<PAGE> 1
EXHIBIT INDEX ON PAGE 17
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/XX/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 1995
----------------------------------------------
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ---------------------------
Commission File Number: 1-11954
VORNADO REALTY TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 22-1657560
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY 07663
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 587-1000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
/X/ Yes / / No
As of October 20, 1995 there were 24,238,937 common shares outstanding.
Page 1 of 19
<PAGE> 2
VORNADO REALTY TRUST
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1995
and December 31, 1994........................................................... 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1995 and September 30, 1994................................. 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1995 and September 30, 1994................................. 5
Notes to Consolidated Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................. 10
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K................................................ 15
Signatures ................................................................................ 16
Exhibit Index ................................................................................ 17
Exhibit 11 ................................................................................ 18
Exhibit 27 ................................................................................ 19
</TABLE>
Page 2 of 19
<PAGE> 3
PART I. FINANCIAL INFORMATION
VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS:
Real estate, at cost:
Land $ 61,269 $ 61,269
Buildings and improvements 312,339 298,277
Leasehold improvements and equipment 6,678 6,286
--------- ---------
Total 380,286 365,832
Less accumulated depreciation and
amortization (136,684) (128,705)
--------- ---------
Real estate, net 243,602 237,127
Cash and cash equivalents, including U.S.
government obligations under repurchase
agreements of $ 11,675 and $15,275 21,120 23,559
Marketable securities 78,478 87,206
Investment in and advances to Alexander's, Inc. 110,649 7,350
Investment in and advances to Vornado
Management Corp. 5,033 -
Due from officer 8,418 8,418
Accounts receivable, net of allowance for
doubtful accounts of $562 and $457 5,578 4,898
Receivable arising from the
straight-lining of rents 13,685 11,807
Other assets 14,877 13,173
--------- ---------
TOTAL ASSETS $ 501,440 $ 393,538
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes and mortgages payable $ 233,537 $ 234,160
Due for U.S. treasury obligations 55,982 34,275
Accounts payable and accrued expenses 4,836 4,275
Deferred leasing fee income 8,936 -
Other liabilities 4,232 4,140
--------- ---------
Total liabilities 307,523 276,850
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest:
no par value per share;
authorized, 1,000,000 shares;
issued, none
Common shares of beneficial interest:
$.04 par value per share;
authorized, 50,000,000 shares; issued,
24,238,937 and 21,654,285
shares in each period 970 866
Additional capital 279,128 198,184
Accumulated deficit (80,222) (79,513)
--------- ---------
199,876 119,537
Unrealized (loss)/gain on securities available
for sale (774) 2,336
Due from officers for purchase of common
shares of beneficial interest (5,185) (5,185)
--------- ---------
Total shareholders' equity 193,917 116,688
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 501,440 $ 393,538
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 3 of 19
<PAGE> 4
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Property rentals $ 20,406 $ 17,519 $ 59,390 $ 52,054
Expense reimbursements 5,859 5,148 16,873 16,589
Other income (including fee income from
related parties of $ 365 and $ 189 and
$ 3,564 and $ 885) 365 189 3,639 1,200
------------ ------------ ------------ ------------
Total Revenues 26,630 22,856 79,902 69,843
------------ ------------ ------------ ------------
Expenses:
Operating 8,095 7,064 23,082 22,558
Depreciation and amortization 2,739 2,498 7,979 7,351
General and administrative 1,181 1,345 5,018 4,518
------------ ------------ ------------ ------------
Total expenses 12,015 10,907 36,079 34,427
------------ ------------ ------------ ------------
Operating income 14,615 11,949 43,823 35,416
Income/(loss) applicable to Alexander's:
Equity in (loss) (564) - (1,660) -
Depreciation (156) - (260) -
Interest income on loan 1,994 - 4,379 -
Income from investment in and
advances to Vornado Management Corp. 338 - 338 -
Interest and dividend income 1,183 1,870 4,233 5,655
Interest and debt expense (3,922) (3,546) (12,494) (10,823)
Net gain on marketable securities 79 257 230 500
------------ ------------ ------------ ------------
NET INCOME $ 13,567 $ 10,530 $ 38,589 $ 30,748
============ ============ ============ ============
Net Income Per Share $ .56 $ .48 $ 1.66 $ 1.41
============ ============ ============ ============
Weighted average number of common
shares and common share equivalents
outstanding during period 24,422,032 21,868,173 23,265,433 21,868,329
Dividends per share $ .56 $ .50 $ 1.68 $ 1.50
</TABLE>
See notes to consolidated financial statements.
Page 4 of 19
<PAGE> 5
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 38,589 $ 30,748
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization
(including debt issuance costs) 8,739 8,007
Straight-lining of rental income (1,877) (1,500)
Equity in loss of Alexander's, including $260
of depreciation 1,920 -
Net (gain) on marketable securities (230) (500)
Changes in assets and liabilities:
Trading securities (1,295) 1,023
Accounts receivable (680) (767)
Accounts payable and accrued expenses 561 (4,313)
Other (1,872) (1,016)
--------- ---------
Net cash provided by operating activities 43,855 31,682
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in and advances to Alexander's (100,251) -
Investment in and advances to Vornado Management Corp. (5,000) -
Additions to real estate (14,454) (17,339)
Purchases of securities available for sale (2,063) -
Proceeds from sale of securities available for sale 12,641 8,316
--------- ---------
Net cash (used in) investing activities (109,127) (9,023)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common shares 79,831 -
Due for U.S. treasury obligations 21,707 11,577
Proceeds from borrowings 60,000 -
Payments on borrowings (60,623) (786)
Dividends paid (39,298) (32,421)
Exercise of stock options 1,216 229
--------- ---------
Net cash provided by (used in) financing activities 62,833 (21,401)
--------- ---------
Net (decrease) increase in cash and cash equivalents (2,439) 1,258
Cash and cash equivalents at beginning of period 23,559 24,119
--------- ---------
Cash and cash equivalents at end of period $ 21,120 $ 25,377
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest $ 11,734 $ 8,964
========= =========
</TABLE>
During the nine months ended September 30, 1995, the unrealized gain on
securities available for sale included in shareholders' equity was adjusted
to reflect (i) a reduction of $3,435 to the Company's investment in
Alexander's as a result of the change from fair value to the equity method
of accounting and (ii) a net increase of $325 in the market value of other
securities available for sale.
See notes to consolidated financial statements.
Page 5 of 19
<PAGE> 6
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 30, 1995, the
consolidated statements of income for the three and nine months ended
September 30, 1995 and September 30, 1994 and the consolidated
statements of changes in cash flows for the nine months ended September
30, 1995 and September 30, 1994 are unaudited. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows at September 30, 1995
and September 30, 1994 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
1994 Annual Report to Shareholders. The results of operations for the
period ended September 30, 1995 are not necessarily indicative of the
operating results for the full year.
2. RELATED PARTY TRANSACTIONS
Investment in and advances to Alexander's, Inc. ("Alexander's")
consists of:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Common stock, net of $ 260,000 of
accumulated depreciation of buildings
(at fair value) in 1995 $ 58,900,000 $ 5,980,000
Loan receivable 45,000,000 -
Deferred loan origination income (1,208,000) -
Leasing fees and other receivables 8,701,000 526,000
Equity in loss since March 2, 1995 (1,660,000) -
Deferred expenses 916,000 844,000
------------ ------------
$110,649,000 $ 7,350,000
============ ============
</TABLE>
At December 31, 1994, the Company owned 113,100 shares of
Alexander's common stock. The investment was carried at market value of
$5,980,000 at December 31, 1994 (cost was $2,545,000). In March 1995,
the Company purchased all of the 1,353,468 shares, or 27.1% of the
common stock of Alexander's owned by Citibank, N.A. ("Citibank") for
$40.50 per share in cash or $56,615,000 (including $1,800,000 of costs
incurred in the purchase). As a result of the increase in its
investment, the Company has changed its accounting for its investment
in Alexander's to the equity method. This required a reduction of its
investment by the unrealized gain recorded in shareholders' equity at
December 31, 1994, of $3,435,000. Prior years' financial statements
were not restated as a result of the change in accounting for the
Company's investment in Alexander's due to it not being material.
Vornado's investment in Alexander's in excess of carrying amounts has
been allocated two-thirds to land and one-third to building, in
accordance with purchase accounting. The building allocation in excess
of Alexander's carrying amount is being depreciated over a 35 year
period.
After the acquisition, the Company owns 29.3% of the common stock
of Alexander's. Interstate Properties owns 27.4% of the common shares
of the Company and 27.1% of Alexander's common stock. Steven Roth is
the Chairman of the Board and Chief Executive Officer of the Company,
the managing general partner of Interstate Properties and a Director
and Chief Executive Officer of Alexander's.
Page 6 of 19
<PAGE> 7
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 1995, the Company lent Alexander's $45 million, the
subordinated tranche of a $75 million secured financing, the balance of
which was funded by a bank. The Company's loan has a three-year term
and bears interest at 16.43% per annum for the first two years and at a
fixed rate for the third year of 992 basis points over the one-year
Treasury bill rate. In addition, the Company received a loan
origination fee of $1,500,000 from Alexander's to be amortized over the
term of the loan.
In March 1995, the Company and Alexander's entered into a
three-year management and development agreement (the "Management
Agreement"). The annual management fee payable to the Company by
Alexander's is $3,000,000, plus 6% of development costs with a minimum
guaranteed fee for the development portion of $1,650,000 in the first
year and $750,000 in each of the second and third years. On July 6,
1995, the Company assigned this Management Agreement to Vornado
Management Corp. (see Note 3).
The fee pursuant to the Management Agreement is in addition to the
leasing fee the Company receives from Alexander's under the leasing
agreement (the "Leasing Agreement") which has been in effect since
1992. Subject to the payment of rents by Alexander's tenants, the
Company is due $8,552,000, after the reversal of $2,424,000 of the
receivable and the corresponding deferred leasing income applicable to
the B.J.'s Wholesale Club and Home Depot leases in Paramus, which are
no longer in effect. 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. The term of the Leasing Agreement has been extended to be
coterminous with the term of the Management Agreement.
Effective March 2, 1995, for a three-year period, the Company and
Interstate agreed not to own in excess of two-thirds of Alexander's
common stock or to enter into certain other transactions with
Alexander's, other than the transactions described above, without the
consent of Alexander's independent directors.
Fee income from related parties consists of:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Vornado:
Management fees from
Interstate Properties $ 192,000 $ 189,000 $ 680,000 $ 635,000
Management fees from
Alexander's(1) 48,000 - 1,571,000 -
Leasing fees from
Alexander's, net 125,000 - 1,313,000 -
Expense reimbursement
from Alexander's - - - 250,000
---------- ---------- ---------- ----------
$ 365,000 $ 189,000 $3,564,000 $ 885,000
========== ========== ========== ==========
</TABLE>
(1) Management fees from Alexander's subsequent to July 6, 1995 aggregate
$1,088,000 and were received by Vornado Management Corp., a
nonconsolidated affiliate (see Note 3).
Page 7 of 19
<PAGE> 8
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Below is a summarized Statement of Operations of Alexander's for
the period from March 2, 1995 to September 30, 1995:
<TABLE>
<S> <C>
Revenues $ 7,834,000
Expenses (6,593,000)
-----------
Operating income 1,241,000
Interest and debt expense (8,382,000)
Interest and other income 1,005,000
-----------
Loss before income tax benefit (6,136,000)
Reversal of deferred taxes 469,000
-----------
Net Loss $(5,667,000)
===========
Vornado's 29.3% equity in (loss) $(1,660,000)
===========
</TABLE>
The unaudited proforma information set forth below presents the
condensed statement of income for the Company for the nine months ended
September 30, 1995 and 1994, as if on January 1, 1994, the investment
in Alexander's and related agreements were consummated and 1,880,000
shares of beneficial interest of the Company were issued to partially
fund the investment.
<TABLE>
<CAPTION>
Proforma
Nine Months Ended
September 30, September 30,
1995 1994
------------- ------------
<S> <C> <C>
Revenues $ 79,762,000 $ 73,601,000
Expenses (36,079,000) (34,427,000)
------------ ------------
Operating income 43,683,000 39,174,000
Income/(loss) applicable to Alexander's:
Equity in (loss) (2,464,000) (1,552,000)
Depreciation (364,000) (468,000)
Interest income on loan 5,941,000 5,941,000
Income applicable to Vornado
Management Corp.:
Equity in Management Agreement
fee income from Alexander's 252,000 -
Interest income on loan 86,000 -
Interest and dividend income 3,601,000 3,399,000
Interest and debt expense (11,651,000) (10,823,000)
Net (loss)/gain on marketable securities 230,000 500,000
------------ ------------
Net income $ 39,314,000 $ 36,171,000
============ ============
Net income per share $ 1.65 $ 1.52
============ ============
</TABLE>
Page 8 of 19
<PAGE> 9
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. VORNADO MANAGEMENT CORP.
On July 6, 1995, the Company assigned its Management Agreement
with Alexander's to Vornado Management Corp. ("VMC"), a newly formed
New Jersey corporation. In exchange, the Company received 100% of the
preferred stock of VMC which entitles it to 95% of net operating cash
flow distributed by VMC to its shareholders. Steven Roth and Richard
West, Trustees of the Company, own the common stock of VMC. In
addition, the Company lent $5,000,000 to VMC for working capital
purposes under a three year term loan bearing interest at the prime
rate plus 2%. VMC will be responsible for its pro-rata share of
compensation and fringe benefits of common employees and 30% of other
common expenses. This entity is not consolidated and accordingly, the
Company is accounting for its investment in VMC on the equity method.
Below is a summarized Statement of Operations of VMC for the period
from July 6, 1995 to September 30, 1995:
<TABLE>
<S> <C>
Revenues:
Management fees from Alexander's $ 1,088,000
Expenses:
General and administrative (596,000)
Interest, net (44,000)
-----------
Income before income taxes 448,000
Income taxes (183,000)
-----------
Net income 265,000
Preferred dividends (252,000)
-----------
Net income available to common shareholders $ 13,000
===========
Vornado's 95% equity in income $ 252,000
===========
</TABLE>
Page 9 of 19
<PAGE> 10
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's revenues, which consist of property rentals, tenant expense
reimbursements and other income were $26,630,000 in the quarter ended September
30, 1995, compared to $22,856,000 in the prior year's quarter, an increase of
$3,774,000 or 16.5%. Revenues were $79,902,000 for the nine months ended
September 30, 1995, compared to $69,843,000 for the prior year's nine months, an
increase of $10,059,000 or 14.4%.
Property rentals were $20,406,000 in the quarter ended September 30, 1995,
compared to $17,519,000 in the prior year's quarter, an increase of $2,887,000
or 16.5%. Property rentals were $59,390,000 for the nine months ended September
30, 1995, compared to $52,054,000 for the prior year's nine months, an increase
of $7,336,000 or 14.1%. Of these increases (i) $1,664,000 and $4,548,000
resulted from rents from expansions of shopping centers and recent acquisitions
of retail properties and (ii) $1,028,000 and $2,256,000 resulted from step-ups
in leases which are not subject to the straight-line method of revenue
recognition.
Tenant expense reimbursements increased in 1995 as compared to 1994,
primarily as a result of higher real estate taxes which are passed through to
tenants.
Other income was $365,000 for the quarter ended September 30, 1995,
compared to $189,000 in the prior year's quarter, an increase of $176,000. Other
income was $3,639,000 for the nine months ended September 30, 1995, compared to
$1,200,000 for the prior year's nine months, an increase of $2,439,000. These
increases resulted primarily from the fee income recognized in connection with
the Management Agreement and Leasing Agreement with Alexander's, including
$915,000 applicable to 1993 and 1994 recognized in the first quarter of 1995. No
leasing fee income was recognized prior to 1995 because Alexander's had not
secured financing or repaid certain creditors, which were conditions precedent
to the commencement of the payment of leasing fees owed by Alexander's to the
Company. In addition to the Management Agreement fee income included in other
income in 1995, $1,088,000 was recognized in the third quarter of this year by
Vornado Management Corp. ("VMC") in connection with the Company's assignment of
its Management Agreement to VMC (see Note 3).
On July 6, 1995 the Company assigned its Management Agreement with
Alexander's to VMC, a newly formed New Jersey corporation. In exchange, the
Company received 100% of the preferred stock of VMC which entitles it to 95% of
net operating cash flow distributed by VMC to its shareholders. In addition, the
Company lent $5,000,000 to VMC for working capital purposes under a three year
term loan bearing interest at the prime rate plus 2%. VMC will be responsible
for its pro-rata share of compensation (including bonuses) and fringe benefits
of common employees and 30% of other common expenses. For the period from July
6, 1995 to September 30, 1995 VMC had net income of $265,000, of which $252,000
was distributed to Vornado. In addition, Vornado recognized $86,000 of interest
income on its loan to VMC.
Operating expenses were $8,095,000 in the quarter ended September 30,
1995, as compared to $7,064,000 in the prior year's quarter, an increase of
$1,031,000. Operating expenses were $23,082,000 in the nine months ended
September 30, 1995, as compared to $22,558,000 in the prior year's nine months,
an increase of $524,000. Of these increases (i) $300,000 resulted from bad debt
expense recorded in the third quarter of this year primarily due to the
prepetition receivables from tenants in bankruptcy and (ii) $735,000
resulted primarily from a decrease in the portion of real estate taxes
capitalized during construction. The increase for the nine month period was
partially offset by lower snow removal costs.
Page 10 of 19
<PAGE> 11
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Depreciation and amortization expense increased in 1995 as compared to
1994, primarily as a result of the completion of property expansions in the
fourth quarter of 1994.
General and administrative expenses were $1,181,000 in the quarter
ended September 30, 1995, compared to $1,345,000 in the prior year's quarter, a
decrease of $164,000. This decrease resulted primarily from a reduction in
general corporate office expenses of $596,000 resulting from the assignment of
the Company's Management Agreement with Alexander's to Vornado Management Corp
("VMC") in the third quarter of this year. This decrease was offset by
increases in (i) payroll of $208,000 due to additions to staff, (ii)
professional fees of $105,000 and (iii) other corporate expenses of $119,000.
General and administrative expenses were $5,018,000 in the nine months ended
September 30, 1995, compared to $4,518,000 in the prior year's nine months, an
increase of $500,000. This increase resulted from (i) payroll expenses of
$882,000 (due to additions to staff and bonuses), and (ii) professional fees
and other corporate office expenses of $214,000, offset by (iii) the reduction
in expenses of $596,000 resulting from the assignment of the Management
Agreement as noted above.
On March 2, 1995, the Company increased its investment in Alexander's
by 27.1% to 29.3% and as a result, changed its accounting for its investment in
Alexander's to the equity method. For the period March 2, 1995 through
September 30, 1995 equity in such losses amounted to $1,660,000. In addition,
for the same period the Company recognized interest income on its loan to
Alexander's of $4,379,000 and fee income of $2,884,000, excluding $1,088,000 of
Management Agreement fee income earned by VMC resulting from the assignment of
the Management Agreement as noted above. Alexander's has advised the Company
that because it is in the development stage, its current operating properties
(four of its eight properties) do not generate sufficient cash flow to pay all
of its expenses. Alexander's indicated that its four non-operating properties
(Rego Park, Lexington Avenue, Paramus and the Kings Plaza Store) are in various
stages of development and that rents under the Rego Park project are scheduled
to commence in March 1996. As rents commence from a portion of the remaining
development properties, Alexander's expects that cash flow will become
positive. Alexander's estimates that the fair market values of its assets are
substantially in excess of their historical cost and that there is additional
borrowing capacity. Therefore Alexander's may raise capital through (a)
property specific or corporate borrowing, (b) the sale of securities and (c)
asset sales. In addition, Alexander's may receive the proceeds from certain
tax certiorari or condemnation proceedings. Although there can be no
assurance, Alexander's believes that these cash sources will be adequate to
fund cash requirements until its operations generate adequate cash flow. The
Company believes that its share of Alexander's losses (which are non-cash)
combined with its fee income and interest income will not have a negative
effect on its results of operations, liquidity and financial condition.
Investment income (interest and dividend income and net gains/(losses)
on marketable securities) was $1,262,000 for the quarter ended September 30,
1995, compared to $2,127,000 in the prior year's quarter, a decrease of
$865,000 or 40.6%. Investment income was $4,463,000 for the nine months ended
September 30, 1995, compared to $6,155,000 for the prior year's nine months, a
decrease of $1,692,000 or 27.5%. The changes in investment income resulted
primarily from decreases in interest and dividend income of $687,000 and
$1,422,000 as a result of lower average investments due to $20,400,000 invested
in Alexander's (above the net proceeds from the sale of common shares). Net
gains on marketable securities in the third quarter ended September 30, 1995
were $178,000 less than in the prior year's quarter.
Page 11 of 19
<PAGE> 12
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest and debt expense was $3,922,000 in the quarter ended
September 30, 1995, as compared to $3,546,000 in the prior year's quarter, an
increase of $376,000 or 10.6%. Interest and debt expense was $12,494,000 for
the nine months ended September 30, 1995, compared to $10,823,000 for the prior
year's nine months, an increase of $1,671,000 or 15.4%. Of these increases
$48,000 and $891,000 resulted from borrowings under the revolving credit
facility to temporarily fund the investment in Alexander's and $156,000 and
$608,000 resulted from a decrease in interest capitalized during construction.
The Company operates in a manner intended to enable it to qualify as a
real estate investment trust ("REIT") under Sections 856-860 of the Internal
Revenue Code of 1986 as amended (the "Code"). Under those sections, a real
estate investment trust which distributes at least 95% of its REIT taxable
income 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. The Company 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 provided by operating activities of $43,855,000 for the
nine months ended September 30, 1995 was comprised of: (i) net income of
$38,589,000 and (ii) adjustments for non-cash items of $8,552,000, less (iii)
the net change in operating assets and liabilities of $3,286,000. The
adjustments for non-cash items are primarily comprised of depreciation and
amortization of $8,739,000, plus equity in loss of Alexander's of $1,920,000,
offset by the effect of straight-lining of rental income of $1,877,000.
Further, during this period in connection with the Alexander's transaction,
"Leasing fees and other receivables" increased by $8,552,000 and
correspondingly "Deferred leasing fee income" increased by $8,936,000. These
amounts have been included in "Changes in assets and liabilities: other" in the
Consolidated Statements of Cash Flows.
Cash flows provided by operating activities of $31,682,000 for the
prior year's nine months was comprised of: (i) net income of $30,748,000 and
(ii) adjustments for non-cash items of $6,007,000, less (iii) the net change in
operating assets and liabilities of $5,073,000. The adjustments for non-cash
items are primarily comprised of depreciation and amortization of $8,007,000,
offset by the effect of straight-lining of rental income of $1,500,000.
Net cash used in investing activities of $109,127,000 for the nine
months ended September 30, 1995 was comprised of (i) the Company's investment
in and advances to Alexander's of $100,251,000, (ii) capital expenditures of
$14,454,000 and (iii) a loan to VMC of $5,000,000, offset by (iv) the net
proceeds from the sale of securities available for sale of $10,578,000. Net
cash used in investing activities of $9,023,000 for the prior year's nine
months was comprised of capital expenditures of $17,339,000, offset by proceeds
from the sale of securities available for sale of $8,316,000.
Net cash provided by financing activities of $62,833,000 for the nine
months ended September 30, 1995 was primarily comprised of (i) net proceeds
from issuance of common shares of $79,831,000, and (ii) borrowings on U.S.
Treasury obligations of $21,707,000, offset by (iii) dividends paid of
$39,298,000. Net cash used in financing activities of $21,401,000, in the
prior year's nine months was primarily comprised of dividends paid of
$32,421,000, offset by borrowings on U.S. Treasury obligations of $11,577,000.
Page 12 of 19
<PAGE> 13
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management considers funds from operations an appropriate supplemental
measure of the Company's operating performance. Funds from operations were
$16,253,000 in the quarter ended September 30, 1995, compared to $12,341,000 in
the quarter ended September 30, 1994, an increase of $3,912,000 or 31.7%.
Funds from operations were $45,407,000 in the nine months ended September 30,
1995, compared to $35,986,000 in the nine months ended September 30, 1994, an
increase of $9,421,000 or 26.2%. The following table reconciles funds from
operations and net income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $13,567,000 $10,530,000 $38,589,000 $30,748,000
Depreciation and amortization of
real property 2,681,000 2,299,000 7,679,000 6,800,000
Straight-lining of property rentals (690,000) (500,000) (1,877,000) (1,500,000)
Leasing fees received in excess
of/(less than) income recognized 625,000 - 437,000 -
Loss/(gain) on sale of securities
available for sale - 12,000 360,000 (62,000)
Proportionate share of adjustments
to Alexander's loss to arrive at
funds from operations 70,000 - 219,000 -
---------- ---------- ---------- ----------
Funds from operations * $16,253,000 $12,341,000 $45,407,000 $35,986,000
=========== =========== =========== ===========
</TABLE>
* Effective January 1, 1995, the Company changed its definition of
funds from operations to exclude amortization of debt issuance
costs and depreciation of personal property. Prior period amounts
have been restated to conform to the current year's presentation.
The Company's definition of funds from operations does not conform
to the NAREIT definition because the Company deducts the effect of
straight-lining of property rentals.
Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs. Funds from
operations should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flows as a measure of liquidity. Below are the cash flows provided by (used
in) operating, investing and financing activities:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Operating activities $ 16,216,000 $12,327,000 $ 43,855,000 $ 31,682,000
============ =========== ============= ===========
Investing activities $ (9,757,000) $(5,631,000) $(109,127,000) $ (9,023,000)
============ =========== ============= ============
Financing activities $ (3,373,000) $ 1,168,000 $ 62,833,000 $(21,401,000)
============ =========== ============= ============
</TABLE>
Page 13 of 19
<PAGE> 14
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On February 27, 1995, the Company entered into a three-year unsecured
revolving credit facility with a group of banks providing for borrowings of up
to $75,000,000. Borrowings bear annual interest, at the Company's election, at
LIBOR plus 1.50% or the higher of the federal funds rate plus 1% or prime rate
plus .50%. At September 30, 1995, the Company had no borrowings outstanding
under the facility. On May 3, 1995, the Company completed the sale of
2,500,000 common shares in a public offering at $34.00 per share, which net of
expenses yielded approximately $80,000,000 of which $60,000,000 was used to
repay the indebtedness incurred under the revolving credit facility in
connection with the Alexander's investment.
On June 23, 1995, Bradlees, Inc., which accounted for 19% of property
rentals for the year ended December 31, 1994, filed for protection under
Chapter II of the U. S. Bankruptcy Code. The leases for 19 of the 21 Bradlees
locations are fully guaranteed by Stop & Shop Companies, Inc. Further,
Montgomery Ward & Co., Inc., remains liable for that portion of the rent it was
obligated to pay in 8 of these 19 locations.
The Company anticipates that cash from continuing operations, net liquid
assets, borrowings under its revolving credit facility and/or proceeds from the
issuance of securities under the Company's shelf registration statement will be
adequate to fund its business operations, capital expenditures, continuing debt
obligations and the payment of dividends.
Page 14 of 19
<PAGE> 15
VORNADO REALTY TRUST
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The following exhibits are filed with this
Quarterly Report on Form 10-Q.
11 Statement Re Computation of Per Share Earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Page 15 of 19
<PAGE> 16
VORNADO REALTY TRUST
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
VORNADO REALTY TRUST
------------------------
(Registrant)
Date: November 9, 1995 /s/ Joseph Macnow
------------------------
JOSEPH MACNOW
Vice President - Chief Financial
Officer and Chief Accounting Officer
Page 16 of 19
<PAGE> 17
VORNADO REALTY TRUST
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER IN
SEQUENTIAL
EXHIBIT NO. NUMBERING
- ----------- ---------
<S> <C> <C>
11 Statement Re Computation of Per Share Earnings. 18
27 Financial Data Schedule 19
</TABLE>
Page 17 of 19
<PAGE> 1
EXHIBIT 11
VORNADO REALTY TRUST
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding 24,238,937 21,624,824 23,089,836 21,624,763
Common share equivalents for
options after applying treasury
stock method 183,095 243,349 175,597 243,566
---------- ---------- ---------- ----------
Weighted Average Number of Shares
and Common Share Equivalents
Outstanding 24,422,032 21,868,173 23,265,433 21,868,329
========== ========== ========== ==========
Net Income $13,567,000 $10,530,000 $38,589,000 $30,748,000
=========== =========== =========== ===========
Net Income Per Share $ .56 $ .48 $1.66 $1.41
========== ========== ========== ==========
</TABLE>
Page 18 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Compay's
unaudited financial statements for the nine months ended September 30, 1995 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 21,120
<SECURITIES> 78,478
<RECEIVABLES> 5,578
<ALLOWANCES> 562
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 380,286
<DEPRECIATION> 136,684
<TOTAL-ASSETS> 501,440
<CURRENT-LIABILITIES> 0
<BONDS> 289,519
<COMMON> 970
0
0
<OTHER-SE> 192,947
<TOTAL-LIABILITY-AND-EQUITY> 501,440
<SALES> 0
<TOTAL-REVENUES> 79,902
<CGS> 0
<TOTAL-COSTS> 23,082
<OTHER-EXPENSES> 5,018
<LOSS-PROVISION> 492
<INTEREST-EXPENSE> 12,494
<INCOME-PRETAX> 38,589
<INCOME-TAX> 0
<INCOME-CONTINUING> 38,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,589
<EPS-PRIMARY> $1.66
<EPS-DILUTED> $1.66
</TABLE>
