Report on
Form 8-K, dated April 9, 1998 (File No. 001-11954), filed on April 16, 1998.................... *
10.41 -- Pricing Agreement, dated April 9, 1998, between Vornado and Goldman, Sachs & Co. - Incorporated
by reference to Exhibit 1.2 of Vornado's Current Report on Form 8-K, dated April 9, 1998 (File
No. 001-11954), filed on April 16, 1998........................................................ *
10.42 -- Underwriting Agreement, dated April 23, 1998, among Vornado, Vornado Realty L.P. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated - Incorporated by reference to Exhibit 1.1 of
Vornado's Current Report on Form 8-K, dated April 22, 1998 (File No. 001-11954), filed on
April 28, 1998................................................................................. *
10.43 -- Underwriting Agreement, dated March 12, 1999, among Vornado, Vornado Realty L.P., Merrill Lynch,
Pierce, Fenner & Smith Incorporated - Incorporated by reference to Exhibit 1.1 of Vornado
Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999.. *
12 -- Consolidated Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Share
Dividend Requirements ......................................................................... 108
13 -- Not applicable
16 -- Not applicable
18 -- Not applicable
19 -- Not applicable
21 -- Subsidiaries of the Registrant................................................................... 109
22 -- Not applicable
23 -- Consent of independent auditors.................................................................. 114
25 -- Not applicable
27 -- Financial Data Schedule.......................................................................... 115
29 -- Not applicable
</TABLE>
EXHIBIT 12
<TABLE>
<CAPTION>
VORNADO REALTY L.P.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED UNIT DISTRIBUTION
REQUIREMENTS
December 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before
income taxes $ 131,164 $ 45,474 $ 61,364 $ 53,008 $ 41,240
Fixed charges 139,765 59,104 17,214 17,333 16,229
--------- --------- --------- --------- ---------
Income from continuing
operations before
income taxes and
fixed charges $ 270,929 $ 104,578 $ 78,578 $ 70,341 $ 57,469
========= ========= ========= ========= =========
Fixed charges:
Interest and debt expense $ 114,686 $ 42,888 $ 16,726 $ 16,426 $ 14,209
Preferred unit distribution 21,690 15,549 -- -- --
1/3 of rent expense--
interest factor 1,979 667 488 465 438
--------- --------- --------- --------- ---------
138,355 59,104 17,214 16,891 14,647
Capitalized interest 1,410 -- -- 442 1,582
--------- --------- --------- --------- ---------
$ 139,765 $ 59,104 $17,214 $ 17,333 $ 16,229
========= ========= ========= ========= =========
Ratio of earnings to
fixed charges 1.94 1.76 4.56 4.06 3.54
</TABLE>
Note: For purposes of this calculation, earnings before fixed charges
consist of earnings before income taxes plus fixed charges. Fixed
charges consist of interest expense on all indebtedness (including
amortization of deferred debt issuance costs) preferred stock
dividends and the portion of operating lease rental expense that is
representative of the interest factor (deemed to be one third of
operating lease rentals).
<TABLE>
<S> <C> <C> <C> <C> <C>
Rent Expense $ 5,937 $ 2,001 $ 1,465 $ 1,395 $ 1,313
========= ========= ========= ========= =========
</TABLE>
-108-
EXHIBIT 21
VORNADO REALTY L.P.
SUBSIDIARIES OF THE REGISTRANT
State of
Name of Subsidiary Organization
----------------
14 West 64th Street Corp. New York
150 East 58th Street L.L.C. New York
1740 Broadway Associates L.P. Delaware
20 Broad Lender L.L.C. New York
201 East 66th Street Corp. New York
201 East 66th Street L.L.C. New York
314 West 40th Street L.L.C. New York
330 Madison Company L.L.C. New York
350 North Orleans L.L.C. Delaware
40 East 14 Realty Associates L.L.C. New York
40 Fulton Street L.L.C. New York
401 Commercial Son, L.L.C. Delaware
401 Commercial, L.P. Delaware
401 General Partner, L.L.C. Delaware
401 Hotel General Partner, L.L.C. Delaware
401 Hotel, L.P. Delaware
527 West Kinzie L.L.C. Delaware
570 Lexington Associates, L.P. New York
570 Lexington Company, L.P. New York
689 5th Avenue L.L.C. Delaware
770 Broadway Company L.L.C. New York
825 Seventh Avenue Holding L.L.C. New York
866 U.N. Plaza Associates L.L.C. New York
888 Seventh Avenue L.L.C. New York
909 Third Avenue Assignee L.L.C. New York
AmeriCold Corporation Oregon
AmeriCold Logistics II L.L.C. Delaware
AmeriCold Logistics L.L.C Delaware
AmeriCold Real Estate, L.P. Delaware
AmeriCold Realty, Inc. Delaware
Americold Services Corporation Delaware
Amherst Holding L.L.C. New York
Amherst Industries L.L.C. New York
Arbor Property, L.P. Delaware
Atlanta Parent, Inc. Delaware
Atlantic City Holding L.L.C. New Jersey
B&B Park Avenue L.P. Delaware
BBE GP Corporation Delaware
Bensalem Holding Company L.L.C. Pennsylvania
Bensalem Holding Company L.P. Pennsylvania
Bethlehem Holding Company L.L.C. Pennsylvania
Bethlehem Holding Company L.P. Pennsylvania
Bethlehem Properties Holding Company L.L.C. Pennsylvania
Bethlehem Properties Holding Company L.P. Pennsylvania
Bordentown Holding L.L.C. New Jersey
-109-
<PAGE>
State of
Name of Subsidiary Organization
----------------
Brentwood Development L.L.C. New York
Bridgeland Warehouses L.L.C. New Jersey
Camden Holding L.L.C. New Jersey
Carmar Freezers Russellville, L.L.C. Missouri
Carmar Group, Inc. Missouri
Carmar Industries, L.L.C. Missouri
Charles E. Smith Commercial Realty L.P. Delaware
Chicopee Holding L.L.C. Massachusetts
Clementon Holding L.L.C. New Jersey
Cumberland Holding L.L.C. New Jersey
Darby Development Corp. Florida
Delran Holding L.L.C. New Jersey
Design Center Owner (D.C.) L.L.C. Delaware
Dover Holding L.L.C. New Jersey
DSAC L.L.C. Texas
DUN L.L.C. Maryland
Durham Leasing L.L.C. New Jersey
EH L.L.C. Maryland
Eleven Penn Plaza L.L.C. New York
Evesham Holding L.L.C. New Jersey
Gallery Market Holding Company L.L.C. Pennsylvania
Gallery Market Holding Company L.P. Pennsylvania
Gallery Market Properties Holding Company L.L.C. Pennsylvania
Gallery Market Properties Holding Company L.P. Pennsylvania
GBSPI L.L.C. Maryland
Graybar Building L.L.C. New York
Green Acres Mall, L.L.C. Delaware
Hackbridge L.L.C. New Jersey
Hanover Conran's Plaza L.L.C. New Jersey
Hanover Holding L.L.C. New Jersey
Hanover Industries L.L.C. New Jersey
Hanover Leasing L.L.C. New Jersey
Hanover Public Warehousing L.L.C. New Jersey
Henrietta Holding L.L.C. New York
HHC L.L.C. Maryland
Jersey City Leasing L.L.C. New Jersey
Kearny Holding L.L.C. New Jersey
Kearny Leasing L.L.C. New Jersey
Lancaster Leasing Company L.L.C. Pennsylvania
Lancaster Leasing Company L.P. Pennsylvania
Landthorp Enterprises L.L.C. Delaware
Lawnside Holding L.L.C. New Jersey
Lawnwhite Holding L.L.C. New Jersey
Lewisville Centre L.P. Texas
Lewisville TC L.L.C. Texas
Littleton Holding L.L.C. New Jersey
Lodi Industries L.L.C. New Jersey
Lodi Leasing L.L.C. New Jersey
M 330 Associates, L.P. New York
M 393 Associates L.L.C. New York
Manalapan Industries L.L.C. New Jersey
Market Square L.L.C. Illinois
Marple Holding Company L.L.C. Pennsylvania
Marple Holding Company L.P. Pennsylvania
Mart Franchise Center, Inc. Delaware
Mart Franchise Venture, L.L.C. Delaware
-110-
<PAGE>
State of
Name of Subsidiary Organization
----------------
Menands Holding L.L.C. New York
Mendik Management Company Inc. New York
Merchandise Mart Enterprises, Inc. Delaware
Merchandise Mart L.L.C. Delaware
Merchandise Mart Properties, Inc. Delaware
Merchandise Mart Properties, Inc. (DE) Delaware
Mesquite - Texas Crossing L.P. Texas
Mesquite TC L.L.C. Texas
Middletown Holding L.L.C. New Jersey
Montclair Holding L.L.C. New Jersey
Morris Plains Leasing L.L.C. New Jersey
MRC Management L.L.C. New York
National Hydrant L.L.C. New York
New Hanover L.L.C. New Jersey
New Woodbridge L.L.C. New Jersey
Newington Connecticut Holding L.L.C. Connecticut
Ninety Park Lender LLC New York
Ninety Park Manager LLC New York
Ninety Park Option LLC New York
Ninety Park Property LLC New York
North Bergen Stores L.L.C. New Jersey
North Plainfield Holding L.L.C. New Jersey
Office Center Owner (D.C.) L.L.C. Delaware
One Penn Plaza LLC New York
Philadelphia Holding Company L.L.C. Pennsylvania
Philadelphia Holding Company L.P. Pennsylvania
Phillipsburg Holding L.L.C. New Jersey
Pike Holding Company L.L.C. Pennsylvania
Pike Holding Company L.P. Pennsylvania
Portland Parent, Inc. Delaware
Rahway Leasing L.L.C. New Jersey
Rochester Holding L.L.C. New York
Russia Fund, L.L.C. Delaware
Skillman Abrams Crossing L.P. Texas
South Capital L.L.C. Delaware
Springfield Holding L.L.C. Massachusetts
Star Universal L.L.C. New Jersey
Stardial GP Corporation Delaware
T.G. Hanover L.L.C. New Jersey
T53 Condominium L.L.C. New York
TGSI L.L.C. Maryland
The Second Lawnside L.L.C. New Jersey
The Second Rochester Holding L.L.C. New York
Turnersville Holding L.L.C. New Jersey
Two Guys From Harrison Holding Co. L.P. Pennsylvania
Two Guys From Harrison Holding Co. LLC Pennsylvania
Two Guys From Harrison L.L.C. New Jersey
Two Guys From Harrison N.Y. L.L.C. New York
Two Guys Mass. L.L.C. Massachusetts
Two Guys-Connecticut Holding L.L.C. Connecticut
Two Park Company New York
Two Penn Plaza REIT, Inc. New York
Unado L.L.C. New Jersey
Unifreeze Services Partnership Delaware
Upper Moreland Holding Company L.L.C. Pennsylvania
Upper Moreland Holding Company L.P. Pennsylvania
-111-
<PAGE>
State of
Name of Subsidiary Organization
----------------
URS Logistics, Inc. Delaware
URS Real Estate, L.P. Delaware
URS Realty, Inc. Delaware
VC Carthage, L.L.C. Delaware
VC Freezer Amarillo, L.P. Delaware
VC Freezer Fremont, L.L.C. Delaware
VC Freezer Garden City, L.L.C. Delaware
VC Freezer Omaha Amarillo, L.L.C. Delaware
VC Freezer Phoenix, L.L.C. Delaware
VC Freezer Russelville, L.L.C. Delaware
VC Freezer Sioux Falls, L.L.C. Delaware
VC Freezer Springdale, L.L.C. Delaware
VC Logistics, L.L.C. Delaware
VC Missouri Holdings, L.L.C. Delaware
VC Missouri Real Estate Holding, L.L.C. Delaware
VC Omaha Holdings, L.L.C. Delaware
VC Omaha Real Estate Holdings, L.L.C. Delaware
VC Omaha Texas, L.L.C. Delaware
VC Superior, L.L.C. Delaware
VC Texas, L.P. Delaware
VFC Connecticut Holding L.L.C. Delaware
VFC Massachusetts Holding L.L.C. Delaware
VFC New Jersey Holding L.L.C. Delaware
VNK Corp Massachusetts
Vornado - Westport L.L.C. Connecticut
Vornado 1740 Broadway L.L.C. New York
Vornado 330 West 34th Street L.L.C. Delaware
Vornado 401 Commercial L.L.C. New York
Vornado 401 Commercial Son L.L.C. New York
Vornado 401 Hotel, Inc. New York
Vornado 550/600 Mamoroneck L.P. Delaware
Vornado 570 Lexington L.L.C. New York
Vornado 63rd Street, Inc. New York
Vornado 640 Fifth Avenue L.L.C. New York
Vornado 90 Park Avenue L.L.C. New York
Vornado B&B L.L.C. New York
Vornado CAPI L.L.C. Delaware
Vornado Catalinas GP Inc. Delaware
Vornado Center Building L.L.C. New York
Vornado CESCR II L.L.C. Delaware
Vornado CESCR L.L.C. Delaware
Vornado Crescent Atlanta Partnership Delaware
Vornado Crescent Holding L.P. Delaware
Vornado Crescent Logistics Operating Partnership Delaware
Vornado Crescent Omaha Partnership Delaware
Vornado Crescent Portland Partnership Delaware
Vornado Deer Park L.L.C. New York
Vornado Finance GP L.L.C. Delaware
Vornado Finance L.P. Delaware
Vornado Green Acres Acquisition L.L.C. Delaware
Vornado Green Acres Delaware L.L.C. Delaware
Vornado Green Acres Funding L.L.C. Delaware
Vornado Green Acres Holdings L.L.C. Delaware
Vornado Investments L.L.C. Delaware
Vornado Lending L.L.C. New Jersey
Vornado M 330 L.L.C. New York
-112-
<PAGE>
State of
Name of Subsidiary Organization
----------------
Vornado M 393 L.L.C. New York
Vornado M/H L.L.C. Delaware
Vornado Mamaroneck L.L.C. Delaware
Vornado Management Corp. New Jersey
Vornado Montehiedra Acquisition L.L.C. Delaware
Vornado Montehiedra Acquisition L.P. Delaware
Vornado Montehiedra Holding II L.P. Delaware
Vornado Montehiedra Holding L.L.C. Delaware
Vornado Montehiedra Holding L.P. Delaware
Vornado Montehiedra Inc. Delaware
Vornado Montehiedra OP L.L.C. Delaware
Vornado Montehiedra OP L.P. Delaware
Vornado New York RR One L.L.C. New York
Vornado Newkirk L.L.C. Massachusetts
Vornado NK Loan L.L.C. Massachusetts
Vornado Omaha Holdings, Inc. Delaware
Vornado Realty L.L.C. Delaware
Vornado RR Midtown L.L.C. New York
Vornado Two Park Holdings L.L.C. Delaware
Vornado Two Penn Plaza L.L.C. New York
Vornado/Team Room L.L.C. New York
VR Retail Holdings LLC New York
VRT Massachusetts Holding L.L.C. Delaware
VRT New Jersey Holding L.L.C. Delaware
Washington Design Center L.L.C. Delaware
Washington Office Center L.L.C. Delaware
Watchung Holding L.L.C. New Jersey
West Windsor Holding L.L.C. New Jersey
Whitehorse Lawnside L.L.C. New Jersey
York Holding Company L.L.C. Pennsylvania
York Holding Company L.P. Pennsylvania
-113-
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Joint Registration
Statements of Vornado Realty Trust and Vornado Realty L.P. (Amendment No. 4 to
Registration Statement No. 333-40787 and Amendment No. 4 to Registration
Statement No. 333-29013), both on Form S-3, of our report dated March 24, 1999
appearing in this Annual Report on Form 10-K of Vornado Realty L.P. for the year
ended December 31, 1998.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's audited financial statements for the year ended December 31, 1998 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001040765
<NAME> Vornado Realty L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-12-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 167,808
<SECURITIES> 77,156
<RECEIVABLES> 35,517
<ALLOWANCES> 3,044
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,315,891
<DEPRECIATION> 226,816
<TOTAL-ASSETS> 4,425,779
<CURRENT-LIABILITIES> 0
<BONDS> 2,051,000
0
282,758
<COMMON> 0
<OTHER-SE> 1,920,296
<TOTAL-LIABILITY-AND-EQUITY> 4,425,779
<SALES> 0
<TOTAL-REVENUES> 509,860
<CGS> 0
<TOTAL-COSTS> 207,171
<OTHER-EXPENSES> 87,837
<LOSS-PROVISION> 2,547
<INTEREST-EXPENSE> 114,686
<INCOME-PRETAX> 168,386
<INCOME-TAX> 0
<INCOME-CONTINUING> 168,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,164
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.59
</TABLE>
