<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, 1996
------------------------------------------------
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)
<TABLE>
<S> <C>
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)
</TABLE>
(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 25, 1996 there were 24,540,157 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, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . 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 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS:
Real estate, at cost:
Land $ 61,278 $ 61,278
Buildings and improvements 324,541 314,265
Leasehold improvements and equipment 8,115 6,933
---------- ----------
Total 393,934 382,476
Less accumulated depreciation and
amortization (148,155) (139,495)
---------- ----------
Real estate, net 245,779 242,981
Cash and cash equivalents, including U.S.
government obligations under repurchase
agreements of $12,299 and $12,575 21,769 19,127
Marketable securities 31,004 70,997
Investment in and advances to Alexander's, Inc. 104,777 109,686
Investment in and advances to Vornado
Management Corp. 5,006 5,074
Due from officer 8,418 8,418
Accounts receivable, net of allowance for
doubtful accounts of $516 and $578 8,274 7,086
Mortgage note receivable 17,000 -
Receivable arising from the
straight-lining of rents 16,288 14,376
Other assets 15,571 13,751
---------- ----------
TOTAL ASSETS $ 473,886 $ 491,496
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes and mortgages payable $232,572 $233,353
Due for U.S. treasury obligations 13,563 43,875
Amounts due under revolving credit facility 10,000 -
Accounts payable and accrued expenses 5,743 6,545
Deferred leasing fee income 6,725 8,888
Other liabilities 4,316 4,561
-------- --------
Total liabilities 272,919 297,222
-------- --------
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,
24,536,719 and 24,246,913
shares in each period 981 970
Additional capital 284,586 279,231
Accumulated deficit (77,958) (79,380)
-------- --------
207,609 200,821
Unrealized loss on securities
available for sale (1,535) (1,362)
Due from officers for purchase of common
shares of beneficial interest (5,107) (5,185)
-------- --------
Total shareholders' equity 200,967 194,274
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $473,886 $491,496
======== ========
</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,
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Property rentals $21,927 $20,406 $ 65,084 $ 59,390
Expense reimbursements 6,410 5,859 20,111 16,873
Other income (including fee income from
related parties of $671 and $365
and $1,476 and $3,564) 726 365 1,723 3,639
------- ------- -------- --------
Total revenues 29,063 26,630 86,918 79,902
------- ------- -------- --------
Expenses:
Operating 8,885 8,095 26,944 23,082
Depreciation and amortization 2,929 2,739 8,661 7,979
General and administrative 1,381 1,181 3,889 5,018
------- ------- -------- --------
Total expenses 13,195 12,015 39,494 36,079
------- ------- -------- --------
Operating income 15,868 14,615 47,424 43,823
Income/(loss) applicable to Alexander's:
Equity in loss (185) (564) (304) (1,660)
Depreciation (157) (156) (472) (260)
Interest income on loan 1,708 1,994 5,167 4,379
Income from investment in and advances
to Vornado Management Corp. 344 338 1,723 338
Interest income on mortgage
note receivable 661 - 1,911 -
Interest and dividend income 728 1,183 2,501 4,233
Interest and debt expense (4,208) (3,922) (12,623) (12,494)
Net gain on marketable securities 180 79 654 230
------- ------- -------- --------
NET INCOME $14,939 $13,567 $ 45,981 $ 38,589
======= ======= ======== ========
Net Income Per Share $ .61 $ .56 $1.88 $1.66
===== ===== ===== =====
Weighted average number of common
shares and common share equivalents
outstanding during period 24,553,758 24,422,032 24,498,095 23,265,433
Dividends per share $ .61 $ .56 $1.83 $1.68
</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, SEPTEMBER 30,
1996 1995
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,981 $ 38,589
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization
(including debt issuance costs) 9,431 8,739
Straight-lining of rental income (1,912) (1,877)
Equity in loss of Alexander's,
including depreciation of $472 and $260 776 1,920
Net gain on marketable securities (654) (230)
Changes in assets and liabilities:
Trading securities (1,016) (1,295)
Accounts receivable (1,188) (680)
Accounts payable and accrued expenses (802) 561
Other (719) (1,872)
---------- ---------
Net cash provided by operating activities 49,897 43,855
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mortgage note receivable (17,000) -
Additions to real estate (11,459) (14,454)
Investment in and advances to Alexander's - (100,251)
Investment in Vornado Management Corp. - (5,000)
Proceeds from sale or maturity of securities
available for sale 41,490 12,641
Purchases of securities available for sale - (2,063)
--------- ----------
Net cash provided by (used in) investing activities 13,031 (109,127)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings on U.S. treasury obligations (40,312) (10,093)
Proceeds from borrowings on U.S. treasury obligations 10,000 31,800
Proceeds from revolving credit facility 10,000 60,000
Repayments on mortgages and revolving credit facility (781) (60,623)
Dividends paid (44,559) (39,298)
Exercise of stock options 5,366 1,216
Net proceeds from issuance of common shares - 79,831
--------- ---------
Net cash (used in) provided by financing activities (60,286) 62,833
--------- ---------
Net increase/(decrease) in cash and cash equivalents 2,642 (2,439)
Cash and cash equivalents at beginning of period 19,127 23,559
--------- ---------
Cash and cash equivalents at end of period $ 21,769 $ 21,120
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest $ 11,853 $ 11,734
======== ========
NON-CASH TRANSACTIONS:
Unrealized loss on securities available for sale $ (173) $ (3,110)*
======== ========
</TABLE>
* Reflects 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.
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, 1996, the
consolidated statements of income for the three and nine months ended September
30, 1996 and September 30, 1995 and the consolidated statements of changes in
cash flows for the nine months ended September 30, 1996 and September 30, 1995
are unaudited. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's 1995 Annual Report to
Shareholders. The results of operations for the period ended September 30,
1996 are not necessarily indicative of the operating results for the full year.
2. INVESTMENTS IN AND ADVANCES TO ALEXANDER'S (A RELATED PARTY):
Below are summarized Statements of Operations of Alexander's:
<TABLE>
<CAPTION>
Nine Months Period from
Ended March 2, 1995 to
September 30, 1996 September 30, 1995
------------------ --------------------
<S> <C> <C>
Statement of Operations:
Revenues $ 15,749,000 $ 7,834,000
Expenses (8,689,000) (6,593,000)
------------ -----------
Operating income 7,060,000 1,241,000
Interest and debt expense (10,393,000) (8,382,000)
Other income and interest income, net 2,294,000 1,005,000
------------ -----------
Loss from continuing operations
before income tax benefit (1,039,000) (6,136,000)
Reversal of deferred taxes - 469,000
------------ -----------
Net loss from continuing operations $ (1,039,000) $(5,667,000)
============ ===========
Vornado's 29.3% equity in loss $ (304,000) $(1,660,000)
============ ===========
</TABLE>
Page 6 of 19
<PAGE> 7
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT IN AND ADVANCES TO ALEXANDER'S (A RELATED PARTY) -
CONTINUED
The unaudited proforma information set forth below presents the
condensed statement of income for Vornado for the nine months ended September
30, 1995, as if on January 1, 1994, the investment in Alexander's and related
agreements were consummated and 1,880,000 common shares of beneficial interest
of Vornado were issued to partially fund the investment.
<TABLE>
<CAPTION>
Proforma
Nine Months Ended
September 30, 1995
------------------------
<S> <C>
Revenues $ 79,762,000
Expenses 36,079,000
------------
Operating income 43,683,000
Income/(loss) applicable to Alexander's:
Equity in loss (2,464,000)
Depreciation (364,000)
Interest income on loan 5,941,000
Income from investment in and advances
to Vornado Management Corp. 338,000
Interest and dividend income 3,601,000
Interest and debt expense (11,651,000)
Net gain on marketable securities 230,000
------------
Net income $ 39,314,000
============
Net income per share $1.65
=====
</TABLE>
The Company recognized leasing fee income under a leasing agreement
(the "Leasing Agreement") with Alexander's of $157,000 and $125,000 for the
three months ended September 30, 1996 and 1995 and $514,000 and $1,313,000 for
the nine months ended September 30, 1996 and 1995. Leasing fee income for the
nine months ended September 30, 1995 included $915,000 applicable to 1993 and
1994 (no leasing fee income was recognized prior to 1995 because required
conditions had not been met). Subject to the payment of rents by Alexander's
tenants, the Company is due $4,357,000 at September 30, 1996 under such
agreement. The lease which the Company had previously negotiated with Caldor
on behalf of Alexander's for its Rego Park I property was rejected in March
1996 in Caldor's bankruptcy proceedings, resulting in $1,717,000 of previously
recorded leasing fees receivable and a corresponding credit (deferred leasing
fee income) being reversed in the quarter ended March 31, 1996. In addition to
the leasing fees received by the Company, Vornado Management Corp. receives
management fees from Alexander's (see Note 3).
Page 7 of 19
<PAGE> 8
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. VORNADO MANAGEMENT CORP.
In July 1995, the Company assigned its management and development
agreement (the "Management Agreement") with Alexander's to Vornado Management
Corp. ("VMC"). In exchange, the Company received 100% of the non-voting
preferred stock of VMC which entitles it to 95% of the distributions 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 is responsible for its pro-rata share of compensation
and fringe benefits of employees and 30% of other expenses which are common to
both Vornado and VMC. This entity is not consolidated and accordingly, the
Company accounts for its investment in VMC on the equity method. Below are
summarized Statements of Operations of VMC:
<TABLE>
<CAPTION>
Three Nine Period from
Months Months July 6, 1995
Ended Ended to
September 30, September 30, September 30,
1996 1996 1995
----------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Management fees from
Alexander's $1,037,000 $ 4,405,000 $1,088,000
Expenses:
General and administrative 585,000 1,819,000 596,000
Interest, net 74,000 216,000 44,000
---------- ------------ ----------
Income before income taxes 378,000 2,370,000 448,000
Income taxes 154,000 968,000 183,000
---------- ------------ ----------
Net income 224,000 1,402,000 265,000
Preferred dividends to Vornado (213,000) (1,332,000) (252,000)
---------- ------------ ----------
Net income available to
common shareholders $ 11,000 $ 70,000 $ 13,000
========== ============ ==========
</TABLE>
The fee income in the nine months ended September 30, 1996, includes
$1,443,000 of fees related to the substantial completion of the redevelopment
of Alexander's Rego Park I property. In addition to the preferred dividends
the Company received, it also earned interest income on its loan to VMC of
$131,000 for the three months ended September 30, 1996, $391,000 for the nine
months ended September 30, 1996, and $86,000 for the period from July 6, 1995
to September 30, 1995.
4. OTHER RELATED PARTY TRANSACTIONS
The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement. Management fees
earned by the Company pursuant to the management agreement were $565,000 and
$192,000 for the three months ended September 30, 1996 and 1995 and $1,112,000
and $680,000 for the nine months ended September 30, 1996 and 1995.
Page 8 of 19
<PAGE> 9
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. MORTGAGE NOTE RECEIVABLE
In January 1996, the Company provided $17 million of
debtor-in-possession financing to Rickel Home Centers, Inc. ("Rickel"), which
is operating under Chapter 11 of the Bankruptcy Code. The loan is secured by
27 of Rickel's leasehold properties and has a term of one year plus two annual
extensions, but is due not later than the date on which Rickel's plan of
reorganization is confirmed. The loan bears interest at 13% per annum for the
first year and at a fixed rate of LIBOR plus 7.50% for the extension periods.
In addition, the Company received a loan origination fee of 2% or $340,000 and
will receive an additional fee of 2% of the outstanding principal amount on
each extension.
6. EMPLOYEES' SHARE OPTION PLAN
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), which was effective for the Company
as of January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages, but does
not require compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply Accounting Principles Board ("APB") Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its stock
based compensation awards to employees and will disclose the required pro forma
effect on net income and earnings per share in its annual financial statements.
7. PRINCIPAL TENANT
Bradlees, Inc. ("Bradlees") accounted for 22% of property rentals for
the nine months ended September 30, 1996. The Company leases 21 locations to
Bradlees, of which 18 are fully guaranteed by Stop & Shop Companies, Inc.
("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold NV, a leading
international food retailer with annual sales of $18 billion and a nineteenth
is guaranteed as to 70% of rent. Further, Montgomery Ward & Co., Inc.
remains liable on eight of such leases, including rent it was obligated
to pay -- approximately 70% of rent.
In June 1995, Bradlees filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. In October 1996, Bradlees filed an action in the United
States Bankruptcy Court, Southern District of New York, seeking a declaration
that certain provisions of an agreement among Bradlees, the Company and Stop &
Shop be held unenforceable insofar as they restrict Bradlees rights to assume
and assign or to reject the leases that are subject to such agreement. All of
such leases are guaranteed by Stop & Shop.
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 $29,063,000 in the quarter ended
September 30, 1996, compared to $26,630,000 in the prior year's quarter, an
increase of $2,433,000 or 9.1%. Revenues were $86,918,000 for the nine months
ended September 30, 1996 compared to $79,902,000 in the prior year's nine
months, an increase of $7,016,000 or 8.8%.
Property rentals were $21,927,000 in the quarter ended September 30,
1996, compared to $20,406,000 in the prior year's quarter, an increase of
$1,521,000 or 7.5%. Property rentals were $65,084,000 for the nine months
ended September 30, 1996, compared to $59,390,000 in the prior year's nine
months, an increase of $5,694,000 or 9.6%. Of these increases (i) $1,245,000
and $3,072,000 resulted from step-ups in leases which are not subject to the
straight-line method of revenue recognition, (ii) $285,000 and $357,000
resulted from the Company's purchase of an office building in June 1996 and
(iii) $248,000 and $1,935,000 resulted from expansions of shopping centers and
the previous acquisition of a retail property. The increase for the current
year's quarter is net of $257,000 of property rentals lost from vacating
tenants over property rentals received from new tenants. The rentals from
tenants who vacated have been replaced at higher per square foot levels. The
replacement rents will commence by the first quarter of 1997. The increase for
the current year's nine month period includes $330,000 of property rentals
received from new tenants over property rentals lost from vacating tenants.
Tenant expense reimbursements were $6,410,000 in the quarter ended
September 30, 1996, compared to $5,859,000 in the prior year's quarter, an
increase of $551,000. Tenant expense reimbursements were $20,111,000 for the
nine months ended September 30, 1996, compared to $16,873,000 in the prior
year's nine months, an increase of $3,238,000. These increases reflect a
corresponding increase in operating expenses passed through to tenants.
Other income was $726,000 in the quarter ended September 30, 1996,
compared to $365,000 in the prior year's quarter, an increase of $361,000.
This increase resulted primarily from development fees and commissions in
connection with the Company's management agreement with Interstate Properties.
Other income was $1,723,000 for the nine months ended September 30, 1996,
compared to $3,639,000 in the prior year's nine months, a decrease of
$1,916,000. This decrease resulted from (i) including fee income pursuant to
the Management Agreement with Alexander's in "Income from investment in and
advances to Vornado Management Corp." (see page 11) for a full nine months in
1996, compared to a partial period in 1995 (July 6th to September 30th) and
(ii) the recognition of fee income in the first quarter of 1995 in connection
with the Leasing Agreement with Alexander's of $915,000 applicable to 1993 and
1994 (no leasing fee income was recognized prior to 1995 because required
conditions had not been met), partially offset by (iii) the increase in fee
income from Interstate Properties noted above.
Operating expenses were $8,885,000 in the quarter ended September 30,
1996, as compared to $8,095,000 in the prior year's quarter, an increase of
$790,000. Operating expenses were $26,944,000 in the nine months ended
September 30, 1996, compared to $23,082,000 in the prior year's nine months, an
increase of $3,862,000. These increases resulted primarily from higher snow
removal costs in the first six months of this year and higher real estate
taxes, both of which were passed through to tenants.
Depreciation and amortization expense increased in 1996 as compared
to 1995, primarily as a result of property expansions.
Page 10 of 19
<PAGE> 11
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and administrative expenses were $1,381,000 in the quarter
ended September 30, 1996, compared to $1,181,000 in the prior year's quarter,
an increase of $200,000. This increase resulted primarily from higher
professional fees. General and administrative expenses were $3,889,000 in the
nine months ended September 30, 1996, compared to $5,018,000 in the prior
year's nine months, a decrease of $1,129,000. This decrease resulted primarily
from a reduction in general corporate office expenses resulting from the
assignment of the Company's Management Agreement with Alexander's to VMC in the
third quarter of 1995.
Income applicable to Alexander's was $1,366,000 in the three months
ended September 30, 1996, compared to $1,274,000 in the prior year's quarter,
an increase of $92,000. Income applicable to Alexander's was $4,391,000 for
the nine months ended September 30, 1996, compared to $2,459,000 in the prior
year's nine months, an increase of $1,932,000. These increases resulted
primarily from the commencement of rent from Alexander's Rego Park I property
in March 1996 and interest income on the loan to Alexander's for a full nine
months in 1996, compared to a partial period in 1995 (March 2nd to September
30th).
In July 1995, the Company assigned its Management Agreement with
Alexander's to VMC. In exchange, the Company received 100% of the non-voting
preferred stock of VMC which entitles it to 95% of the distributions 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 is responsible for its pro-rata share of compensation and
fringe benefits of employees and 30% of other expenses which are common to
both Vornado and VMC. Income from investment in and advances to VMC was
$344,000 and $1,723,000 for the three and nine months ended September 30, 1996
as compared to $338,000 for the period from July 6th to September 30th in 1995.
Income from investment in and advances to VMC for the nine months ended
September 30, 1996 reflects additional fee income earned by VMC in the first
quarter of 1996 relating to the substantial completion of the redevelopment of
Alexander's Rego Park I property.
In January 1996, the Company lent Rickel Home Centers, Inc.
("Rickel") $17,000,000. The Company recognized $661,000 and $1,911,000 of
interest income on this loan to Rickel in the three and nine months ended
September 30, 1996.
Investment income (interest income on mortgage note receivable,
interest and dividend income and net gains/(losses) on marketable securities)
was $1,569,000 for the quarter ended September 30, 1996, compared to $1,262,000
in the prior year's quarter, an increase of $307,000 or 24.3%. Investment
income was $5,066,000 for the nine months ended September 30, 1996, compared to
$4,463,000 for the prior year's nine months an increase of $603,000 or 13.5%.
These increases resulted from net gains on marketable securities and income
earned on the mortgage note receivable exceeding income earned on the
investment of such funds in 1995.
The increases in interest and debt expense of $286,000 for the
current year's quarter and $129,000 for the current year's nine month period
resulted primarily from a reduction in interest capitalized during
construction, partially offset by lower average borrowings for the nine months
ended September 30, 1996.
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 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. The Company intends to distribute to its
shareholders an amount greater than its taxable income. Therefore, no
provision for federal income taxes is required.
Page 11 of 19
<PAGE> 12
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Nine Months Ended September 30, 1996
------------------------------------
Cash flows provided by operating activities of $49,897,000 was
comprised of (i) net income of $45,981,000 and (ii) adjustments for non-cash
items of $7,641,000, less (iii) the net change in operating assets and
liabilities of $3,725,000. The adjustments for non-cash items are primarily
comprised of depreciation and amortization of $9,431,000, plus equity in
income/(loss) of Alexander's of $776,000, offset by the effect of
straight-lining of rental income of $1,912,000. Further, during this period in
connection with the rejection of a lease by an Alexander's tenant, "Leasing
fees and other receivables" decreased by $1,717,000 and "Deferred leasing fee
income" correspondingly decreased. "Leasing fees and other receivables" of
$1,592,000 were collected during this period. These amounts have been included
in "Changes in assets and liabilities: other" in the Consolidated Statements of
Cash Flows and are part of the net change in operating assets and liabilities
shown in item (iii) above.
Net cash provided by investing activities of $13,031,000 was
comprised of (i) proceeds from sale or maturity of securities available for
sale of $41,490,000, offset by (ii) the Company's investment in a mortgage note
receivable (see Note 5) of $17,000,000 and (iii) capital expenditures of
$11,459,000 (including $8,923,000 for the purchase of an office building - see
page 13).
Net cash used in financing activities of $60,286,000 was primarily
comprised of (i) the net repayment of borrowings on U.S. Treasury obligations
of $30,312,000 (ii) dividends paid of $44,559,000, offset by (iii) the proceeds
from borrowings of $10,000,000 and (iv) the proceeds from the exercise of stock
options of $5,366,000.
Nine Months Ended September 30, 1995
------------------------------------
Cash flows provided by operating activities of $43,855,000 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.
Net cash used in investing activities of $109,127,000 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 Vornado
Management Corp. of $5,000,000, offset by (iv) the net proceeds from sale of
securities available for sale of $10,578,000.
Net cash provided by financing activities of $62,833,000 was
primarily comprised of (i) net proceeds from issuance of common shares of
$79,831,000 and (ii) net borrowings on U.S. Treasury obligations of
$21,707,000, offset by (iii) dividends paid of $39,298,000.
Funds from Operations for the Three and Nine Months Ended September
-------------------------------------------------------------------
30, 1996 and 1995
- -----------------
Management considers funds from operations an appropriate
supplemental measure of the Company's operating performance. Funds from
operations were $17,575,000 in the quarter ended September 30, 1996, compared
to $16,253,000 in the prior year's quarter, an increase of $1,322,000 or 8.1%.
Funds from operations were $53,550,000 in the nine months ended September 30,
1996, compared
Page 12 of 19
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
to $45,407,000 in the nine months ended September 30, 1995, an increase of
$8,143,000 or 17.9%. 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,
1996 1995 1996 1995
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net income $14,939,000 $13,567,000 $45,981,000 $38,589,000
Depreciation and amortization of
real property 2,828,000 2,681,000 8,394,000 7,679,000
Straight-lining of property rentals (635,000) (690,000) (1,912,000) (1,877,000)
Leasing fees received in excess
of income recognized 468,000 625,000 1,358,000 437,000
Loss on sale of securities
available for sale - - - 360,000
Proportionate share of adjustments
to Alexander's income/(loss)
to arrive at funds from operations (25,000) 70,000 (271,000) 219,000
----------- ----------- ----------- -----------
Funds from operations * $17,575,000 $16,253,000 $53,550,000 $45,407,000
=========== =========== =========== ===========
</TABLE>
* 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,
1996 1995 1996 1995
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Operating activities $ 16,121,000 $16,216,000 $ 49,897,000 $ 43,855,000
============ =========== ============ =============
Investing activities $ (129,000) $(9,757,000) $ 13,031,000 $(109,127,000)
============ =========== ============ =============
Financing activities $(10,971,000) $(3,373,000) $(60,286,000) $ 62,833,000
============ =========== ============ =============
</TABLE>
Bradless, Inc. ("Bradlees") accounted for 22% of property rentals for
the nine months ended September 30, 1996. The Company leases 21 locations to
Bradlees, of which 18 are fully guaranteed by Stop & Shop Companies, Inc.
("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold NV, a leading
international food retailer with annual sales of $18 billion and a nineteenth
is quaranteed as to 70% of rent. Further, Montgomery Ward & Co., Inc.
remains liable on eight of such leases, including rent it was obligated
to pay -- approximately 70% of rent.
In June 1995, Bradlees filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. In October 1996, Bradlees filed an action in the United
States Bankruptcy Court, Southern District of New York, seeking a declaration
that certain provisions of an agreement among Bradlees, the Company and Stop &
Shop be held unenforceable insofar as they restrict Bradlees rights to assume
and assign or to reject the leases that are subject to such agreement. All of
such leases are guaranteed by Stop & Shop.
Page 13 of 19
<PAGE> 14
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In January 1996, the Company provided $17 million of
debtor-in-possession financing to Rickel, which is operating under Chapter 11
of the Bankruptcy Code. The loan is secured by 27 of Rickel's leasehold
properties and has a term of one year plus two annual extensions, but is due
not later than the date on which Rickel's plan of reorganization is confirmed.
The loan bears interest at 13% per annum for the first year and at a fixed rate
of LIBOR plus 7.50% for the extension periods. In addition, the Company
received a loan origination fee of 2% or $340,000 and will receive an
additional fee of 2% of the outstanding principal amount on each extension.
At September 30, 1996, the Company had $10,000,000 of borrowings
outstanding under its unsecured revolving credit facility which provides for
borrowings of up to $75,000,000. Average borrowings were $10,000,000 during
the three months ended September 30, 1996 and $8,577,000 and $16,575,000 during
the nine months ended September 30, 1996 and 1995. There were no borrowings
outstanding during the three months ended September 30, 1995. Borrowings bear
annual interest, at the Company's election, at LIBOR plus 1.35% or the higher
of the federal funds rate plus .50% or the prime rate.
In June 1996, the Company entered into a joint venture (50% interest)
to purchase the 149,000 square foot office portion of a multi-use building in
midtown Manhattan, New York City. The space is 100% leased to a single tenant
whose lease expires in 1999. The Company advanced the $8,923,000 purchase
price and is entitled to an annual preferred return on its funds invested and
the return of its funds invested prior to the other joint venture partner
receiving any distributions. Vornado's consolidated financial statements
include the accounts of the joint venture since Vornado currently exercises
control over its operating and financial affairs.
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 1. LEGAL PROCEEDINGS.
Bradlees, Inc. ("Bradlees") accounted for 22% of
property rentals for the nine months ended September 30,
1996. The Company leases 21 locations to Bradlees, of which
18 are fully guaranteed by Stop & Shop Companies, Inc. ("Stop &
Shop"), a wholly-owned subsidiary of Royal Ahold NV, a
leading international food retailer with annual sales of $18
billion and a nineteenth is guaranteed as to 70% of rent.
Further, Montgomery Ward & Co., Inc. remains liable
on eight of such leases, including rent it was obligated to
pay -- approximately 70% of rent.
In June 1995, Bradlees filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. In October 1996,
Bradlees filed an action in the United States Bankruptcy
Court, Southern District of New York, seeking a declaration
that certain provisions of an agreement among Bradlees, the
Company and Stop & Shop be held unenforceable insofar as they
restrict Bradlees rights to assume and assign or to reject
the leases that are subject to such agreement. All of such
leases are guaranteed by Stop & Shop.
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 7, 1996 /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>
Three Months Ended Nine Months Ended
----------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Weighted average number of
shares outstanding 24,454,393 24,238,937 24,338,899 23,089,836
Common share equivalents for
options after applying
treasury stock method 99,365 183,095 159,196 175,597
----------- ----------- ----------- -----------
Weighted Average Number of
Shares and Common Share
Equivalents Outstanding 24,553,758 24,422,032 24,498,095 23,265,433
========== ========== ========== ==========
Net income $14,939,000 $13,567,000 $45,981,000 $38,589,000
=========== =========== =========== ===========
Net Income Per Share $ .61 $ .56 $1.88 $1.66
===== ===== ===== =====
</TABLE>
Page 18 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,769
<SECURITIES> 31,004
<RECEIVABLES> 8,274
<ALLOWANCES> 516
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 393,934
<DEPRECIATION> 148,155
<TOTAL-ASSETS> 473,886
<CURRENT-LIABILITIES> 0
<BONDS> 242,572
0
0
<COMMON> 981
<OTHER-SE> 199,986
<TOTAL-LIABILITY-AND-EQUITY> 473,886
<SALES> 0
<TOTAL-REVENUES> 86,918
<CGS> 0
<TOTAL-COSTS> 26,944
<OTHER-EXPENSES> 12,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,623
<INCOME-PRETAX> 45,981
<INCOME-TAX> 0
<INCOME-CONTINUING> 45,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,981
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.88
</TABLE>
