<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration Nos. 333-29013 and 33-62395
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 19, 1997)
14,000,000 SHARES
VORNADO LOGO
COMMON SHARES OF BENEFICIAL INTEREST
------------------------
Vornado Realty Trust ("Vornado" and collectively with its consolidated
subsidiaries, the "Company") is a fully-integrated real estate investment trust
organized under the laws of the State of Maryland. The Company currently owns:
(i) 58 shopping center properties in seven states and Puerto Rico containing
10.5 million square feet, including 1.2 million square feet built by tenants on
land leased from the Company; (ii) all or portions of 10 office building
properties in the New York City metropolitan area (primarily Manhattan)
containing 5.0 million square feet; (iii) eight warehouse/industrial properties
in New Jersey containing 2.0 million square feet; (iv) approximately 29.3% of
the outstanding common stock of Alexander's, Inc., which has nine properties in
the New York City metropolitan area; (v) a 40% interest in a hotel containing
800,000 square feet of space with 1,700 rooms and 400,000 square feet of retail
and office space; (vi) mortgages on various office, restaurant and other retail
properties; and (vii) other owned retail properties. See "Recent Developments"
for information on pending transactions.
Upon completion of the pending investments described herein, the Company
will have completed over $2 billion of real estate investments since January 1,
1997. Although past performance is no indication of future performance, the
total return to holders of Vornado's common shares of beneficial interest (the
"Common Shares") from December 18, 1996, the closing date of the Company's last
offering of Common Shares, through September 30, 1997 was approximately 68%,
including distributions and share price appreciation.
All of the Common Shares offered hereby are being sold by Vornado. Of the
14,000,000 Common Shares offered hereby, 11,200,000 Common Shares are being
initially offered in the United States and Canada, and the remaining 2,800,000
Common Shares are being initially offered outside of the United States and
Canada. See "Underwriting." Upon the closing of this offering, Vornado's
trustees and senior management will beneficially own approximately 28.7% of the
common equity of the Company (representing a market value in excess of $900
million based on the last reported sale price of the Common Shares on the New
York Stock Exchange (the "NYSE") on October 21, 1997). The Common Shares are
listed on the NYSE under the symbol "VNO". On October 20, 1997, Vornado paid a
100% Common Share dividend to holders of record of Common Shares at the close of
business on October 15, 1997 (all per share information in this Prospectus
Supplement has been adjusted to reflect the 100% Common Share dividend). Vornado
currently expects to declare a cash distribution of $.40 per Common Share in the
fourth quarter of 1997, representing an increase of $.08 per Common Share, or
25%, over the $.32 per Common Share distribution declared in the third quarter
of 1997. The last reported sale price of the Common Shares on the NYSE on
October 21, 1997 was $46 per share.
In order to maintain Vornado's qualification as a real estate investment
trust ("REIT") for federal income tax purposes, Vornado's Declaration of Trust
provides that no person may own more than 6.7% of the outstanding Common Shares.
Shares owned in excess of such limit shall be deemed "Excess Shares" pursuant to
Vornado's Declaration of Trust, in which case the holder will lose certain
ownership rights with respect to such shares and Vornado will have the right to
purchase such Excess Shares from the holder. See "Description of Common
Shares -- Restrictions on Ownership" in the accompanying Prospectus.
SEE "ADDITIONAL RISK FACTORS" BEGINNING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT AND "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS
FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON SHARES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================================
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNT(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Per Share............................................. $45.00 $2.14 $42.86
- ------------------------------------------------------------------------------------------------------------------------------
Total(3).............................................. $630,000,000 $29,960,000 $600,040,000
==============================================================================================================================
</TABLE>
(1) The Company and Vornado Realty L.P. have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $1,300,000 payable by the Company.
(3) The Company has granted the several U.S. Underwriters a 30-day option to
purchase up to 1,680,000 additional Common Shares to cover any
over-allotments, and has granted the several International Managers a 30-day
option to purchase up to 420,000 additional Common Shares to cover any
over-allotments. If both options are exercised in full, the maximum total
Price to Public, Underwriting Discount and Proceeds to Company will be
$724,500,000, $34,454,000 and $690,046,000, respectively. See
"Underwriting."
------------------------
The Common Shares are offered by the several Underwriters subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to their right to withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that delivery of the Common Shares offered
hereby will be made in New York, New York on or about October 27, 1997.
------------------------
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
FURMAN SELZ
SALOMON BROTHERS INC
SMITH
BARNEY INC.
UBS SECURITIES
The date of this Prospectus Supplement is October 21, 1997.
<PAGE> 2
Certain statements contained herein (including, without limitation, the
statements under the caption "Prospectus Supplement Summary -- Summary Pro Forma
and Selected Historical Consolidated Financial Data" that are not historical
facts) or incorporated by reference 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, as discussed herein or in
Vornado's Exchange Act filings made with the Securities and Exchange Commission
(the "Commission") incorporated by reference herein 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 to continue to qualify as a REIT,
(j) availability of financing on acceptable terms, (k) potential liability under
environmental or other laws or regulations and (l) general competitive factors.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES
OFFERED HEREBY, INCLUDING STABILIZING TRANSACTIONS, THE PURCHASE OF COMMON
SHARES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein by reference. Except as otherwise
specified herein, the information in this Prospectus Supplement and the
accompanying Prospectus assumes no exercise of the Underwriters' over-allotment
options and all share and per share information in this Prospectus Supplement
has been restated to reflect a share split effected by means of the 100% share
dividend paid on October 20, 1997 to record holders of the Common Shares as of
the close of business on October 15, 1997. All references to the "Company" in
this Prospectus Supplement shall be deemed to include Vornado and its
consolidated subsidiaries, including Vornado Realty L.P., a Delaware limited
partnership (the "Operating Partnership"), unless the context requires
otherwise.
THE COMPANY
Vornado is a fully-integrated real estate investment trust organized under
the laws of the State of Maryland. The Company currently owns: (i) 58 shopping
center properties in seven states and Puerto Rico containing 10.5 million square
feet, including 1.2 million square feet built by tenants on land leased from the
Company; (ii) all or portions of 10 office building properties in the New York
City metropolitan area (primarily Manhattan) containing 5.0 million square feet;
(iii) eight warehouse/industrial properties in New Jersey containing 2.0 million
square feet; (iv) approximately 29.3% of the outstanding common stock of
Alexander's, Inc., which has nine properties in the New York City metropolitan
area; (v) a 40% interest in a hotel containing 800,000 square feet of space with
1,700 rooms and 400,000 square feet of retail and office space; (vi) mortgages
on various office, restaurant and other retail properties; and (vii) other owned
retail properties.
The following table sets forth the percentage of the Company's total
earnings before interest expense, taxes, depreciation and amortization
("EBITDA"), represented by type of business on a historical basis for the year
ended December 31, 1996 and on a pro forma basis for the six months ended June
30, 1997. The pro forma column gives effect to the Recent Developments (as
defined below) and the acquisitions completed by the Company after January 1,
1997 as if they had occurred on January 1, 1997. See "Recent Developments."
<TABLE>
<CAPTION>
PERCENTAGE OF EBITDA
------------------------
PROPERTY TYPE HISTORICAL PRO FORMA
- --------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
Shopping centers..................................................... 72% 32%
Office buildings..................................................... 1% 31%
Cold storage......................................................... 0% 21%
Industrial........................................................... 5% 2%
Investment in Alexander's............................................ 13% 4%
Other................................................................ 9% 10%
--- ---
100% 100%
=== ===
</TABLE>
The percentage of the Company's EBITDA generated by properties located in
the Greater Metropolitan New York area was approximately 64% on a historical
basis for the year ended December 31, 1996, and approximately 73% on a pro forma
basis for the six months ended June 30, 1997.
S-3
<PAGE> 4
RECENT DEVELOPMENTS
Upon completion of the pending investments described in this Prospectus
Supplement, the Company will have completed over $2 billion of real estate
investments since January 1, 1997.
The following table lists the most significant acquisitions or investments
made by the Company in 1997 or which the Company is in contract to acquire.
<TABLE>
<CAPTION>
INVESTMENT
TRANSACTION PROPERTY TYPE DESCRIPTION (IN MILLIONS)
- --------------------------- --------------- ------------------------------------ ---------------
<S> <C> <C> <C>
The Mendik Company Office Interest in all or a portion of
seven Manhattan office buildings
containing approximately 4 million
square feet $ 656
Montehiedra Town Center Shopping Center 525,000 square foot center in San
Juan, Puerto Rico 74
Caguas Centrum Shopping Shopping Center 50% interest in center, currently
Center(1) under construction, in Caguas,
Puerto Rico 68
90 Park Avenue Office Manhattan office building containing
875,000 square feet 185
Riese Properties Restaurants 4 Manhattan properties, and a
mortgage loan receivable
cross-collateralized by another 10
Manhattan properties 67
Arbor Property Trust Shopping Center Super-regional enclosed mall
(Green Acres)(1) containing 1.7 million square feet 225
Charles E. Smith Commercial Office 15% limited partnership interest 60
Realty, L.P.(1)
Hotel Pennsylvania Hotel 40% interest in hotel containing
800,000
square feet of hotel space (1,700
rooms), and 400,000 square feet of
retail and office space 64
YMCA Development(1) Residential Condominium units to be constructed
overlooking Central Park, Manhattan 63
20 Broad Street Mortgage Office Mortgage loan on property leased to
single tenant -- the New York Stock
Exchange 27
Americold/URS Logistics(1) Cold storage 60% interest in two cold storage and
logistics warehouse companies 569
-------
$ 2,058
===========
</TABLE>
- ---------------
(1) Pending transaction.
Although past performance is no indication of future performance, the total
return to holders of the Common Shares from December 18, 1996, the closing date
of the Company's last offering of Common Shares, through September 30, 1997 was
approximately 68%, including distributions and share price appreciation.
S-4
<PAGE> 5
THE OFFERING
Common Shares offered by the U.S.
Underwriters................................ 11,200,000 shares
Common Shares offered by the International
Managers.................................... 2,800,000 shares
Common Shares to be outstanding after the
Offering.................................... 67,123,454 shares(1)
Use of Proceeds............................. To pay approximately $310
million of outstanding
indebtedness under the Company's
line of credit and to fund a
portion of the purchase price of
certain acquisitions. See
"Recent Developments" and "Use
of Proceeds."
New York Stock Exchange Symbol.............. "VNO"
- ---------------
(1) Includes 919,540 Common Shares held in trust for the benefit of Michael D.
Fascitelli, the President and a trustee of Vornado, pursuant to his
employment agreement, which Common Shares are not considered outstanding for
accounting purposes. Excludes 7,273,730, 5,681,124, 7,903,720, and 2,998,302
Common Shares, respectively, reserved for issuance (i) upon the exercise of
outstanding options, (ii) upon the conversion of outstanding Operating
Partnership Units of the Operating Partnership issued pursuant to agreements
entered into in connection with the Mendik Transaction (as defined under
"The Company" below), (iii) upon the conversion of outstanding shares of
Vornado's $3.25 Series A Convertible Preferred Shares of Beneficial
Interest, liquidation preference $50.00 per share ("Series A Convertible
Preferred Shares"), and (iv) in connection with the Company's acquisition of
Arbor Property Trust ("Arbor"), assuming that all shareholders of Arbor
elect to receive Vornado Common Shares in exchange for their shares of
Arbor. See "Recent Developments -- Arbor Property Trust."
S-5
<PAGE> 6
SUMMARY PRO FORMA AND SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth unaudited pro forma condensed consolidated
financial information and historical condensed consolidated financial
information for the Company. The unaudited pro forma condensed consolidated
financial information presents (i) the condensed consolidated pro forma
statement of income for the Company for the year ended December 31, 1996 and the
six months ended June 30, 1997 as if the Mendik Transaction (as defined under
"The Company" below) and its acquisitions of or investments in 90 Park Avenue,
Arbor, Montehiedra, Riese, Charles E. Smith Commercial Realty L.P., the Hotel
Pennsylvania and the Cold Storage Companies (each as described under "Recent
Developments" below) (collectively, the "Current Acquisitions") had occurred or
been made on January 1, 1996, and (ii) the condensed consolidated pro forma
balance sheet data of the Company as of June 30, 1997, as if the Current
Acquisitions had occurred on June 30, 1997.
The unaudited condensed consolidated pro forma financial information is not
necessarily indicative of what the Company's actual results of operations or
financial position would have been had the Current Acquisitions been consummated
on the dates indicated, nor does it purport to represent the Company's results
of operations or financial position for any future period. The results of
operations for the period ended June 30, 1997 are not necessarily indicative of
the operating results for the full year. All share and per share information has
been restated to reflect the 100% Common Share dividend paid by the Company on
October 20, 1997.
The unaudited condensed consolidated pro forma financial information should
be read in conjunction with the Consolidated Financial Statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as amended (the "1996 10-K"), its Quarterly Report on Form
10-Q for the period ended June 30, 1997 (the "June 10-Q") and its Current
Reports on Form 8-K dated March 12, 1997, April 3, 1997, April 15, 1997, May 7,
1997, June 27, 1997, August 21, 1997, September 11, 1997 and October 8, 1997
(the "Form 8-K Reports") incorporated herein by reference.
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS PRO FORMA
SIX MONTHS ENDED JUNE 30, YEAR ENDED YEAR ENDED DECEMBER 31,
ENDED JUNE ------------------------- DECEMBER ---------------------------------------
30, 1997(1) 1997 1996 31, 1996(1) 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues:
Property rentals............ $ 128,099 $ 63,471 $ 43,157 $ 241,972 $ 87,424 $ 80,429 $ 70,755
Expense reimbursements...... 29,198 15,161 13,701 64,295 26,644 24,091 21,784
Other income................ 2,247 1,327 997 3,565 2,819 4,198 1,459
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues........ 159,544 79,959 57,855 309,832 116,887 108,718 93,998
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Operating................... 55,774 26,658 18,059 119,012 36,412 32,282 30,223
Depreciation and
amortization.............. 20,305 8,429 5,732 49,942 11,589 10,790 9,963
General and
administrative............ 5,825 4,748 2,508 8,162 5,167 6,687 6,495
Amortization of officer's
deferred compensation
expense................... 12,498 12,498 -- 2,083 2,083 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses........ 94,402 52,333 26,299 179,199 55,251 49,759 46,681
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income.............. 65,142 27,626 31,556 130,633 61,636 58,959 47,317
Income applicable to Cold
Storage Companies........... 2,972 5,539
Income (loss) applicable to
Alexander's:
Equity in income (loss)..... (7) (7) (120) 1,679 1,679 (1,972) --
Depreciation................ (300) (300) (314) (571) (571) (417) --
Interest income on loan..... 3,149 3,149 3,459 6,848 6,848 6,343 --
Income from investment in
management companies........ 1,484 520 1,379 3,326 1,855 788 --
Equity in net income of
investees................... 2,819 282 -- 5,609 -- -- --
Interest income on mortgage
loans receivable............ 3,259 4,305 1,250 6,577 2,579 -- --
Other interest and dividend
income...................... 7,673 6,774 1,773 5,667 3,151 5,439 7,489
Interest and debt expense..... (23,415) (17,350) (8,415) (43,359) (16,726) (16,426) (14,209)
Gain on marketable
securities.................. 579 579 474 913 913 294 643
Minority interest of
unitholders in the Operating
Partnership................. (5,184) (2,100) -- (10,372) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
S-6
<PAGE> 7
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS PRO FORMA
SIX MONTHS ENDED JUNE 30, YEAR ENDED YEAR ENDED DECEMBER 31,
ENDED JUNE ------------------------- DECEMBER ---------------------------------------
30, 1997(1) 1997 1996 31, 1996(1) 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.................... 58,171 23,478 31,042 112,489 61,364 53,008 41,240
Preferred stock dividends..... (9,992) (4,855) -- (19,800) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income applicable to
common shares............... $ 48,179 $ 18,623 $ 31,042 $ 92,689 $ 61,364 $ 53,008 $ 41,240
=========== =========== =========== =========== =========== =========== ===========
Weighted average number of
common shares and common
share equivalents........... 70,434,764 53,437,682 48,929,844 66,203,966 49,206,884 47,159,338 43,707,440
Net income per common
share..................... $ 0.68 $ 0.35 $ 0.63 $ 1.40 $ 1.25 $ 1.12 $ 0.94
Cash dividends declared per
common share................ 0.64 0.61 1.22 1.12 1.00
BALANCE SHEET DATA
As at:
Total assets................ $ 2,165,338 $ 1,646,296 $ 565,204 N/A $ 565,204 $ 491,496 $ 393,538
Real estate, at cost........ 1,141,300 1,047,477 397,298 N/A 397,298 382,476 365,832
Accumulated depreciation.... 159,450 159,450 151,049 N/A 151,049 139,495 128,705
Debt........................ 670,016 862,883 232,387 N/A 232,387 233,353 234,160
Shareholders' equity........ 1,237,320 539,341 276,257 N/A 276,257 194,274 116,688
OTHER DATA
Funds from Operations(2):
Net income applicable to
common shares............. $ 48,179 $ 18,623 $ 31,042 $ 92,689 $ 61,364 $ 53,008 $ 41,240
Depreciation and
amortization of real
property.................. 17,632 7,857 5,251 48,936 10,583 10,019 9,192
Straight-lining of rental
income.................... (2,150) (1,487) (1,277) (12,423) (2,676) (2,569) (2,181)
Leasing fees received in
excess of income
recognized................ 1,303 1,303 890 1,805 1,805 1,052 --
Losses (gains) on sale of
securities available for
sale...................... -- -- -- -- -- 360 (51)
Vornado's proportionate
share of adjustments to
Alexander's income
(loss)to arrive at funds
from operations........... -- 327 66 -- (1,760) 539 --
Vornado's proportionate
share of adjustments to
net income of investees to
arrive at funds from
operations................ 17,292 560 -- 30,256 -- -- --
Non-recurring lease
cancellation income and
write-off of related
costs..................... (11,581)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Funds from operations....... $ 70,675 $ 27,183 $ 35,972 $ 161,263 $ 69,316 $ 62,409 $ 48,200
=========== =========== =========== =========== =========== =========== ===========
Cash flow provided by (used
in):
Operating activities...... $ 95,368 $ 50,989 $ 33,776 $ 185,212 $ 70,703 $ 62,882 $ 46,948
Investing activities...... $ (976,655) $ (629,813) $ 13,160 $ (664,166) $ 14,912 $ (103,891) $ (15,434)
Financing activities...... $ 978,447 $ 688,954 $ (49,315) $ 553,088 $ (15,046) $ 36,577 $ (32,074)
</TABLE>
- ---------------
(1) The sale of the Common Shares reflected herein is not subject to the
consummation of any of the pending acquisitions or investments described in
this Prospectus Supplement, nor are any of such pending acquisitions or
investments subject to the prior sale of such Common Shares.
(2) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs which is
disclosed in the Company's Consolidated Statements of Cash Flows for the
applicable periods. There are no material legal or functional restrictions
on the use of funds from operations. Funds from operations should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flows as a measure of
liquidity. Management considers funds from operations a supplemental measure
of operating performance and along with cash flow from operating activities,
financing activities, and investing activities, it provides investors with
an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. Funds from
operations may not be comparable to similarly titled measures employed by
other REITs since a number of REITs', including the Company's, method of
calculating funds from operations is different from that used by the
National Association of Real Estate Investment Trusts ("NAREIT"). Funds from
operations, as defined by NAREIT, represents net income applicable to common
shares before depreciation and amortization, extraordinary items and gains
or losses on sales of real estate. Funds from operations as disclosed above
has been modified to adjust for the effect of straight-lining of property
rentals for rent escalations and leasing fee income.
S-7
<PAGE> 8
ADDITIONAL RISK FACTORS
In addition to the other information in this Prospectus Supplement and the
accompanying Prospectus, the following factors and the factors set forth under
"Risk Factors" in the accompanying Prospectus should be considered carefully in
evaluating an investment in the Common Shares offered hereby.
RISKS ASSOCIATED WITH ACQUISITION OF COLD STORAGE COMPANIES
On September 26, 1997, the Company entered into agreements to acquire
Americold Corporation ("Americold") and URS Logistics, Inc. ("URS", and together
with Americold, the "Cold Storage Companies"). See " Recent Developments -- Cold
Storage." Americold is the nation's largest cold storage and logistics warehouse
company. URS is a leading provider of refrigerated and frozen storage and frozen
food distribution services. The Company has not previously engaged in the cold
storage business and there can be no assurance that the Company will be able to
successfully manage the Cold Storage Companies' businesses. The businesses of
the Cold Storage Companies may also be subject to certain other risks, including
dependence on key customers and downturns in agricultural markets resulting from
severe weather or other factors. In addition, certain of Americold's existing
debt may be in default (upon completion of the acquisition) and/or contains
covenants that restrict Americold's ability to pay dividends, make investments
or acquisitions, or engage in certain other corporate transactions. Although the
Company expects to refinance such debt of Americold, there can be no assurance
as to the availability on acceptable terms or timing of such refinancings.
LACK OF CONTROL OF AFFILIATES
Certain of the Company's businesses are currently conducted by corporations
in which the Company owns all of the preferred stock ("preferred stock
affiliates") and none of the common equity. Ownership of the preferred stock
entitles the Company to substantially all of the economic benefits of such
affiliates. The common stock of the preferred stock affiliates is owned by
officers and/or trustees of Vornado. Accordingly, the Company is not able to
elect the boards of directors of the preferred stock affiliates, and does not
have the authority to control the management and operations of such affiliates.
As a result, the Company does not have the right to control the timing or amount
of dividends paid by such affiliates and, therefore, does not have the authority
to require that funds be distributed to it by any of these entities. To date,
the EBITDA contribution of the Company's existing preferred stock affiliates has
not been material. The Company anticipates that the acquisition of the Cold
Storage Companies will initially be conducted through newly created preferred
stock affiliates, the common stock of which will be owned by Vornado officers
and/or trustees. See "Recent Developments -- Cold Storage."
THE COMPANY
Vornado is a fully-integrated real estate investment trust organized under
the laws of the State of Maryland. The Company currently owns: (i) 58 shopping
properties in seven states and Puerto Rico containing 10.5 million square feet,
including 1.2 million square feet built by tenants on land leased from the
Operating Partnership; (ii) all or portions of 10 office building properties in
the New York City metropolitan area (primarily Manhattan) containing 5.0 million
square feet; (iii) eight warehouse/industrial properties in New Jersey
containing 2.0 million square feet; (iv) approximately 29.3% of the outstanding
common stock of Alexander's, Inc., which has nine properties in the New York
City metropolitan area; (v) a 40% interest in a hotel containing approximately
800,000 square feet of space with 1,700 rooms and 400,000 square feet of retail
and office space; (vi) mortgages on various office, restaurant and other retail
properties; and (vii) other owned retail properties.
In April 1997, Vornado transferred substantially all of its assets to the
Operating Partnership. As a result, Vornado now conducts its business through,
and substantially all of its interests in properties are held by, the Operating
Partnership, in which Vornado is the sole general partner and in which it owns a
90% limited partnership interest as of September 30, 1997.
S-8
<PAGE> 9
Simultaneously with the formation of the Operating Partnership, the Company
consummated the acquisition of interests in all or a portion of seven Manhattan
office buildings (the "Mendik Properties") and a management company held by the
Mendik Group (Bernard H. Mendik, David R. Greenbaum and certain entities
controlled by them) and certain of its affiliates (the "Mendik Transaction"),
which is operated as the Mendik Division of the Company. The Mendik Properties
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: 2
Park Avenue (40% interest), 330 Madison Avenue (24.8% interest) and 570
Lexington Avenue (5.6% interest). The consideration for the Mendik Transaction
was approximately $656,000,000, including $264,000,000 in cash, $177,000,000 in
limited partnership units of the Operating Partnership and $215,000,000 in
indebtedness. The Company financed the cash portion of the Mendik Transaction by
means of a public offering of Series A Convertible Preferred Shares. The
acquisition was recorded under the purchase method of accounting.
In addition, on April 15, 1997, the Operating Partnership entered into a
Credit Agreement with Union Bank of Switzerland ("UBS") pursuant to which the
Operating Partnership borrowed $400,000,000. The Credit Agreement was
subsequently replaced with a $600,000,000 revolving line of credit provided by
lending institutions led by UBS. Loans under the line of credit accrue interest
at a floating rate based on LIBOR (at October 8, 1997, the rate was 6.5% per
annum) and mature, assuming exercise of extension options, on July 17, 2000.
On April 18, 1997, the Company acquired The Montehiedra Town Center located
in San Juan, Puerto Rico, from Kmart Corporation ("Kmart") for approximately
$74,000,000, of which $63,000,000 is newly-issued ten year indebtedness. The
Montehiedra shopping center, which opened in 1994, contains 525,000 square feet,
including a 135,000 square foot Kmart store. In addition, the Company agreed to
acquire Kmart's 50% interest in the Caguas Centrum Shopping Center, which is
currently under construction, located in Caguas, Puerto Rico. This acquisition
is expected to close in 1998. See "Recent Developments -- Puerto Rico
Transactions."
SHOPPING CENTERS
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 locations on regional highways and the high
percentage of square feet dedicated to large stores. The occupancy rate of the
shopping center properties was 91% at September 30, 1997 and 1996 and has been
over 90% in each of the past five years.
As of September 30, 1997, approximately 80% of the square footage of the
shopping centers was leased to large stores (over 20,000 square feet) and over
93% was leased to tenants whose businesses are national or regional in scope.
The Company's large 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. The
Company's large store 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 believes that because the stores operated by its tenants offer basic
consumer necessities, demand typically continues even during economic declines,
which therefore may mitigate the effects on its properties of adverse changes in
general economic conditions. However, demand for retail space continues to be
impacted by the bankruptcy of a number of retail companies and a general trend
toward consolidation in the retail industry which could adversely affect the
ability of the Company to attract or retain tenants.
Substantially all of the Company's large store leases are long-term with
fixed base rents and provide for step-ups in rent typically occurring every five
years. In addition, the Company's leases generally provide for additional rents
based on a percentage of tenants' sales. Of the Company's $80,000,000 of
shopping center rental revenue in 1996, base rents accounted for approximately
99% and percentage rent accounted for approximately 1%. The Company's leases
generally pass through to tenants the tenant's share of all common
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<PAGE> 10
area charges (including roof and structure, unless it is the tenant's direct
responsibility), real estate taxes, insurance costs and certain capital
expenditures. As of September 30, 1997, the average annual base rent per square
foot for the Company's shopping centers was $9.67. From 1992 through 1996,
property rentals from shopping centers were $56,900,000, $61,900,000,
$64,700,000, $74,300,000 and $80,000,000, respectively. At September 30, 1997,
no single shopping center property accounted for more than 5.8% of the total
leasable area of the Company's shopping center properties or more than 3.3% of
total pro forma property rentals.
OFFICE PROPERTIES
The Company's office properties are located in the New York City
metropolitan area (primarily in midtown Manhattan) and are primarily managed and
leased by its Mendik Division.
Of the ten properties, five were constructed in the 1960s, two were
constructed in the 1950s, one was constructed in the 1930s and two were
constructed in the 1920s. In 1988, the Mendik Group initiated an extensive
renovation program in order to assure the continued competitiveness of these
properties. Approximately $85,000,000 was expended at the properties (excluding
the redevelopment costs associated with 570 Lexington Avenue) for building
improvements and equipment upgrades (excluding the cost of tenant improvements).
As a result of this recently completed renovation program, the Company believes
that the properties have state-of-the-art infrastructure and are well positioned
to compete with other Class A office properties in their respective submarkets.
The office properties are leased to over 400 tenants, which are engaged in
a variety of businesses, including financial services, investment banking,
publishing, computer technology, health care services, accounting and law. The
average lease term of a tenant's lease is eleven 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 rent inclusion basis. Leases also typically provide for
tenant improvement allowances for all or a portion of the tenant's initial
construction of its premises.
The occupancy rate of the office properties was 91% as of September 30,
1997. The average annual base rent per square foot as of September 30, 1997 for
the office properties was $27.39. At September 30, 1997, no single tenant
accounted for more than 5.0% of the Company's total leasable office property
square footage. Revenues for Two Penn Plaza accounted for 14.0% of total pro
forma property rentals for the year ended December 31, 1996. No other office
property exceeded 10% of the total pro forma property rentals. In addition to
managing the Company's office buildings, the Mendik Division manages other
properties in the New York City Metropolitan area which contain approximately
5,600,000 of rentable square feet.
MAJOR TENANTS
Only one of the Company's tenants accounted for more than 3% of pro forma
property rentals for the year ended December 31, 1996 -- Bradlees accounted for
8.0% of total pro forma property rentals. In June 1995, Bradlees filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. The Company currently
leases 16 locations to Bradlees. Of these locations, 14 are fully guaranteed by
Stop & Shop Companies, Inc. ("Stop & Shop"), a wholly-owned subsidiary of Royal
Ahold NV, a leading international food retailer, and one is guaranteed as to 70%
of the rent.
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 Properties' ownership of the Company and Alexander's.)
Alexander's has nine properties (where its department stores were formerly
located) consisting of:
Operating properties:
(i) The Rego Park I Property located in Queens, New York.
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<PAGE> 11
(ii) A 50% interest in the 427,000 square feet of mall stores at the
Kings Plaza Shopping Center (the "Kings Plaza Mall") located in Brooklyn,
New York.
(iii) The Fordham Road Property located in the Bronx, New York.
(iv) The Flushing Property located in Flushing, New York.
(v) The Third Avenue Property located in the Bronx, New York.
The occupancy rate of Alexander's operating properties was 77.0% at
September 30, 1997.
Non-operating properties to be developed:
(vi) The Lexington Avenue property, which comprises the entire square
block bounded by Lexington Avenue, East 59th Street, Third Avenue and East
58th Street in Manhattan, New York. This property is owned by a limited
partnership in which Alexander's is the general partner and owns
approximately 92% of the limited partnership interests. Alexander's
redevelopment plans include razing the existing building and developing a
large, multi-use building, requiring capital expenditures in excess of
$300,000,000. No development decisions have been finalized.
(vii) The Paramus property, which consists of 39.3 acres of land,
including its former store building, located at the intersection of Routes
4 and 17 in Paramus, New Jersey. Approximately nine acres located on the
property's periphery are subject to condemnation by the State of New
Jersey. Alexander's and the New Jersey Department of Transportation (the
"DOT") are negotiating an agreement pursuant to which the DOT will pay
approximately $14,700,000 for the acreage subject to condemnation and grant
Alexander's the right to develop up to 550,000 square feet on the remaining
acreage. The agreement with the DOT is subject to negotiation of final
documentation and to certain municipal approvals. Alexander's is
considering razing the existing building and developing a two or three
level shopping center on the site. The estimated total cost of such
redevelopment is between $60,000,000 and $70,000,000. No development
decisions have been finalized.
(viii) The Kings Plaza Store, a 339,000 square foot anchor store,
which is one of the two anchor stores at the Kings Plaza Mall Shopping
Center. In January 1997, Sears leased 289,000 square feet at this location
for use as a full-line department store expected to open in the last
quarter of 1997.
(ix) Rego Park II, comprising one and one-half square blocks of vacant
land adjacent to the Rego Park I location.
The Company expects to provide a portion of the financing required for
Alexander's redevelopment projects. None of the redevelopment plans for the
non-operating properties have been finalized.
In March 1995, the Operating Partnership lent Alexander's $45,000,000 to
repay its creditors and provide working capital. The loan matures in March 1998,
and bears interest at 15.60%. Management believes there are no indications of
impairment in accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan."
Property rentals from Caldor, which filed for relief under Chapter 11 of
the United States Bankruptcy Code in September 1995, represented approximately
29% and 36% of Alexander's consolidated revenues for the six months ended June
30, 1997 and the year ended December 31, 1996. Caldor rejected its Fordham Road
lease effective June 6, 1997 and, accordingly, no longer pays rent. Alexander's
has filed a claim for damages based on such rejection. The annual base rental
revenue under this lease was $3,537,000 (approximately 15% of Alexander's
consolidated revenues). The rejection of the Fordham Road lease and the loss of
property rental payments, if any, under the Caldor lease for the Flushing
Property, could have a material adverse effect on Alexander's financial
condition and results of operations.
The Company manages, develops and leases the Alexander's properties under a
management and development agreement and a leasing agreement pursuant to which
the Company receives annual fees from Alexander's.
Alexander's common stock is listed on the NYSE under the symbol "ALX".
S-11
<PAGE> 12
INTERSTATE PROPERTIES
As of September 30, 1997, Interstate Properties owned 21.9% of the
outstanding Common Shares of Vornado (assuming the conversion of all of the
Operating Partnership units) and 27.1% of the outstanding shares 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. Effective March 2, 1995, for a
three-year period, the Company and Interstate Properties agreed not to own in
excess of two-thirds of the outstanding shares of Alexander's common stock or
enter into certain other transactions with Alexander's, without the consent of
the independent directors of Alexander's.
CAPITAL RESOURCES
The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an ongoing basis for more than the next twelve months; however,
capital outlays for acquisitions and investments, including those described
under "Recent Developments" below, may require funding from borrowings or equity
offerings in addition to the Common Shares offered hereby.
PROPERTIES
VORNADO
The following table sets forth certain information for the properties owned
by the Company as of September 30, 1997. The Principal Tenants set forth below,
which are primarily tenants which occupy 30,000 square feet or more, accounted
for approximately 70% of total square footage.
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<PAGE> 13
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
------------------------
YEAR OWNED BY AVERAGE
ORIGINALLY LAND OWNED/ TENANT ON NUMBER ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED OF BASE RENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY TENANTS PER SQ. FT.(1)
- --------------------------------------------- ----------- ------- --------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C> <C>
OFFICE BUILDINGS
(MENDIK DIVISION)
NEW YORK
Two Penn Plaza, Manhattan.................. 1978 2.7 1,474,526 76 $26.12
Eleven Penn Plaza, Manhattan............... 1980 1.3 956,280 70 25.19
1740 Broadway, Manhattan................... 1990 0.7 551,301 16 32.17
866 United Nations Plaza,
Manhattan................................ 1978 2.1 384,815 82 29.29
90 Park Avenue, Manhattan.................. 1997 0.9 877,033 27 31.15
Two Park Avenue, Manhattan
(40% Ownership).......................... 1986 1.0 946,697 39 22.49
330 Madison Avenue, Manhattan
(24.75% Ownership)....................... 1979 0.8 770,828 44 33.35
570 Lexington Avenue, Manhattan
(5.6% Ownership)......................... 1994 0.3 433,342 27 31.12
825 Seventh Avenue, Manhattan
(50% Ownership).......................... 1996 0.5 149,000 1 7.65
NEW JERSEY
Paramus(4)................................. 1987 3.4 118,225 24 16.92
------- --------- ------- ------
TOTAL OFFICE BUILDINGS..................... 13.7 6,662,047 406 27.39
------- --------- ------- ------
VORNADO'S OWNERSHIP INTEREST............... 12.0 5,030,406
------- ---------
<CAPTION>
LEASE
EXPIRATION
PERCENT PRINCIPAL /OPTION ENCUMBRANCES
LOCATION LEASED(1) TENANTS EXPIRATION (IN THOUSANDS)
- --------------------------------------------- --------- ------------------------ ---------- --------------
<S> <<C> <C> <C> <C>
OFFICE BUILDINGS
(MENDIK DIVISION)
NEW YORK
Two Penn Plaza, Manhattan.................. 84% Digital Equipment 1998 $ 80,000
Information Builders, 2013/2023
Inc.
Eleven Penn Plaza, Manhattan............... 96% Times Mirror 2001 54,836
General Mills 2002
1740 Broadway, Manhattan................... 100% Mutual of New York 2016/2026 --
William Douglas McAdams 2007
866 United Nations Plaza,
Manhattan................................ 97% Mission of Japan 2006 33,000
90 Park Avenue, Manhattan.................. 94% Sterling Drug 2015/2035 --
Two Park Avenue, Manhattan
(40% Ownership).......................... 94% Times Mirror 2010/2025 65,000
Smith Barney 1998
330 Madison Avenue, Manhattan
(24.75% Ownership)....................... 92% BDO Seidman 2010/2015 94,058
570 Lexington Avenue, Manhattan
(5.6% Ownership)......................... 52% Quebecor 2006 --
Brean Murray 2011
825 Seventh Avenue, Manhattan
(50% Ownership).......................... 100% American Broadcasting 1999 --
Companies
NEW JERSEY
Paramus(4)................................. 52% 686
--- --------------
TOTAL OFFICE BUILDINGS..................... 89% 327,580
--- --------------
VORNADO'S OWNERSHIP INTEREST............... 91% 217,801
--- --------------
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
------------------------
YEAR OWNED BY AVERAGE
ORIGINALLY LAND OWNED/ TENANT ON NUMBER ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED OF BASE RENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY TENANTS PER SQ. FT.(1)
- --------------------------------------------- ----------- ------- --------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
NEW JERSEY
Atlantic City.............................. 1965 17.7 135,774 -- -- --
Bordentown................................. 1958 31.2 178,678 -- 4 6.54
Bricktown.................................. 1968 23.9 259,888 2,764 20 10.12
Cherry Hill................................ 1964 37.6 231,142 63,511 13 8.94
Delran..................................... 1972 17.5 167,340 4,299 5 5.32
Dover...................................... 1964 19.6 172,673 -- 13 6.07
East Brunswick............................. 1957 19.2 219,056 10,400 6 10.98
East Hanover............................... 1962 24.6 271,066 -- 17 10.30
Hackensack................................. 1963 21.3 207,548 59,249 21 15.01
Jersey City................................ 1965 16.7 222,478 3,222 11 12.20
Kearny..................................... 1959 35.3 41,518 62,471 4 6.64
Lawnside................................... 1969 16.4 145,282 -- 3 9.72
Lodi....................................... 1975 8.7 130,000 -- 1 8.50
Manalapan.................................. 1971 26.3 194,265 2,000 7 8.88
Marlton.................................... 1973 27.8 173,238 6,836 10 8.52
Middletown................................. 1963 22.7 179,584 52,000 23 12.43
Morris Plains.............................. 1985 27.0 171,493 1,000 19 11.39
North Bergen............................... 1959 4.6 6,515 55,597 3 26.21
North Plainfield (4)....................... 1989 28.7 217,360 -- 16 8.63
<CAPTION>
LEASE
EXPIRATION
PERCENT PRINCIPAL /OPTION ENCUMBRANCES
LOCATION LEASED(1) TENANTS EXPIRATION (IN THOUSANDS)
- --------------------------------------------- --------- ------------------------ ---------- --------------
<S> <<C> <C> <C> <C>
SHOPPING CENTERS
NEW JERSEY
Atlantic City.............................. -- 2,135
Bordentown................................. 100% Bradlees (2) (3) 2001/2021 3,276
Shop-Rite 2011/2016
Bricktown.................................. 99% Caldor 2008/2028 9,919
Shop-Rite 2002/2017
Cherry Hill................................ 94% Bradlees(2)(3) 2006/2026 9,706
Drug Emporium 2002
Shop & Bag 2007/2017
Toys "R" Us 2012/2042
Delran..................................... 94% Sam's Wholesale 2011/2021 2,848
Dover...................................... 99% Ames 2017/2037 3,635
Shop-Rite 2012/2022
East Brunswick............................. 97% Bradlees(3) 2003/2023 8,205
Shoppers World 2007/2012
T.J. Maxx 1999
East Hanover............................... 98% Home Depot 2009/2019 11,066
Marshalls 2004/2009
Pathmark 2001/2024
Today's Man 2009/2014
Hackensack................................. 98% Bradlees(3) 2012/2017 --
Pathmark 2014/2024
Rickel Home Center 2003/2013
Jersey City................................ 97% Bradlees (3) 2002/2022 10,381
Shop-Rite 2008/2028
Kearny..................................... 89% Pathmark 2013/2033 --
Rickel Home Center 2008
Lawnside................................... 100% Home Depot 2012/2027 5,708
Drug Emporium 2007
Lodi....................................... 100% National Wholesale 2013/2023 2,420
Liquidators
Manalapan.................................. 100% Bradlees (3) 2002/2022 6,397
Grand Union 2012/2022
Marlton.................................... 100% Kohl's (2) (3) 2011/2031 5,398
Shop-Rite 1999/2009
Middletown................................. 99% Bradlees (3) 2002/2022 7,761
Grand Union 2009/2029
Morris Plains.............................. 100% Caldor 2002/2023 6,600
Shop-Rite 2002
North Bergen............................... 100% A & P 2012/2032 --
North Plainfield (4)....................... 98% Kmart 2006/2016 3,379
Pathmark 2001/2011
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
------------------------
YEAR OWNED BY AVERAGE
ORIGINALLY LAND OWNED/ TENANT ON NUMBER ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED OF BASE RENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY TENANTS PER SQ. FT.(1)
- --------------------------------------------- ----------- ------- --------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Totowa..................................... 1957 40.5 201,471 93,613 7 16.03
Turnersville............................... 1974 23.3 89,453 6,513 3 5.98
Union...................................... 1962 24.1 257,045 -- 12 17.48
Vineland................................... 1966 28.0 143,257 -- 4 6.87
Watchung................................... 1959 53.8 49,979 115,660 7 17.81
Woodbridge................................. 1959 19.7 232,755 3,614 11 13.12
NEW YORK
14th Street and Union
Square, Manhattan........................ 1993 0.8 231,770 -- 1 9.92
Albany (Menands)........................... 1965 18.6 140,529 -- 2 6.35
Buffalo (Amherst) (4)...................... 1968 22.7 184,832 111,717 10 6.77
Coram (4).................................. 1976 2.4 103,000 -- 1 2.22
Freeport................................... 1981 12.5 166,587 -- 3 11.50
New Hyde Park (4).......................... 1976 12.5 101,454 -- 1 13.55
North Syracuse (4)......................... 1976 29.4 98,434 -- 1 2.74
Rochester
(Henrietta ) (4)......................... 1971 15.0 147,812 -- 1 5.86
Rochester.................................. 1966 18.4 176,261 -- 1 6.05
PENNSYLVANIA
Allentown.................................. 1957 86.8 262,607 353,938 20 9.97
Bensalem................................... 1972 23.2 208,174 6,714 12 7.60
<CAPTION>
LEASE
EXPIRATION
PERCENT PRINCIPAL /OPTION ENCUMBRANCES
LOCATION LEASED(1) TENANTS EXPIRATION (IN THOUSANDS)
- --------------------------------------------- --------- ------------------------ ---------- --------------
<S> <<C> <C> <C> <C>
Totowa..................................... 94% Bradlees (3) 2013/2028 15,646
Home Depot 2015/2025
Marshalls 2007/2012
Turnersville............................... 100% Bradlees (2) (3) 2011/2031 2,116
Union...................................... 100% Bradlees (3) 2002/2022 15,975
Toys "R" Us 2015
Cost Cutter Drug 2000
Vineland................................... 51% Rickel Home Center 2005/2010 2,358
Watchung................................... 98% B.J.'s Wholesale 2024 --
Woodbridge................................. 99% Bradlees (3) 2002/2022 8,792
Foodtown 2007/2014
Syms 2000
NEW YORK
14th Street and Union
Square, Manhattan........................ 100% Bradlees 2019/2029 --
Albany (Menands)........................... 100% Fleet Bank 2004/2014 --
Albany Public Mkts. (5) 2000
Buffalo (Amherst) (4)...................... 96% Circuit City 2017 4,863
Media Play 2002/2017
MJ Design 2006/2017
Toys "R" Us 2013
T.J. Maxx 1999
Coram (4).................................. 100% May Department Stores 2011 --
(5)
Freeport................................... 100% Home Depot 2011/2021 8,021
Cablevision 2004
New Hyde Park (4).......................... 100% Mayfair Supermarkets 2019/2029 2,043
North Syracuse (4)......................... 100% Reisman Properties 2014 --
Rochester
(Henrietta ) (4)......................... 47% Hechinger (5) 2005/2025 2,203
Rochester.................................. 41% Hechinger (5) 2005/2025 2,832
PENNSYLVANIA
Allentown.................................. 100% Hechinger 2011/2031 7,696
Shop-Rite 2011/2021
Burlington Coat Factory 2017
Wal*Mart 2024/2094
Sam's Wholesale 2024/2094
T.J. Maxx 1998/2008
Bensalem................................... 70% (2) (3) 2011/2031 3,967
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
------------------------
YEAR OWNED BY AVERAGE
ORIGINALLY LAND OWNED/ TENANT ON NUMBER ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED OF BASE RENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY TENANTS PER SQ. FT.(1)
- --------------------------------------------- ----------- ------- --------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Bethlehem.................................. 1966 23.0 157,212 2,654 12 5.17
Broomall................................... 1966 21.0 145,776 22,355 5 9.08
Glenolden.................................. 1975 10.0 101,235 -- 3 10.74
Lancaster.................................. 1966 28.0 179,982 -- 6 4.39
Levittown.................................. 1964 12.8 104,448 -- 1 5.98
10th and Market Streets, Philadelphia...... 1994 1.8 271,300 -- 2 7.94
Upper Moreland............................. 1974 18.6 122,432 -- 1 7.50
York....................................... 1970 12.0 113,294 -- 3 4.64
MARYLAND
Baltimore (Belair Rd.)..................... 1962 16.0 205,723 -- 2 5.95
Baltimore (Towson)......................... 1968 14.6 146,393 6,800 7 9.63
Baltimore (Dundalk)........................ 1966 16.1 183,361 -- 17 6.39
Glen Burnie................................ 1958 21.2 117,369 3,100 4 6.03
Hagerstown................................. 1966 13.9 133,343 14,965 6 3.12
CONNECTICUT
Newington.................................. 1965 19.2 134,229 45,000 4 6.46
Waterbury.................................. 1969 19.2 139,717 2,645 10 7.81
MASSACHUSETTS
Chicopee................................... 1969 15.4 112,062 2,851 3 5.10
Milford(4)................................. 1976 14.7 83,000 -- 1 5.26
Springfield................................ 1966 17.4 8,016 117,044 2 11.25
<CAPTION>
LEASE
EXPIRATION
PERCENT PRINCIPAL /OPTION ENCUMBRANCES
LOCATION LEASED(1) TENANTS EXPIRATION (IN THOUSANDS)
- --------------------------------------------- --------- ------------------------ ---------- --------------
<S> <<C> <C> <C> <C>
Bethlehem.................................. 78% Pathmark 2000/2023 --
Super Petz 2005/2015
Broomall................................... 100% Bradlees (2) (3) 2006/2026 3,260
Glenolden.................................. 100% Bradlees (2) (3) 2012/2022 4,245
Lancaster.................................. 45% Weis Markets 1998/2018 2,312
Levittown.................................. 100% (2)(3) 2006/2026 2,283
10th and Market Streets, Philadelphia...... 62% Kimco Realty Corporation 2010/2035 --
Upper Moreland............................. 100% Sam's Wholesale(2) 2010/2015 3,517
York....................................... 100% Builders Square 2009/2018 1,463
MARYLAND
Baltimore (Belair Rd.)..................... 65% Food Depot 1999/2004 --
Baltimore (Towson)......................... 100% Staples 2004 5,779
Cost Saver Supermarket 2000/2020
Drug Emporium 1999/2004
Baltimore (Dundalk)........................ 98% A & P 2002/2017 4,084
Ollie's 1998/2008
Manor Shops 1998
Glen Burnie................................ 100% Pathmark Stores, Inc.(5) 2005 2,299
Hagerstown................................. 100% Big Lots 2002/2012 --
Pharmhouse 2008/2012
Weis Markets 1999/2009
CONNECTICUT
Newington.................................. 100% (3) 2002/2022 3,042
The Wiz 2007/2027
Waterbury.................................. 100% Toys "R" Us 2010 3,889
Shaws Supermarkets 2003/2018
MASSACHUSETTS
Chicopee................................... 93% Bradlees(3) 2002/2022 1,999
Milford(4)................................. 100% Bradlees(3) 2004/2009 --
Springfield................................ 100% Wal*Mart 2018/2092 --
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
------------------------
YEAR OWNED BY AVERAGE
ORIGINALLY LAND OWNED/ TENANT ON NUMBER ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED OF BASE RENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY TENANTS PER SQ. FT.(1)
- --------------------------------------------- ----------- ------- --------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
Lewisville................................. 1990 13.3 34,893 7,204 16 13.54
Mesquite................................... 1990 5.5 71,246 -- 14 13.87
Dallas..................................... 1990 9.9 99,733 -- 10 9.35
PUERTO RICO (SAN JUAN)
Montehiedra................................ 1997 57.1 525,378 -- 95 15.39
------- --------- ------------ ------- ------
Total Shopping Centers..................... 1,239.2 9,310,460 1,239,736 517 9.67
------- --------- ------------ ------- ------
WAREHOUSE/INDUSTRIAL
E. Brunswick............................... 1972 16.1 325,800 2 2.28
E. Hanover................................. 1963-1967 45.5 941,429 12 3.85
Edison..................................... 1982 18.7 272,071 1 2.75
Garfield................................... 1959 31.6 486,620 3 3.75
------- --------- ------------ ------- ------
Total Warehouse/Industrial 111.9 2,025,920 18 3.36
------- --------- ------------ ------- ------
OTHER PROPERTIES
Montclair.................................. 1972 1.6 16,928 1 17.00
Rahway(4).................................. 1972 -- 32,000 1 4.88
Riese Properties........................... 1997 -- 80,590 22 58.71
------- --------- ------- ------
Total Other Properties..................... 1.6 129,518 24 $39.96
------- --------- ------- ------
Grand Total................................ 1,366.4 18,127,945 1,239,736 965
======= ========= ============= =======
Grand Total Vornado's Ownership Interest... 1,364.7 16,496,304 1,239,736
======= ========= =============
<CAPTION>
LEASE
EXPIRATION
PERCENT PRINCIPAL /OPTION ENCUMBRANCES
LOCATION LEASED(1) TENANTS EXPIRATION (IN THOUSANDS)
- --------------------------------------------- --------- ------------------------ ---------- --------------
<S> <<C> <C> <C> <C>
TEXAS
Lewisville................................. 98% Albertson's(6) 2055 764
Mesquite................................... 98% 3,445
Dallas..................................... 86% Albertson's(6) 2055 1,987
PUERTO RICO (SAN JUAN)
Montehiedra................................ 99% Kmart 2072 62,779
Builders Square 2072
Marshalls 2010/2025
Caribbean Theatres 2021/2026
--- --------------
Total Shopping Centers..................... 91% 282,493
--- --------------
WAREHOUSE/INDUSTRIAL
E. Brunswick............................... 97% Popsicle Playwear 2000/2005 --
IFB Apparel 2001/2006
E. Hanover................................. 94% Various Tenants 8,210
Edison..................................... 100% White Cons. Ind. 1998/2001 2,455
Garfield................................... 38% Popular Services 2007 486
& Various Tenants
--- --------------
Total Warehouse/Industrial 81% 11,151
--- --------------
OTHER PROPERTIES
Montclair.................................. 100% --
Rahway(4).................................. 100% --
Riese Properties........................... 95% --
--- --------------
Total Other Properties..................... 97% --
--- --------------
Grand Total................................ 90% $621,224
========= =============
Grand Total Vornado's Ownership Interest... 90% $511,445
========= =============
</TABLE>
- ---------------
(1) Represents annualized monthly base rent. Excludes ground leases and rent
for leases which had not commenced as of September 30, 1997, which are
included in percent leased.
(2) Montgomery Ward & Co., Inc. (a previous lessor) remains liable on such
lease including the rent it was obligated to pay -- approximately 70%.
(3) 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.
(4) Ground and/or building leasehold interest
(5) The tenant has ceased operations at these locations but continues to pay
rent.
(6) Square footage excludes Albertson's which owns its land and building.
S-17
<PAGE> 18
ALEXANDER'S
The following table shows the location, approximate size and leasing status
as of September 30, 1997 of each of Alexander's properties.
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE BUILDING SQUARE AVERAGE LEASE
LAND SQUARE FOOTAGE/ ANNUALIZED EXPIRATION/
FOOTAGE ("SF") NUMBER OF BASE RENT PERCENT OPTION
LOCATION OWNERSHIP OR ACREAGE OF FLOORS PER SQ. FT.(1) LEASED TENANTS EXPIRATION
- -------------- --------- --------------- --------------- -------------- ------- ----------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING
PROPERTIES
Rego Owned 4.8 acres 351,000/3(2) $28.48 100% Bed Bath & Beyond 2013
Park -- Queens...
Circuit City 2021
Marshalls 2008/2021
Old Navy 2007/2021
Sears 2021
Kings Plaza 50% 24.3 acres 427,000/2(2)(4) 32.60 87% 108 Tenants Various
Shopping
Center...
& Marina Owned
(Kings
Plaza
Mall)...
Brooklyn
Fordham Owned 92,211 SF 303,000/5 -- -- (5)
Road -- Bronx...
Leased 44,975 SF 177,000/4(2) 16.35 100% Caldor 2027
Flushing -- Queens...
Third Owned 60,451 SF 173,000/4 4.33 100% An affiliate of Conway 2023
Avenue -- Bronx...
---------------
1,431,000
---------------
REDEVELOPMENT
PROPERTIES
Lexington 92% 84,420 SF 591,000/6(6)
Avenue -- Manhattan...
Owned
Kings Plaza Owned Included in 339,000/4 -- 85% Sears (3)
Store -- Brooklyn...
Shopping Center
above
Rego Park Owned 6.6 acres --
II -- Queens...
Paramus, New Owned 39.3 acres(7) 340,000/3(6)
Jersey...
</TABLE>
- ---------------
(1) Average annualized base rent per square foot does not include rent for
leases which had not commenced as of September 30, 1997.
(2) Excludes parking garages operated for the benefit of Alexander's.
(3) The Sears lease is expected to commence in the last quarter of 1997.
(4) Excludes approximately 150,000 square feet of enclosed, common area
space.
(5) Caldor rejected its lease effective June 6, 1997.
(6) Alexander's is evaluating redevelopment plans for these sites which may
involve razing the existing buildings.
(7) Approximately 9 acres are subject to condemnation.
S-18
<PAGE> 19
RECENT DEVELOPMENTS
Upon the completion of all of the transactions described below
(collectively, the "Current Acquisitions"), the Company will have completed over
$2 billion of real estate investments since January 1, 1997.
THE MENDIK TRANSACTION
On April 15, 1997, the Company consummated the acquisition of interests in
all or a portion of seven Manhattan office buildings and a management company
held by the Mendik Group and certain of its affiliates. The consideration for
the transaction was approximately $656,000,000, including $264,000,000 in cash,
$177,000,000 in limited partnership units of the Operating Partnership and
$215,000,000 in indebtedness.
PUERTO RICO TRANSACTIONS
On April 18, 1997, the Company acquired The Montehiedra Town Center located
in San Juan, Puerto Rico, from Kmart for approximately $74,000,000, of which
$63,000,000 was newly issued ten-year indebtedness. The Montehiedra shopping
center, which opened in 1994, contains 525,000 square feet, including a 135,000
square foot Kmart store.
In addition, the Company agreed to acquire Kmart's 50% interest at the
Caguas Centrum Shopping Center, which is currently under construction, located
in Caguas, Puerto Rico. The purchase price for the Caguas Centrum Shopping
Center is expected to be approximately $68,000,000 (of which $11,000,000 would
be cash and $57,000,000 would be newly issued debt), including approximately
$9,000,000 for the Kmart store, which the Company has the option to acquire. The
acquisition is expected to close in 1998.
90 PARK AVENUE
On May 7, 1997, the Company acquired a mortgage loan from a consortium of
banks secured by a mortgage on the 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 will manage the building and receive 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.
RIESE TRANSACTIONS
On June 30, 1997, the Company acquired for approximately $26,000,000 four
properties 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 crosscollateralized by ten other Manhattan
properties. This five-year increasing rate loan bears an initial interest rate
of 9.75%.
ARBOR PROPERTY TRUST
On August 22, 1997, the Company entered into an Agreement and Plan of
Merger among the Company, Arbor Property Trust ("Arbor") and Trees Acquisition
Subsidiary, Inc. ("Merger Sub"), a wholly-owned subsidiary of the Operating
Partnership, pursuant to which Arbor is to be merged with and into Merger Sub.
Upon the merger becoming effective, each common share of beneficial interest of
Arbor will be converted into the right to receive, and become exchangeable for,
at the election of the holder, 0.243810 Common Shares or 0.153846 Series A
Convertible Preferred Shares, each such Series A Preferred Share being
convertible into 1.37457 Common Shares. The closing of this transaction is
subject to the approval of Arbor's shareholders and certain other conditions;
accordingly, there can be no assurance that the proposed transaction will
ultimately be completed.
S-19
<PAGE> 20
Arbor is a single-property real estate investment trust organized as a
business trust under the laws of the state of Delaware. Arbor, through its
wholly-owned subsidiary Green Acres Mall, L.L.C., owns and operates the Green
Acres Mall, a 1.7 million square foot super-regional enclosed shopping mall
complex situated in southwestern Nassau County, Long Island, 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
179,000 square foot shopping center which is anchored by Kmart and Waldbaums.
Integral to the complex, but situated on property not owned by Arbor, are Home
Depot (on land sold by Arbor in 1994) and Caldor stores comprising approximately
an additional 240,000 square feet.
CHARLES E. SMITH COMMERCIAL REALTY INVESTMENT
On September 22, 1997, the Company entered into an agreement to acquire a
15% limited partnership interest in Charles E. Smith Commercial Realty, L.P. for
$60,000,000. Charles E. Smith Commercial Realty, L.P. is being formed to own
interests in and manage approximately 7.2 million square feet of office
properties in Crystal City, Alexandria, Virginia, a suburb of Washington, D.C.,
and to manage an additional 14 million square feet of office and other
commercial properties in the Washington, D.C. area. The Crystal City properties,
in which Charles E. Smith Commercial Realty, L.P. will own an interest, are now
owned by other various Charles E. Smith affiliates. The closing, which is
expected to occur at the end of October 1997, is subject to consents from
various parties and other conditions.
HOTEL PENNSYLVANIA INVESTMENT
On September 24, 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. The venture intends
to create a sports-themed hotel and entertainment complex. Under the joint
venture agreement, Hotel Properties Limited and Planet Hollywood International,
Inc. will have 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 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 will manage the site's retail and office space,
and Hotel Properties will manage the hotel.
YMCA DEVELOPMENT
On September 24, 1997, the Company entered into an agreement to acquire a
portion of a property now occupied by the YMCA which overlooks Central Park and
is located between West 63rd and 64th Streets in Manhattan, New York. Pursuant
to the agreement, a preferred stock affiliate of Vornado will develop
approximately 44,000 square feet for use by the YMCA and develop approximately
150,000 square feet for sale as residential condominiums. The agreement
contemplates the negotiation and execution of additional related agreements. The
purchase price for the property is approximately $8,400,000, and the Company
estimates that development costs (including development of the YMCA facilities)
will be approximately $55,000,000. The transaction is expected to close by the
end of 1997; however, there can be no assurance that the proposed transaction
will ultimately be completed.
20 BROAD STREET MORTGAGE
On September 24, 1997, the Company purchased at a discount a mortgage on a
460,000 square foot office building at 20 Broad Street in Manhattan, New York
from a bank for $27,000,000. The mortgage, which is in default, will yield
approximately 12% on the purchase price. The property is leased to a number of
tenants. The largest such tenant, the New York Stock Exchange, leases
approximately 53% of the property. As part of the Mendik Transaction described
above, the Company obtained an option to acquire from the Mendik Group its
portion of the fee interest in this property.
COLD STORAGE
On September 26, 1997, the Company entered into merger agreements pursuant
to which preferred stock affiliates will acquire Americold and URS. The
consideration for the Americold transaction is approximately
S-20
<PAGE> 21
$582,000,000, including $111,000,000 in cash and $471,000,000 in indebtedness.
The consideration for the URS transaction is approximately $367,000,000,
including $178,000,000 in cash and $189,000,000 in indebtedness.
The Company has entered into an agreement with Crescent Real Estate
Equities Limited ("Crescent") to make the acquisition. The Company will hold a
60% interest in the investment and Crescent will hold a 40% interest.
Affiliates of Kelso & Company, Inc., which have a controlling interest in
both Americold and URS, have granted consents or irrevocable proxies with
respect to both transactions. Neither transaction is conditioned on the closing
of the other, and both are expected to close in the fourth quarter of 1997. The
closing of each transaction is, however, subject to certain limited conditions;
accordingly, there can be no assurance that either proposed transaction will
ultimately be completed.
Americold, headquartered in Portland, Oregon, is the nation's largest cold
storage and logistics warehouse company. In connection with its warehouse
business, the company was the first to develop, implement and manage a fully
integrated distribution logistics system serving the frozen food industry. URS,
headquartered in Atlanta, Georgia, provides refrigerated and frozen storage and
distribution to the leading food manufacturers in the nation. URS is the volume
leader in frozen food consolidation and distribution services. URS is the first
company in the freezer environment to implement bar-code scanning throughout
their entire network, resulting in the ability to track the movement and
handling of its customers' products from point of manufacturer through to the
retailer or food service provider.
ESTABLISHMENT OF NEW OPERATING COMPANY
The Company is contemplating establishing a new taxable operating company
to conduct certain activities that would not be permitted to be conducted by the
Company as a REIT. If the Company takes such action, the Operating Partnership
would spin off pro rata to its partners, including Vornado, the shares of the
new company, and Vornado would distribute pro rata to holders of its Common
Shares the shares it receives. No assurance can be given concerning the timing
of any such transaction, or whether such transaction will occur.
S-21
<PAGE> 22
USE OF PROCEEDS
The net proceeds to Vornado from the sale of the Common Shares offered
hereby (after deduction of the underwriting discount and expenses payable by
Vornado) are estimated to be approximately $598,740,000 (or a maximum of
$688,746,000 if the Underwriters' over-allotment options are exercised in full).
Vornado intends to contribute the net proceeds to the Operating Partnership
in exchange for a number of Class A units in the Operating Partnership to
reflect the Common Shares offered and sold hereby. The Operating Partnership
will use the proceeds to reduce outstanding borrowings under its line of credit.
As of October 21, 1997, approximately $310,000,000 was outstanding under the
line of credit, which loan bears interest at a floating rate currently equal to
6.5% per annum. The balance of the net proceeds will be used to fund a portion
of the cash purchase price of certain acquisitions described under "Recent
Developments" above. See also "The Company -- Capital Resources". Pending such
use, the net proceeds may be invested in short-term income-producing
investments.
The sale of the Common Shares offered hereby is not subject to the
consummation of any of the acquisitions or investments described in this
Prospectus Supplement, nor are any of such acquisitions or investments subject
to the prior sale of such Common Shares.
S-22
<PAGE> 23
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997: (i) on a historical basis; (ii) as adjusted to give
effect only to the issuance of the Common Shares offered hereby; and (iii) as
adjusted to give effect to the issuance of the Common Shares offered hereby and
to give pro forma effect to the Current Acquisitions. See "Prospectus Supplement
Summary -- Summary Pro Forma and Selected Historical Consolidated Financial
Data" and "Use of Proceeds" in this Prospectus Supplement and the Consolidated
Financial Statements and the notes thereto in the 1996 10-K, the June 10-Q and
the Form 8-K Reports incorporated herein by reference.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------------------------------
AS ADJUSTED AS ADJUSTED FOR
ONLY FOR THE THE OFFERING AND
ACTUAL OFFERING THE CURRENT ACQUISITIONS
---------- ------------ ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt(1):
Notes and mortgages payable.................... $ 862,883 $ 552,883 $ 670,016
--------- --------- ---------
Minority interest................................ 178,093 178,093 178,093
--------- --------- ---------
Shareholders' equity:
Preferred shares of beneficial interest:
no par value per share; authorized
20,000,000 shares; Series A Convertible
Preferred Shares, liquidation preference $50
per share; issued 5,750,000 shares.......... 276,599 276,599 276,599
Common shares of beneficial interest:
$.04 par value per share; authorized
100,000,000 shares; issued 53,095,360,
67,095,360 and 70,092,442 shares(2)......... 2,124 2,684 2,804
Additional capital............................. 357,987 956,167 1,055,286
Accumulated deficit............................ (92,340) (92,340) (92,340)
Unrealized loss on securities available for
sale........................................ (2) (2) (2)
Due from officers for purchase of common shares
of beneficial interest...................... (5,027) (5,027) (5,027)
--------- --------- ---------
Total shareholders' equity....................... 539,341 1,138,081 1,237,320
--------- --------- ---------
Total capitalization............................. $1,580,317 $ 1,869,057 $2,085,429
========= ========= =========
</TABLE>
- ---------------
(1) All issuances of debt are at the Operating Partnership level.
(2) Includes (i) 919,540 Common Shares held in trust for the benefit of Michael
D. Fascitelli, the President and a trustee of Vornado, pursuant to his
employment agreement, which Common Shares are not considered outstanding for
accounting purposes and (ii) 2,997,082 Common Shares to be issued in
connection with the Company's acquisition of Arbor, assuming that all
shareholders of Arbor elect to receive Vornado Common Shares in exchange for
their shares of Arbor. See "Recent Developments -- Arbor Property Trust."
Excludes 7,273,730, 5,681,124 and 7,903,720 Common Shares, respectively,
reserved for issuance (i) upon the exercise of outstanding options, (ii)
upon the conversion of outstanding Operating Partnership Units of the
Operating Partnership issued pursuant to agreements entered into in
connection with the Mendik Transaction (such underlying Common Shares are
reflected under "Minority Interest" in the Capitalization table), and (iii)
upon the conversion of outstanding Series A Convertible Preferred Shares.
S-23
<PAGE> 24
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following information supplements the information set forth in the
accompanying Prospectus under the heading "Description of Shares of Beneficial
Interest."
On October 6, 1997, the Company's Board of Trustees approved an amendment
to the Company's Amended and Restated Declaration of Trust, including the
articles supplementary for the Series A Preferred Shares (the "Declaration of
Trust"), to increase the number of the Company's authorized Common Shares from
70,000,000 to 100,000,000. As so amended, the Declaration of Trust authorizes
the issuance of up to 240,000,000 shares of beneficial interest, consisting of
100,000,000 Common Shares, 20,000,000 preferred shares of beneficial interest,
no par value per share, and 120,000,000 excess shares of beneficial interest.
On October 20, 1997, the Company paid a 100% Common Share dividend to
holders of record of Common Shares at the close of business on October 15, 1997
(the "Share Split").
PRICE RANGE OF THE COMMON SHARES AND DISTRIBUTIONS
The Common Shares are listed on the NYSE under the symbol "VNO." The
following table sets forth, for the periods indicated, the high and low closing
sale prices of the Common Shares as reported by the NYSE, and the cash dividends
paid per share in such periods. Such prices and dividends have been restated to
reflect the Share Split.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
1996
1st Quarter..................................................... $19.19 $17.82 $.305
2nd Quarter..................................................... 20.75 18.57 .305
3rd Quarter..................................................... 21.07 20.25 .305
4th Quarter..................................................... 26.44 20.25 .305
1997
1st Quarter..................................................... 34.75 25.56 .32
2nd Quarter..................................................... 36.81 30.69 .32
3rd Quarter..................................................... 43.44 32.78 .32
4th Quarter (through October 21, 1997).......................... 46.56 41.94 (1)
</TABLE>
- ---------------
(1) The Company has not yet declared a cash dividend in the fourth quarter of
1997.
The current indicated annualized dividend rate is $1.28 per Common Share.
Vornado currently expects to declare a cash distribution of $.40 in the fourth
quarter of 1997, representing an increase of $.08 per Common Share, or 25%, over
the $.32 per Common Share distribution declared in the third quarter of 1997.
Future dividends by Vornado will be at the discretion of the Board of Trustees
and will depend on the actual cash flow of Vornado, its earnings, financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
and such other factors as the Board of Trustees may deem relevant. A principal
factor in the determination of dividends is the requirement of the Code that a
REIT distribute annually at least 95% of its REIT taxable income as determined
under the Code. See "Federal Income Tax Considerations -- Taxation of Vornado as
a REIT" in the accompanying Prospectus.
Distributions by Vornado to the extent of its current earnings and profits
for federal income tax purposes are taxable to shareholders as ordinary dividend
income. Distributions in excess of earnings and profits generally are treated as
a non-taxable return of capital to the extent of a shareholder's basis in the
Common Shares. A return of capital distribution generally has the effect of
deferring taxation until a shareholder's sale of Common Shares. Vornado has
determined that 100% of the dividends paid in 1996 represented ordinary dividend
income to shareholders.
The approximate number of record holders of Common Shares at September 30,
1997 was 2,000.
S-24
<PAGE> 25
MANAGEMENT
The following table sets forth certain information with respect to the
trustees and executive officers of the Company:
<TABLE>
<CAPTION>
NAME PRINCIPAL POSITION
- ---------------------------------------------- --------------------------------------------------
<S> <C>
Steven Roth*.................................. Chairman of the Board and Chief Executive Officer
Michael D. Fascitelli*........................ President and Trustee
Bernard Mendik................................ Co-Chairman of the Board
David Mandelbaum.............................. Trustee
Stanley Simon*................................ Trustee
Ronald Targan................................. Trustee
Richard West.................................. Trustee
Russell Wight, Jr.*........................... Trustee
David R. Greenbaum............................ President of the Mendik Division
Richard T. Rowan.............................. Vice President -- Real Estate
Joseph Macnow................................. Vice President -- Chief Financial Officer
</TABLE>
- ---------------
* Member of Executive Committee.
Mr. Roth has been Chairman of the Board and Chief Executive Officer of
Vornado since May 1989 and Chairman of the Executive Committee of the Board
since April 1980. Since 1968, he has been a general partner of Interstate
Properties and more recently, managing general partner. On March 3, 1995, he
became Chief Executive Officer of Alexander's. Mr. Roth has been a director of
Alexander's, Inc. since 1989.
Mr. Fascitelli has been President and a Trustee of Vornado, and a Director
of Alexander's, since December 2, 1996. Prior to that time, Mr. Fascitelli was a
Partner at Goldman, Sachs & Co. in charge of its real estate practice from
December 1992 to December 1996.
Mr. Mendik has been Co-Chairman of the Board since April 28, 1997 and Chief
Executive Officer of the Mendik Division of Vornado since April 15, 1997. He
served as Chairman of the Board of Directors of The Mendik Company from 1990
until April 15, 1997.
Mr. Mandelbaum has been a member of Mandelbaum and Mandelbaum, P.C. since
1967. Since 1968, he has been a general partner of Interstate Properties. Mr.
Mandelbaum became a director of Alexander's in March 1995.
Mr. Simon has been the owner of Stanley Simon and Associates since 1958.
Mr. Simon is also a director of General Microwave Corporation (defense
contractor), Gerber Scientific Inc. (computer draft/cutting systems) and J.
Baker, Inc. (footwear retailer).
Mr. Targan has been president of Malt Products Corporation of New Jersey
since 1962. Since 1964, he has been a member of the law firm of Schechner and
Targan, P.A.
Mr. West is Dean Emeritus of the Leonard N. Stern School of Business, New
York University. He was a professor there from September 1984 until September
1995. He was also Dean from September 1984 until August 1993. From July 1976
through August 1984, he was a faculty member of the Amos Tuck School of Business
Administration of Dartmouth College. From July 1976 until 1983, Mr. West was
also Dean of the Amos Tuck School. Mr. West is also a director or a trustee of
Alexander's, Smith-Corona, Inc., Bowne & Co., Inc., and various investment
companies managed by Merrill Lynch Asset Management, Inc., an affiliate of
Merrill Lynch & Co.
Mr. Wight has been a general partner of Interstate since 1968. Mr. Wight
became a director of Alexander's in March 1995 and is also a director of
Insituform Technologies, Inc.
S-25
<PAGE> 26
Mr. Greenbaum has been President of the Mendik Division of Vornado since
April 15, 1997. Prior to that time, he served as President of The Mendik Company
since 1990.
Mr. Rowan has been Vice President -- Real Estate of the Company since June
1981.
Mr. Macnow has been Vice President and Chief Financial Officer of the
Company since 1985 and Controller of the Company since 1982.
The Company is not aware of any family relationships between any trustee or
executive officer of the Company. Messrs. Roth, Wight and Mandelbaum are
affiliated with each other as general partners of Interstate Properties and in
other businesses. Messrs. Mandelbaum and Targan are affiliated with each other
in businesses and in the practice of law.
POSSIBLE CONFLICTS OF INTEREST
Messrs. Roth, Mandelbaum and Wight are the partners of Interstate
Properties. Interstate Properties currently owns 12,943,000 Common Shares or
24.4% of the outstanding Common Shares of the Company. In addition, Mr. Roth
owns 1,582,900 shares, or 2.9% of the outstanding Common Shares of the Company.
Interstate Properties and its three partners collectively own 15,397,698 Common
Shares or 29.0% of the outstanding Common Shares of the Company. Interstate
Properties develops, owns and operates strip and regional type shopping centers
and invests in securities and partnerships. Interstate Properties and Mr. Roth
have advised the Company that it is their current intention to refrain from
acquiring properties of the same general character as the Company's shopping
centers in the markets in which the Company operates.
The Company manages and leases the six shopping centers owned by Interstate
Properties pursuant to an agreement (the "Interstate Agreement") and receives a
quarterly fee equal to 4% of minimum rent and percentage rent of such shopping
centers and certain other commissions. The Interstate Agreement has a term of
one year and is automatically renewable unless terminated by either of the
parties on 60 days' notice at the end of the term. Although the Interstate
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.
The Company owns 29.3% of the common stock of Alexander's. Interstate
Properties owns 27.1% of the common stock of Alexander's. See "The
Company -- Relationship with Alexander's."
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion supplements the discussion contained in the
accompanying Prospectus under "Federal Income Tax Considerations".
The provisions of the Proposed Regulations described in the Prospectus
under "Federal Income Tax Considerations -- Treaty Benefits" have been adopted
by the Internal Revenue Service as final regulations (the "Regulations"). The
Regulations are effective for payments made after December 31, 1998.
S-26
<PAGE> 27
UNDERWRITING
Subject to the terms and conditions set forth in the purchase agreement
(the "U.S. Purchase Agreement") among the Company and each of the underwriters
named below (the "U.S. Underwriters"), the Company has agreed to sell to each of
the U.S. Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co., Furman Selz LLC, Salomon Brothers Inc, Smith
Barney Inc. and UBS Securities LLC are acting as representatives (the "U.S.
Representatives"), and each of the U.S. Underwriters severally has agreed to
purchase from the Company, the aggregate number of Common Shares set forth below
opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................ 1,581,250
Goldman, Sachs & Co. .................................................... 1,581,250
Furman Selz LLC.......................................................... 1,581,250
Salomon Brothers Inc..................................................... 1,581,250
Smith Barney Inc. ....................................................... 1,581,250
UBS Securities LLC....................................................... 1,581,250
Bear, Stearns & Co. Inc. ................................................ 112,500
BT Alex. Brown Incorporated.............................................. 112,500
Donaldson, Lufkin & Jenrette Securities Corporation...................... 112,500
A.G. Edwards & Sons, Inc. ............................................... 112,500
Lazard Freres & Co. LLC.................................................. 112,500
Legg Mason Wood Walker, Incorporated..................................... 112,500
Morgan Stanley & Co. Incorporated........................................ 112,500
PaineWebber Incorporated................................................. 112,500
Prudential Securities Incorporated....................................... 112,500
Advest, Inc. ............................................................ 50,000
Dain Bosworth Incorporated............................................... 50,000
EVEREN Securities, Inc. ................................................. 50,000
Friedman, Billings, Ramsey & Co., Inc. .................................. 50,000
Janney Montgomery Scott Inc. ............................................ 50,000
Parker/Hunter Incorporated............................................... 50,000
Principal Financial Securities, Inc. .................................... 50,000
Rauscher Pierce Refsnes, Inc. ........................................... 50,000
Raymond James & Associates, Inc. ........................................ 50,000
Sands Brothers & Co., Ltd. .............................................. 50,000
Scott & Stringfellow, Inc. .............................................. 50,000
Stifel, Nicolaus & Company, Incorporated................................. 50,000
Tucker Anthony Incorporated.............................................. 50,000
Wheat, First Securities, Inc. ........................................... 50,000
---------
Total....................................................... 11,200,000
=========
</TABLE>
The Company has also entered into a purchase agreement (the "International
Purchase Agreement" and together with the U.S. Purchase Agreement, the "Purchase
Agreements") with certain underwriters outside
the United States (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters"). The International Managers are Merrill Lynch
International, Goldman Sachs International, Furman Selz LLC, Salomon Brothers
International Limited, Smith Barney Inc. and UBS Limited. Subject to the terms
and conditions set forth in the International Purchase Agreement, and
concurrently with the sale of 11,200,000 Common Shares to the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, the Company has agreed to sell to the
International Managers, and the International Managers have severally agreed to
purchase from the Company, an aggregate of 2,800,000 Common Shares. The public
offering price
S-27
<PAGE> 28
per share and the underwriting discount per share are identical under the
International Purchase Agreement and the U.S. Purchase Agreement.
In each Purchase Agreement, the U.S. Underwriters and the International
Managers have agreed, subject to the terms and conditions set forth therein, to
purchase all of the shares being sold pursuant to each such Purchase Agreement
if any of such Common Shares are purchased. Under certain circumstances, the
commitments of nondefaulting U.S. Underwriters or International Managers may be
increased. The closing with respect to the sale of the shares to be purchased by
the International Managers and the U.S. Underwriters are conditioned, one upon
the other.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the Common Shares to the public at the
price per share set forth on the cover page of this Prospectus Supplement and to
certain dealers at such price less a concession not in excess of $1.20 per
share. The U.S. Underwriters may allow, and such dealers may re-allow, a
discount not in excess of $.10 per share on sales to certain other dealers.
After the date of this Prospectus Supplement, the initial price per share to the
public and concession and discount may be changed by the U.S. Representatives.
The Company has been informed that the U.S. Underwriters and the
International Managers have entered into an intersyndicate agreement (the
"Intersyndicate Agreement") that provides for the coordination of their
activities. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and the International Managers are permitted to sell Common Shares
to each other for purposes of resale at the price per share to the public on the
cover page of this Prospectus Supplement, less an amount not greater than the
selling concession. Under the terms of the Intersyndicate Agreement, the
International Managers and any dealer to whom they sell Common Shares will not
offer to sell or sell Common Shares to persons who are United States persons or
Canadian persons or to persons they believe intend to resell to persons who are
United States persons or Canadian persons, and the U.S. Underwriters and any
dealer to whom they sell Common Shares will not offer to sell or sell Common
Shares to persons who are non-United States and non-Canadian persons, except in
each case for transactions pursuant to the Intersyndicate Agreement.
The Company has granted an option to the U.S. Underwriters, exercisable
during the 30-day period after the date of this Prospectus Supplement, to
purchase up to 1,680,000 additional Common Shares solely to cover
over-allotments, if any, at the price per share to the public set forth on the
cover page of this Prospectus Supplement, less (i) the underwriting discount set
forth on the cover of this Prospectus Supplement, and (ii) an amount per share
equal to any dividends or distributions declared by the Company and payable on
the 11,200,000 Common Shares firmly underwritten by the U.S. Underwriters but
not payable on the Common Shares subject to such over-allotment option. To the
extent that the U.S. Underwriters exercise this option, each U.S. Underwriter
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof which the number of Common Shares to
be purchased by it shown in the foregoing table bears to the Common Shares
initially offered hereby. The Company has granted an option to the International
Managers, exercisable during the 30-day period after the date of this Prospectus
Supplement, to purchase up to 420,000 additional Common Shares solely to cover
over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters.
In the Purchase Agreements, the Company and the Operating Partnership have
agreed to indemnify the several Underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933 (the "Securities Act"),
or to contribute to payments the Underwriters may be required to make in respect
thereof. Insofar as indemnification of the Underwriters for liabilities arising
under the Securities Act may be permitted pursuant to such agreements, the
Company and the Operating Partnership have been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and therefore is unenforceable.
Subject to certain exceptions, the Company, Steven Roth, Michael Fascitelli
and Interstate Properties have agreed that, during the period beginning from the
date of this Prospectus Supplement and continuing to and including the date 75
days after the date of this Prospectus Supplement, they will not offer, sell,
contract to sell or otherwise dispose of any Common Shares or any securities
which are convertible into or exercisable or exchangeable for Common Shares,
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, other than (i) Common Shares issued by the Company upon the
exercise of an option or
S-28
<PAGE> 29
warrant or the conversion of a security outstanding on the date hereof,(ii) any
Common Shares issued or options to purchase Common Shares granted pursuant to
existing employee benefit plans of the Company, (iii) any Common Shares issued
pursuant to any non-employee director stock plan or dividend reinvestment plan
or (iv) any Common Shares (or securities convertible into or exercisable or
exchangeable for Common Shares) issued by the Company in connection with
acquisitions.
In connection with the offering, the rules of the Commission permit the
U.S. Representatives and the International Managers to engage in certain
transactions that stabilize the price of the Common Shares. Such transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Shares.
If the U.S. Underwriters or International Managers create a short position
in the Common Shares in connection with the offering, i.e., if they sell more
Common Shares than are set forth on the cover page of this Prospectus
Supplement, the U.S. Representatives and the International Managers,
respectively, may reduce that short position by purchasing Common Shares in the
open market.
The U.S. Representatives and the International Managers may also impose a
penalty bid on certain Underwriters and selling group members. This means that
if the U.S. Representatives and the International Managers purchase Common
Shares in the open market to reduce the U.S. Underwriters' or International
Managers' short position, respectively, or to stabilize the price of the Common
Shares, they may reclaim the amount of the selling concession from the
Underwriters and any selling group members who sold those Common Shares as part
of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transitions
described above may have on the price of the Common Shares. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Representatives or the International Managers will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates
provide investment banking and other services to the Company. In addition,
Merrill Lynch, Pierce, Fenner & Smith Incorporated represented the Mendik Group
in connection with the Mendik Transaction and received a fee in connection
therewith. Richard West, a trustee of the Company, is also a director or trustee
of various investment companies managed by Merrill Lynch Asset Management, Inc.,
an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Goldman,
Sachs & Co. provides investment banking and other services to the Company and
Alexander's. In addition, Goldman, Sachs & Co. represented the Company in
connection with the Mendik Transaction and received a fee in connection
therewith. Mr. Fascitelli, the President of the Company, was formerly a partner
of Goldman, Sachs & Co. Salomon Brothers Inc provides investment banking and
other services to the Company. In addition, Salomon Brothers Inc represented the
Company in connection with its acquisitions of the Montehiedra Town Center and
its interest in the Caguas Centrum Shopping Center and will receive a fee in
connection therewith. See "Recent Developments -- Puerto Rico Transactions".
Salomon Brothers Inc has also represented the Company in connection with its
pending acquisitions of the Cold Storage Companies and will receive a fee in
connection therewith. UBS, an affiliate of UBS Securities LLC and UBS Limited,
is a major lender to the Company. In April 1997, the Operating Partnership
entered into a Credit Agreement with UBS pursuant to which the Operating
Partnership borrowed $400 million. The Credit Agreement was subsequently
replaced with a $600 million revolving line of credit (the "Line of Credit")
provided by lending institutions led by UBS. UBS received certain fees in
connection with the Credit Agreement and the Line of Credit. The Company intends
to use a portion of the net proceeds realized from the sale of the Common Shares
offered hereby to repay indebtedness owed to UBS under the Line of Credit. See
"Use of Proceeds." In addition, UBS provides investment banking services to the
Company.
The Common Shares are listed on the NYSE under the symbol "VNO."
S-29
<PAGE> 30
VALIDITY OF THE COMMON SHARES
The validity of the Common Shares offered hereby will be passed upon for
Vornado by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. In addition,
certain legal matters will be passed upon for Vornado by Sullivan & Cromwell,
New York, New York and for the Underwriters by Skadden, Arps, Slate, Meagher &
Flom LLP, New York, New York. Sullivan & Cromwell and Skadden, Arps, Slate,
Meagher & Flom LLP will rely upon the opinion of Ballard Spahr Andrews &
Ingersoll with respect to certain matters of Maryland law.
EXPERTS
The financial statements of URS, Montehiedra Town Center and Riese
Properties, all incorporated in this Prospectus Supplement by reference from the
Company's Current Report on Form 8-K filed October 8, 1997, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Americold incorporated in this Prospectus
Supplement by reference from the Company's Current Report on Form 8-K filed
October 8, 1997 have been audited by KPMG Peat Marwick LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
S-30
<PAGE> 31
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement Summary......... S-3
Additional Risk Factors............... S-8
The Company........................... S-8
Properties............................ S-12
Recent Developments................... S-19
Use of Proceeds....................... S-22
Capitalization........................ S-23
Description of Shares of Beneficial
Interest............................ S-24
Price Range of the Common Shares
and Distributions................... S-24
Management............................ S-25
Federal Income Tax Considerations..... S-26
Underwriting.......................... S-27
Validity of the Common Shares......... S-30
Experts............................... S-30
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents
by Reference........................ 3
Risk Factors.......................... 4
Vornado and the Operating
Partnership......................... 10
Use of Proceeds....................... 10
Consolidated Ratios of Earnings to
Fixed Charges and Combined Fixed
Charges and Preferred Share Dividend
Requirements........................ 11
Description of Debt Securities........ 11
Description of Shares of Beneficial
Interest............................ 20
Federal Income Tax Considerations..... 30
Plan of Distribution.................. 41
Experts............................... 41
Validity of the Securities............ 42
</TABLE>
======================================================
======================================================
14,000,000 SHARES
VORNADO LOGO
COMMON SHARES OF
BENEFICIAL INTEREST
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
FURMAN SELZ
SALOMON BROTHERS INC
SMITH BARNEY INC.
UBS SECURITIES
======================================================
<PAGE> 32
PROSPECTUS
$750,000,000
VORNADO REALTY TRUST
PREFERRED SHARES, DEPOSITARY SHARES AND
COMMON SHARES
$1,000,000,000
VORNADO REALTY L.P.
DEBT SECURITIES
------------------------
Vornado Realty Trust ("Vornado") may offer from time to time, together or
separately, in one or more series (i) preferred shares of beneficial interest of
Vornado, no par value ("Preferred Shares"), (ii) depositary shares representing
entitlement to all rights and preferences of a fraction of a Preferred Share of
a specified series and represented by depositary receipts ("Depositary Shares")
and (iii) common shares of beneficial interest of Vornado, par value $0.04 per
share ("Common Shares"), having an aggregate initial offering price not to
exceed U.S. $750,000,000. Vornado Realty L.P. (the "Operating Partnership") may
offer from time to time, together or separately, in one or more series debt
securities ("Debt Securities"), which may be either (i) senior debt securities
(the "Senior Debt Securities") or (ii) subordinated debt securities (the
"Subordinated Debt Securities"), having an aggregate initial offering price not
to exceed U.S. $1,000,000,000. The Preferred Shares, Depositary Shares, Common
Shares and Debt Securities offered hereby (collectively, the "Securities") may
be offered separately or together, in separate series, in amounts, at prices and
on terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The accompanying Prospectus Supplement will set forth with regard to the
particular Securities in respect of which this Prospectus is being delivered (i)
in the case of Debt Securities, the title, aggregate principal amount,
denominations (which may be in United States dollars, or in any other currency,
currencies or currency unit, including the European Currency Unit), maturity,
rate, if any (which may be fixed or variable), or method of calculation thereof,
time of payment of any interest, any terms for redemption at the option of the
Operating Partnership or the holder, any terms for sinking fund payments, rank,
any exchange rights, any listing on a securities exchange, and the initial
public offering price and any other terms in connection with the offering and
sale of such Debt Securities, (ii) in the case of Preferred Shares, the specific
title, the aggregate amount and the stated value, any dividend (including the
method of calculating the payment of dividend), liquidation, redemption,
conversion, voting or other rights and the initial offering price and (iii) in
the case of Common Shares, the number of Common Shares, the initial offering
price and the terms of the offering thereof. The Prospectus Supplement will also
contain, as applicable, a discussion of the material United States Federal
income tax considerations relating to the Securities in respect of which this
Prospectus is being delivered to the extent not contained herein.
Vornado's Common Shares are listed on the New York Stock Exchange ("NYSE")
under the symbol "VNO". Vornado's $3.25 Series A Convertible Preferred Shares of
Beneficial Interest, liquidation preference $50.00 per share (the "Series A
Preferred Shares"), are listed on the NYSE under the symbol "VNO Pr A". The
Prospectus Supplement will also contain information, where applicable, as to any
listing on a securities exchange of the Securities covered by such Prospectus
Supplement.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
Vornado and the Operating Partnership may sell Securities to or through
underwriters, and also may sell Securities directly to other purchasers or
through agents. The accompanying Prospectus Supplement will set forth the names
of any underwriters or agents involved in the sale of the Securities in respect
of which this Prospectus is being delivered, the amounts of Securities, if any,
to be purchased by underwriters and the compensation, if any, of such
underwriters or agents. See "Plan of Distribution" herein.
The date of this Prospectus is September 19, 1997.
<PAGE> 33
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE OPERATING PARTNERSHIP OR ANY
UNDERWRITERS, AGENTS OR DEALERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY AND ITS SUBSIDIARIES OR THE OPERATING PARTNERSHIP SINCE
THE DATE HEREOF OR THE INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
All references to "Vornado" in this prospectus shall be deemed to refer to
Vornado Realty Trust; all references to the "Operating Partnership" in this
prospectus shall be deemed to refer to Vornado Realty L.P.; and all references
to the "Company" in this prospectus shall be deemed to include Vornado and its
consolidated subsidiaries, including the Operating Partnership.
AVAILABLE INFORMATION
Vornado is and the Operating Partnership will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith Vornado files and the
Operating Partnership will file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by Vornado and the Operating
Partnership with the Commission can be inspected and copied at the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such information can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
web site on the World Wide Web that contains reports, proxy and information
statements and other information on registrants, such as Vornado and the
Operating Partnership, that must file such material with the Commission
electronically. The Commission's address on the world wide web is
"http://www.sec.gov". Vornado's Common Shares and Series A Preferred Shares are
listed on the NYSE and similar information can be inspected and copied at the
NYSE, 20 Broad Street, 17th Floor, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form S-3
(the "Registration Statement") filed by Vornado and the Operating Partnership
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). As permitted by the rules and regulations of the Commission,
this Prospectus omits certain of the information contained in the Registration
Statement and reference is hereby made to the Registration Statement and related
exhibits for further information with respect to Vornado, the Operating
Partnership and the Securities offered hereby. Statements contained herein
concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
2
<PAGE> 34
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company and the Operating Partnership
with the Commission pursuant to the Exchange Act are hereby incorporated by
reference into this Prospectus:
(1) Vornado's Annual Report on Form 10-K (File No. 001-11954) for the
fiscal year ended December 31, 1996, as amended by the Form 10-K/A
Amendment No. 1, Form 10-K/A Amendment No. 2 and Form 10K/A Amendment
No. 3 for the fiscal year ended December 31, 1996 filed with the
Commission on July 18, 1997, August 7, 1997 and September 10, 1997,
respectively;
(2) Vornado's Quarterly Reports on Form 10-Q (File No. 001-11954) for the
periods ended March 31, 1997 and June 30, 1997;
(3) Vornado's Current Report on Form 8-K (File No. 001-11954), dated March
12, 1997, as amended by Form 8-K/A, dated March 12, 1997 and filed with
the Commission on April 1, 1997, Vornado's Current Reports on Form 8-K
(File No. 001-11954), dated April 3, 1997, April 15, 1997, May 7, 1997
and June 27, 1997 and Vornado's Current Report on Form 8-K (File No.
001-11954), dated August 21, 1997, as amended by Form 8-K/A, dated
August 21, 1997 and filed with the Commission on September 11, 1997;
(4) the description of Vornado's Series A Preferred Shares contained in
Vornado's Registration Statement on Form 8-A (File No. 001-11954),
filed with the Commission on April 3, 1997;
(5) the Operating Partnership's Registration Statement on Form 10 (File No.
000-22685), filed with the Commission on June 12, 1997, as amended by
the Form 10/A Amendment No. 1, Form 10/A Amendment No. 2 and Form 10/A
Amendment No. 3 filed with the Commission on July 18, 1997, August 7,
1997 and September 10, 1997, respectively;
(6) the Operating Partnership's Current Report on Form 8-K (File No.
000-22685), dated June 27, 1997 and the Operating Partnership's Current
Report on Form 8-K (File No. 000-22685), dated August 21, 1997, as
amended by Form 8-K/A, dated August 21, 1997 and filed with the
Commission on September 11, 1997; and
(7) the Operating Partnership's Quarterly Report on Form 10-Q (File No.
000-22685) for the period ended June 30, 1997.
All other documents and reports filed with the Commission by Vornado or the
Operating Partnership pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act from the date of this Prospectus and prior to the termination of
the offering of the Securities shall be deemed to be incorporated by reference
herein and shall be deemed to be a part hereof from the date of the filing of
such reports and documents (provided, however, that the information referred to
in item 402(a)(8) of Regulation S-K of the Commission shall not be deemed
specifically incorporated by reference herein).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Vornado and the Operating Partnership will provide without charge to each
person to whom a copy of this Prospectus is delivered, on written or oral
request of such person, a copy of any or all documents which are incorporated
herein by reference (not including the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in the document which this
Prospectus incorporates). Requests should be directed to the Secretary of
Vornado, Park 80 West, Plaza II, Saddle Brook, New Jersey 07663, telephone
number (201) 587-1000.
3
<PAGE> 35
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
REAL ESTATE INVESTMENT CONSIDERATIONS
General
Real property investments are subject to varying degrees of risk. Real
estate values are affected by changes in the general economic climate, local
conditions such as an oversupply of or a reduction in demand for real estate in
the area, the attractiveness of the Company's properties to tenants, the
quality, philosophy and performance of management, competition from comparable
properties, inability to collect rent from tenants, the effects of any
bankruptcies of major tenants, changes in market rental rates, the need to
periodically repair, renovate and rent space and to pay the costs thereof
(including, without limitation, substantial tenant improvement and leasing costs
of re-leasing office space), and increases in operating costs due to inflation
and other factors (including increased real estate taxes), which increases may
not necessarily be passed through fully to tenants. Real estate values are also
affected by such factors as government regulations and changes in zoning or tax
laws, interest rate levels, the availability of financing and potential
liability under environmental and other laws. Changes in any of the foregoing
factors could result in a decline in rents obtained and/or occupancy levels at
the Company's properties. A decline in rental revenues could result in a lower
level of funds available for distribution to Vornado's shareholders.
Dependence on Tenants
The Company's results of operations will depend on its ability to continue
to lease space in its real estate properties on economically favorable terms. In
addition, as substantially all of the Company's income is derived from rentals
of real property, the Company's income and funds available for distribution to
Vornado's shareholders would be adversely affected if a significant number of
the Company's lessees were unable to meet their obligations to the Company. In
the event of default by a lessee, the Company may experience delays in enforcing
its rights as lessor and may incur substantial costs in protecting its
investment. Currently only one of the Company's tenants, Bradlees, Inc.
("Bradlees"), represents more than 3% of the Company's pro forma revenues.
Bradlees accounted for approximately 10.5% of pro forma property rentals for the
year ended December 31, 1996.
Bankruptcy of Tenants
There have been a number of recent bankruptcies in the retail industry,
including certain tenants of the Company. The bankruptcy or insolvency of a
major tenant may have a material adverse effect on the shopping centers affected
and the income produced by such properties. The Company's leases generally do
not contain restrictions designed to ensure the creditworthiness of the tenant.
As a result, the bankruptcy or insolvency of a major tenant could result in a
lower level of funds from operations available for distribution to Vornado's
shareholders.
In June 1995, Bradlees filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Company currently leases 17 locations to Bradlees. Of these
locations, 14 are fully guaranteed by Stop & Shop Companies, Inc. ("Stop &
Shop"), a wholly-owned subsidiary of Royal Ahold NV, a leading international
food retailer, and one is guaranteed as to 70% of the rent. During 1996,
Bradlees rejected three leases and assigned one lease to Kohl's Department
Stores, Inc. These four leases are fully guaranteed by Stop & Shop. In January
1997, Bradlees received bankruptcy court approval to close one of the two stores
in which leases are not guaranteed by Stop & Shop. Montgomery Ward & Co., Inc.
(a previous lessee) remains liable on eight of the leases guaranteed by Stop &
Shop, including the rent it was obligated to pay -- approximately 70% of current
rent. The failure of Stop & Shop to perform its obligations with respect to
these leases could result in a decline in the level of the Company's rental
revenues and, as a result, in a lower level of funds from operations
being available for distribution to Vornado's shareholders.
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Acquisition and Development Risks
The Company may acquire or develop properties or acquire other real estate
companies when it believes that an acquisition or development is consistent with
its business strategies. In addition, the Company anticipates that, in certain
circumstances, it may use Operating Partnership units ("Units") as consideration
for acquisitions from tax-sensitive sellers and, in connection with such
acquisitions, it may agree to certain restrictions on the Company's ability to
sell, or reduce the mortgage indebtedness on, such acquired assets, including
agreeing not to sell properties for significant periods of time. These
transactions also may increase the Operating Partnership's indebtedness as a
percentage of the Company's asset value or market capitalization, which may
impair the ability of the Company to take actions that would otherwise be in the
best interests of Vornado and its shareholders. A significant increase in the
level of the Company's indebtedness could affect the Operating Partnership's
ability to make required principal and interest payments with respect to
indebtedness, including the Debt Securities. See also "-- Leverage."
Illiquidity of Assets; Restrictions on Dispositions of Mortgaged Properties
Equity real estate investments are relatively illiquid and therefore tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In addition, certain significant
expenditures associated with each equity investment (such as mortgage payments,
real estate taxes and maintenance costs) are generally not reduced when
circumstances cause a reduction in income from the investment. Should such
events occur, the Company's income and funds available for distribution to
Vornado's shareholders would be adversely affected. A portion of the Company's
properties are mortgaged to secure payment of indebtedness, and if the Company
were unable to meet its mortgage payments, a loss could be sustained as a result
of foreclosure on the properties by the mortgagee. In addition, if it becomes
necessary or desirable for the Company to dispose of one or more of the
mortgaged properties, the Company might not be able to obtain release of the
lien on such mortgaged property. The foreclosure of a mortgage on a property or
inability to sell a property could affect the level of funds available for
distribution to Vornado shareholders. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and the Notes to the Consolidated Financial Statements contained in
the Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1996, incorporated in this Prospectus by reference for information regarding the
terms of the mortgages encumbering the Company's properties.
SUBSTANTIAL INFLUENCE OF CONTROLLING SHAREHOLDER; POSSIBLE CONFLICTS OF
INTEREST; RELATED PARTY TRANSACTIONS
Interstate Properties, a New Jersey general partnership ("Interstate"),
owns 21.9% of the outstanding Common Shares of the Company (assuming conversion
of all Operating Partnership Units) and Units of the Operating Partnership.
Steven Roth, Chairman of the Board and Chief Executive Officer of the Company,
is the managing general partner of Interstate. Mr. Roth, David Mandelbaum and
Russell B. Wight, Jr. are the three partners of Interstate. Messrs. Roth,
Mandelbaum and Wight and Interstate own, in the aggregate, 26.2% of the
outstanding Common Shares of the Company and Units of the Operating Partnership.
As of December 31, 1996, the Company owned 29.3% of the outstanding common
stock of Alexander's Inc. ("Alexander's"), a New York corporation. Alexander's
is a real estate investment trust engaged in leasing, managing, developing and
redeveloping properties, focusing primarily on the locations where its
department stores (which ceased operations in 1992) formerly operated.
Alexander's has nine properties which are located in the New York City region.
Interstate owns an additional 27.1% of the outstanding common stock of
Alexander's as of such date. Mr. Roth, the Company's Chief Executive Officer,
and Mr. Fascitelli, the Company's President, are directors of Alexander's.
Messrs. Mandelbaum, West and Wight, members of the Company's Board of Trustees,
are also members of the Board of Directors of Alexander's.
Because of the foregoing, Mr. Roth and Interstate may have substantial
influence on the Company and Alexander's on the outcome of any matters submitted
to the Company's or Alexander's stockholders for approval. In addition, certain
decisions concerning the operations or financial structure of the Company may
present conflicts of interest among Messrs. Roth, Mandelbaum and Wight and
Interstate and the Company's other shareholders. In addition, Mr. Roth and
Interstate engage in a wide variety of activities in the real estate
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<PAGE> 37
business which may result in conflicts of interest with respect to certain
matters affecting the Company or Alexander's, such as determination of which of
such entities or persons, if any, may take advantage of potential business
opportunities, decisions concerning the business focus of such entities
(including decisions concerning the types of properties and geographic locations
in which such entities make investments) demands on the time of Mr. Roth and
certain of the executive officers of the Company and changes of existing
arrangements between Mr. Roth, the Company and Interstate, potential competition
between business activities conducted, or sought to be conducted, by the
Company, Interstate and Alexander's (including competition for properties and
tenants), possible corporate transactions (such as acquisitions) and other
strategic decisions affecting the future of such parties.
Bernard Mendik, the Company's co-chairman, owns direct and indirect
managing general partner interests in two properties (Two Park Avenue and 330
Madison Avenue) in which the Company owns a partial interest, direct and
indirect interests in numerous additional office properties and other real
estate assets, and interests in certain property services businesses, including
in businesses which provide cleaning and related services, security services and
facilities management services, which interests may give rise to certain
conflicts of interest concerning the fulfillment of Mr. Mendik's responsibility
as a trustee of the Company.
The Mendik Group (the "Mendik Group", as used herein, Bernard H. Mendik,
David R. Greenbaum and certain entities controlled by them) owns an entity which
provides cleaning and related services and security services to office
properties. The Company has entered into contracts with the Mendik Group to
provide such services to the certain office properties in which the Company owns
a 100% interest. Although the terms and conditions of the contracts pursuant to
which these services will be 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, although there can be no assurance to this effect.
Alexander's Management and Development Agreement
Pursuant to a Management and Development Agreement (the "Management
Agreement") between the Company and Alexander's, the Company has agreed to
manage Alexander's business affairs and manage and develop Alexander's
properties for an annual fee. The Management Agreement was assigned by the
Company to Vornado Management Corp. ("VMC"), a New Jersey corporation. The
Company owns 100% of the outstanding shares of preferred stock of VMC (which
entitles the Company to 95% of the economic benefits of VMC through
distributions), and Messrs. Roth and West own 100% of the outstanding shares of
common stock of VMC. The Company also acts as a leasing agent for Alexander's
properties on a fee basis under a leasing agreement. In addition, 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. None of Mr. Roth,
Interstate or Vornado is obligated to present to Alexander's any particular
investment opportunity which comes to his or its attention, even if such
opportunity is of a character which might be suitable for investment by
Alexander's.
Leasing Services Provided to Other Properties
The Mendik Management Company Inc. (the "Management Corporation") (which is
controlled by Messrs. Mendik, Greenbaum and Fascitelli and not by the Company)
provides management and leasing services to properties in which the Company owns
less than a 100% interest as well as to other office properties (including
several properties in which the Mendik Group has an interest). Certain conflicts
of interest may result from the Management Corporation providing leasing
services both to properties in which the Company has an interest and other
properties in which the Mendik Group has an interest.
CORPORATE STRUCTURE
Vornado is a real estate investment trust formed under Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland ("Title
8"). Substantially all of Vornado's assets consist of its partnership interests
in the Operating Partnership, of which Vornado is the general partner.
Substantially all of the Operating Partnership's properties and assets are held
through subsidiaries. Any right of Vornado's
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shareholders to participate in any distribution of the assets of any of the
Company's indirect subsidiaries upon the liquidation, reorganization or
insolvency of such subsidiary (and any consequent right of the Company's
securityholders to participate in those assets) will be subject to the claims of
the creditors (including trade creditors) and preferred stockholders, if any, of
the Operating Partnership and such subsidiary, except to the extent the Company
has a claim against such subsidiary as a creditor of such subsidiary. In
addition, in the event that claims of the Company as a creditor of a subsidiary
are recognized, such claims would be subordinate to any security interest in the
assets of such subsidiary and any indebtedness of such subsidiary senior to that
held by the Company. See also "-- Potential Anti-takeover Effects of Charter
Documents and Applicable Law" and "-- Leverage".
LEVERAGE
As of July 31, 1997, the Company had aggregate indebtedness outstanding of
approximately $713 million, of which $463 million is secured by Company
properties. The Operating Partnership's ability to make required principal and
interest payments with respect to indebtedness, including any Debt Securities,
depends on the earnings of its subsidiaries and on its ability to receive funds
from such subsidiaries through dividends or other payments since the Debt
Securities are obligations of the Operating Partnership only and its
subsidiaries are not obligated or required to pay any amounts due pursuant to
the Debt Securities or to make funds available therefor in the form of dividends
or advances to the Operating Partnership. Of the approximately $713 million of
outstanding indebtedness, Vornado Finance L.P., a Delaware limited partnership
and subsidiary of the Operating Partnership ("Vornado Finance"), has outstanding
an aggregate of $227,000,000 of 6.36% Collateralized Notes Due December 1, 2000
(the "Collateralized Notes"), secured by a mortgage note, mortgage and various
other instruments, documents and agreements executed in connection therewith by
other subsidiaries of the Operating Partnership owning, in the aggregate, the
interests in 44 of the Company's properties.
The indenture relating to the Collateralized Notes of Vornado Finance
provides that all cash flows from the 44 Company properties which are collateral
for the Collateralized Notes will be deposited in a segregated trust account. So
long as no event of default under the indenture has occurred and is continuing,
Vornado Finance may withdraw funds from such trust account to the extent that
the amounts in such account exceed a certain minimum reserve level. Such minimum
reserve level equals the sum of (i) the amount of current or past due operating
expenses of Vornado Finance and its subsidiaries, (ii) indebtedness of Vornado
Finance and its subsidiaries due prior to such withdrawal and (iii) accrued and
unpaid interest on the Collateralized Notes; provided that (a) if the debt
service coverage ratio (as defined in the indenture relating to the
Collateralized Notes) is less than 2.0 and greater than or equal to 1.8, the
amount in (iii) above is increased by an amount equal to six months interest on
the Collateralized Notes and (b) if the debt service coverage ratio is less than
1.8, the amount in (iii) above is increased by an amount equal to eighteen
months interest on the Collateralized Notes. As a result of these limitations on
cash flows relating to such properties, which cash flows represented
approximately 83% of cash flows from properties of the Operating Partnership and
its consolidated subsidiaries in 1996, the Operating Partnership's ability to
pay interest and principal on its Debt Securities may be adversely affected.
The Indentures do not contain provisions that limit the Operating
Partnership's ability to incur indebtedness. Vornado has historically maintained
a relatively low level of debt to market capitalization of between 15% and 35%.
As of July 31, 1997, the level of debt to market capitalization was 31%. In the
future, in connection with its strategy for growth, this percentage may
increase. This policy may be reviewed and modified from time to time by the
Company without the vote of shareholders.
GEOGRAPHIC CONCENTRATION
For the year ended December 31, 1996, 78% of the Company's revenues were
derived from properties located in New York City and New Jersey. In addition,
the Company may concentrate a significant portion of its future acquisitions in
New York City and New Jersey. Like other real estate markets, the real estate
market in New York City and New Jersey experienced economic downturns in the
past, including most recently in the late 1980s and 1990s. Future declines in
the economy or the real estate markets in New York
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<PAGE> 39
City and New Jersey could adversely affect the Company's financial performance.
The Operating Partnership's financial performance and its ability to make
distributions to its partners, including Vornado, are dependent on conditions in
the economy and the real estate markets in New York City and New Jersey, which
may be affected by a number of factors, including the economic climate in New
York City and New Jersey (which may be adversely affected by business layoffs or
downsizing, industry slowdowns, relocations of businesses, changing
demographics, increased telecommuting, infrastructure quality in New York City
and New Jersey and other factors) and conditions in the real estate markets in
New York City and New Jersey (such as oversupply of or reduced demand for real
estate). There can be no assurance as to the continued strength of the economy,
or the continued strength of the real estate markets, in New York City and New
Jersey.
ENVIRONMENTAL MATTERS
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 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 hazardous 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, which generally did not include soil sampling or
subsurface investigations, at various times. The environmental assessments did
not reveal any environmental condition or liability that the Company believes
will have a material adverse effect on the Company's business, assets or results
of operations. 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.
COMPETITION
The leasing of real estate is highly competitive. The principal means of
competition are rent charged, location, services provided and the nature and
condition of the facility to be leased. The Company directly competes with all
lessors and developers of similar space in the areas in which its properties are
located. Demand for retail space has been impacted by the recent bankruptcy of a
number of retail companies and a general trend toward consolidation in the
retail industry which could adversely affect the ability of the Company to
attract and retain tenants.
The Company's shopping center properties are generally located on major
regional highways in mature, densely populated areas. These shopping center
properties compete with, among others, free standing stores, neighborhood
centers and stores leased on the periphery of regional malls. Further, the
general economic climate (such as household disposable income) and the
conditions of shopping center markets (such as oversupply of or reduced demand
for retail space) in the places where the shopping center properties are located
could adversely affect the Company's financial condition.
The Company's office building properties are concentrated in highly
developed areas of midtown Manhattan. Manhattan is the largest office market in
the United States. The number of competitive office properties in Manhattan
could have a material adverse effect on the Company's ability to lease office
space at its properties, and on the effective rents the Company is able to
charge. These competing properties may be
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newer or better located. In addition, the Company may compete with other
property owners (including other REITs that currently invest in markets other
than Manhattan) that are willing to acquire properties in transactions which are
more highly leveraged than the Company is willing to undertake.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of Steven Roth, the Chairman and
Chief Executive Officer of Vornado, and Michael D. Fascitelli, the President of
Vornado. While the Company believes that it could find replacements for these
key personnel, the loss of their services could have an adverse effect on the
operations of the Company.
CONSEQUENCES OF THE FAILURE TO QUALIFY OR REMAIN QUALIFIED AS A REIT
Although Vornado's management believes that Vornado will remain organized
and will continue to operate so as to qualify as a real estate investment trust
("REIT") for Federal income tax purposes, no assurance can be given that it will
remain so qualified. Qualification as a REIT for Federal income tax purposes
involves the application of highly technical and complex provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), for which there are only
limited judicial or administrative interpretations, and the determination of
various factual matters and circumstances not entirely within the control of
Vornado may impact its ability to qualify as a REIT. In addition, no assurance
can be given that legislation, new regulations, administrative interpretations
or court decisions will not significantly change the tax laws with respect to
the requirements for qualification as a REIT or the Federal income tax
consequences of such qualification. Vornado, however, is not aware of any
proposal to amend the tax laws that would significantly and adversely affect its
ability to operate in such a manner as to qualify as a REIT.
If, with respect to any taxable year, Vornado fails to qualify as a REIT,
it would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to Federal income tax
(including any applicable alterative minimum tax) on its taxable income at
regular corporate rates. As a result, the amount available for distribution to
shareholders would be reduced for the year or years involved, and distributions
would no longer be required to be made. In addition, unless entitled to relief
under certain statutory provisions, Vornado would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. Notwithstanding that Vornado currently intends to
operate in a manner designed to allow it to qualify as a REIT, future economic,
market, legal, tax or other considerations may cause it to determine that it is
in the best interest of Vornado and its shareholders to revoke the REIT
election.
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER DOCUMENTS AND APPLICABLE LAW
Generally, for Vornado to maintain its qualification as a REIT under the
Code, not more than 50% in value of the outstanding shares of beneficial
interest of Vornado may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) at any time
during the last half of Vornado's taxable year (other than the first taxable
year for which the election to be treated as a REIT has been made). To ensure
that Vornado will not fail to qualify as a REIT under this and other tests under
the Code, the Declaration of Trust, subject to certain exceptions, provides that
no person may own more than 6.7% of the outstanding Common Shares or 9.9% of the
outstanding Preferred Shares. These restrictions on transferability and
ownership may delay, defer or prevent a transaction or a change in control of
Vornado that might involve a premium price or otherwise be in the best interest
of the shareholders. See "Description of Shares of Beneficial
Interest -- Description of Preferred Shares -- Restrictions on Ownership" and
"Description of Shares of Beneficial Interest -- Description of Common
Shares -- Restrictions on Ownership".
Vornado's Board of Trustees is divided into three classes of trustees.
Trustees of each class are chosen for three-year staggered terms. Staggered
terms of trustees may reduce the possibility of a tender offer or an attempt to
change control of Vornado, even though a tender offer or change in control might
be in the best interest of the shareholders. Vornado's Declaration of Trust
authorizes the Board of Trustees to cause Vornado to issue additional authorized
but unissued shares of Common Shares or Preferred Shares and to classify or
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reclassify any unissued Preferred Shares and to set the preferences, rights and
other terms of such classified or unclassified shares. Although the Board of
Trustees has no such intention at the present time, it could establish a series
of Preferred Shares that could, depending on the terms of such series, delay,
defer or prevent a transaction or a change in control of Vornado that might
involve a premium price or otherwise be in the best interest of the
shareholders.
Under the Maryland General Corporation Law, as amended ("MGCL"), as
applicable to real estate investment trusts, certain "business combinations"
(including certain issuances of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns ten percent or more
of the voting power of the trust's shares (an "Interested Shareholder") or an
affiliate thereof are prohibited for five years after the most recent date on
which the Interested Shareholder becomes an Interested Shareholder. Thereafter,
any such business combination must be approved by two super-majority shareholder
votes unless, among other conditions, the trust's common shareholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its common shares. As permitted by Maryland law, the Board of
Trustees has adopted a resolution exempting any business combination between any
trustee or officer of Vornado (or their affiliates) and Vornado. As a result,
the trustees and officers of Vornado and their affiliates may be able to enter
business combinations with Vornado which may not be in the best interest of
shareholders and, with respect to business combinations with other persons, the
business combination provisions of the MGCL may have the effect of delaying,
deferring or preventing a transaction or a change in the control of Vornado that
might involve a premium price or otherwise be in the best interest of the
shareholders.
VORNADO AND THE OPERATING PARTNERSHIP
Vornado is a fully-integrated real estate investment trust organized under
the laws of the state of Maryland. In April 1997, Vornado transferred
substantially all of its assets to the Operating Partnership, a Delaware limited
partnership. As a result, Vornado now conducts its business through, and
substantially all of its interests in properties are held by, the Operating
Partnership, in which it is the sole general partner and in which it owns an
approximately 90% limited partnership interest as of June 11, 1997. The
Operating Partnership currently owns: (i) 58 shopping center properties in seven
states and Puerto Rico containing 10.5 million square feet, including 1.2
million square feet built by tenants on land leased from the Company; (ii) all
or portions of nine office building properties in the New York City metropolitan
area (primarily Manhattan) containing 4.2 million square feet; (iii) eight
warehouse/industrial properties in New Jersey containing 2.0 million square
feet; and (iv) approximately 29.3% of the outstanding common stock of
Alexander's, Inc., which has nine properties in the New York City metropolitan
area.
As of July 31, 1997, the Company's total consolidated outstanding debt was
approximately $713 million, of which $463 million is secured by Company
properties, and its total consolidated debt plus its proportionate share of
total unconsolidated debt were approximately $825 million, of which $575 million
is secured by Company properties.
The executive offices of Vornado and the Operating Partnership are located
at Park 80 West, Plaza II, Saddle Brook, N.J. 07663; telephone (201) 587-1000.
USE OF PROCEEDS
Vornado is required by the terms of the partnership agreement of the
Operating Partnership to invest the net proceeds of any sale of Common Shares,
Preferred Shares or Depositary Shares in the Operating Partnership in exchange
for additional Units or preferred Units, as the case may be. As will be more
fully described in the applicable Prospectus Supplement, Vornado and the
Operating Partnership intend to use the net proceeds from the sale of Securities
for general corporate purposes or such other uses as may be set forth in a
Prospectus Supplement.
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CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS
For purposes of calculating the following ratios, (i) earnings represent
income from continuing operations before income taxes, plus fixed charges, and
(ii) fixed charges represent interest expense on all indebtedness (including
amortization of deferred debt issuance costs) and the portion of operating lease
rental expense that is representative of the interest factor (deemed to be
one-third of operating lease rentals). There were no preferred shares
outstanding during any of the periods indicated below and therefore the ratio of
earnings to fixed charges would have been the same as the ratio of earnings to
combined fixed charges and preferred share dividend requirements for each period
indicated. The historical ratios of earnings to combined fixed charges and
preferred share dividend requirements set forth below are the same for both
Vornado and the Operating Partnership.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------
1997 1996 1995 1994 1993 1992
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed Charges
and Preferred Share Dividend
Requirements............................... 1.83 4.56 4.06 3.54 1.80 1.07
</TABLE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities may be issued from time to time in one or more series.
The particular terms of each series of Debt Securities offered by any Prospectus
Supplement or Prospectus Supplements will be described therein. The Senior Debt
Securities are to be issued under an Indenture (the "Senior Indenture") between
the Operating Partnership and The Bank of New York, as trustee (the "Senior
Trustee"), a copy of the form of which Senior Indenture is filed as an exhibit
to the Registration Statement. The Subordinated Debt Securities are to be issued
under a separate Indenture (the "Subordinated Indenture") between the Operating
Partnership and The Bank of New York, as trustee (the "Subordinated Trustee"), a
copy of the form of which Subordinated Indenture is filed as an exhibit to the
Registration Statement. The Senior Indenture and the Subordinated Indenture are
sometimes referred to collectively as the "Indentures" and the Senior Trustee
and Subordinated Trustee are sometimes referred to collectively as the
"Trustees."
The following summaries of the material provisions of the Senior Debt
Securities, the Subordinated Debt Securities, the Senior Indenture and the
Subordinated Indenture are brief summaries thereof, do not purport to be
complete and are subject to, and are qualified in their entirety by reference to
all the provisions of the Indenture applicable to a particular series of Debt
Securities. Wherever particular Sections, Articles or defined terms of the
Indentures are referred to herein or in a Prospectus Supplement, such Sections,
Articles or defined terms are incorporated herein or therein by reference.
GENERAL
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities will be general unsecured obligations of the Operating
Partnership. The Indentures do not limit the aggregate amount of Debt Securities
which may be issued thereunder, and Debt Securities may be issued thereunder
from time to time in separate series up to the aggregate amount from time to
time authorized by the Operating Partnership for each series. Unless otherwise
specified in the Prospectus Supplement, the Senior Debt Securities when issued
will be unsubordinated obligations of the Operating Partnership and will rank
equally and ratably with all other unsecured and unsubordinated indebtedness of
the Operating Partnership. The Subordinated Debt Securities when issued will be
subordinated in right of payment to the prior payment in full of all Senior Debt
(as defined in the Subordinated Indenture) of the Operating Partnership as
described below under "-- Subordination of Subordinated Debt Securities" and in
the Prospectus Supplement applicable to an offering of Subordinated Debt
Securities.
The applicable Prospectus Supplement or Prospectus Supplements will
describe the following terms of the series of Debt Securities in respect of
which this Prospectus is being delivered: (1) the title of such Debt
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Securities; (2) any limit on the aggregate principal amount of such Debt
Securities; (3) the person to whom any interest on any Debt Security of the
series shall be payable if other than the person in whose name the Debt Security
is registered on the regular record date; (4) the date or dates on which such
Debt Securities will mature; (5) the rate or rates of interest, if any, or the
method of calculation thereof, which such Debt Securities will bear, the date or
dates from which any such interest will accrue, the interest payment dates on
which any such interest on such Debt Securities will be payable and the regular
record date for any interest payable on any interest payment date; (6) the place
or places where the principal of, premium, if any, and interest on such Debt
Securities will be payable; (7) the period or periods within which, the events
upon the occurrence of which, and the price or prices at which, such Debt
Securities may, pursuant to any optional or mandatory provisions, be redeemed or
purchased, in whole or in part, by the Operating Partnership and any terms and
conditions relevant thereto; (8) the obligations of the Operating Partnership,
if any, to redeem or repurchase such Debt Securities at the option of the
Holders; (9) the denominations in which any such Debt Securities will be
issuable, if other than denominations of $1,000 and any integral multiple
thereof; (10) any index or formula used to determine the amount of payments of
principal of and any premium and interest on such Debt Securities; (11) the
currency, currencies or currency unit or units of payment of principal of and
any premium and interest on such Debt Securities if other than U.S. dollars;
(12) if the principal of, or premium, if any, or interest, if any, on such Debt
Securities is to be payable, at the election of the Operating Partnership or a
holder thereof, in one or more currencies or currency units other than that or
those in which such Debt Securities are stated to be payable, the currency,
currencies or currency units in which payment of the principal of and any
premium and interest on Debt Securities of such series as to which such election
is made shall be payable, and the periods within which and the terms and
conditions upon which such election is to be made; (13) if other than the
principal amount thereof, the portion of the principal amount of such Debt
Securities of the series which will be payable upon acceleration of the maturity
thereof; (14) if the principal amount of any Debt Securities which will be
payable at the maturity thereof will not be determinable as of any date prior to
such maturity, the amount which will be deemed to be the outstanding principal
amount of such Debt Securities; (15) the applicability of any provisions
described under "-- Defeasance"; (16) whether any of such Debt Securities are to
be issuable in permanent global form ("Global Security") and, if so, the terms
and conditions, if any, upon which interests in such Debt Securities in global
form may be exchanged, in whole or in part, for the individual Debt Securities
represented thereby; (17) the applicability of any provisions described under
"-- Events of Default" and any additional Event of Default applicable thereto;
(18) any covenants applicable to such Debt Securities; (19) the terms and
conditions, if any, pursuant to which the Debt Securities are exchangeable into
Common Shares of the Company; and (20) any other terms of such Debt Securities
not inconsistent with the provisions of the Indentures. (Section 301)
Debt Securities may be issued at a discount from their principal amount.
United States Federal income tax considerations and other special considerations
applicable to any such original issue discount Securities will be described in
the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or a foreign currency unit or units or if the
principal of and any premium and interest on any series of Debt Securities is
payable in a foreign currency or currencies or a foreign currency unit or units,
the restrictions, elections, general Federal income tax considerations, specific
terms and other information with respect to such issue of Debt Securities will
be set forth in the applicable Prospectus Supplement.
The Indentures do not contain any provisions that limit the Operating
Partnership's ability to incur indebtedness. Except as may be indicated in the
applicable Prospectus Supplement with respect to a particular series of Debt
Securities, Holders of Debt Securities will not have the benefit of any specific
covenants or provisions in the applicable Indenture or Debt Securities that
would protect them in the event the Operating Partnership engages in or becomes
the subject of a highly leveraged transaction and the limitations on mergers,
consolidations and transfers of substantially all of the Operating Partnership's
properties and assets as an entirety to any person as described below under
"-- Consolidation, Merger and Sale of Assets." Such covenants may not be waived
or modified by the Operating Partnership, although Holders of Debt Securities
could waive or modify such covenants as more fully described below under
"-- Modification and Waiver."
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The applicable Prospectus Supplement with respect to any particular series
of Debt Securities that provide for the optional redemption or prepayment of
such Debt Securities upon the occurrence of certain events (i.e., a change of
control) will describe the following: (1) the effects that such provisions may
have in deterring certain mergers, tender offers or other takeover attempts, as
well as that there may be possible adverse effects on the market price of the
Operating Partnership's securities or ability to obtain financing; (2) that the
Operating Partnership will comply with the requirements of applicable securities
laws, including Rules 14e-1 and 13e-4 under the Exchange Act, in connection with
such provisions and any related offers by the Operating Partnership; (3) whether
the occurrence of the specified events may give rise to cross-defaults on other
indebtedness such that payment on the offered Debt Securities may be effectively
subordinated; (4) limitations on the Operating Partnership's financial or legal
ability to repurchase the offered Debt Securities upon the triggering of an
event risk provision requiring such a repurchase or offer to repurchase; (5) the
impact, if any, under the governing instrument of the failure to repurchase,
including whether such failure to make any required repurchases in the event of
a change of control will create an event of default with respect to the offered
Debt Securities or will become an event of default only after the continuation
of such failure for a specified period of time after written notice is given to
the Operating Partnership by the Trustee or to the Operating Partnership and the
Trustee by the holders of a specified percentage in aggregate principal amount
of the debt outstanding; (6) that there can be no assurance that sufficient
funds will be available at the time of the triggering of an event risk provision
to make any required repurchases; (7) if such offered Debt Securities are to be
subordinated to other obligations of the Operating Partnership or its
subsidiaries that would be accelerated upon the triggering of a change in
control or similar event, the material effect thereof on such acceleration
provision and such offered Debt Securities; and (8) to the extent that there is
a definition of "change of control" in a supplemental indenture relating to such
offered Debt Securities that includes the concept of "all or substantially all,"
the established meaning of such phrase under New York law.
EXCHANGE OF DEBT SECURITIES
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Debt Securities, such series will be exchangeable into
Common Shares of Vornado on the terms and conditions set forth therein. Such
terms may include provisions pursuant to which the number of Common Shares of
Vornado to be received by the holders of Debt Securities would be calculated
according to the market price of Common Shares of Vornado as of a time stated in
the Prospectus Supplement. The applicable Prospectus Supplement will indicate
certain restrictions on ownership which may apply in the event of an exchange.
See "Description of Preferred Shares -- Restrictions on Ownership" and
"Description of Common Shares -- Restrictions on Ownership."
FORM, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, the
Debt Securities will be issued only in fully registered form in denominations of
$1,000 or integral multiples thereof. (Section 302) Unless otherwise indicated
in the applicable Prospectus Supplement, payment of principal, premium, if any,
and interest on the Debt Securities will be payable, and the exchange and
transfer of Debt Securities will be registerable, at the office or agency of the
Operating Partnership maintained for such purposes and at any other office or
agency maintained for such purpose. (Sections 301, 305 and 1002) No service
charge will be made for any registration of transfer or exchange of the Debt
Securities, but the Operating Partnership may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith. (Section 305)
All monies paid by the Operating Partnership to a Paying Agent for the
payment of principal of and any premium or interest on any Debt Security which
remain unclaimed for two years after such principal, premium or interest has
become due and payable may be repaid to the Operating Partnership and thereafter
the Holder of such Debt Security may look only to the Operating Partnership for
payment thereof. (Section 1003)
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BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a depositary (the "Global Depositary") or its nominee identified in the
applicable Prospectus Supplement. In such a case, one or more Global Securities
will be issued in a denomination or aggregate denomination equal to the portion
of the aggregate principal amount of Outstanding Debt Securities of the series
to be represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Debt Securities in registered form, a Global
Security may not be registered for transfer except as a whole by the Global
Depositary for such Global Security to a nominee of such Global Depositary or by
a nominee of such Global Depositary to such Global Depositary or another nominee
of such Global Depositary or by such Global Depositary or any nominee to a
successor Global Depositary or a nominee of such successor Global Depositary and
except in the circumstances described in the applicable Prospectus Supplement.
(Sections 204 and 305)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Operating
Partnership expects that the following provisions will apply to depositary
arrangements although no assurance can be given that such will be the case.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Global Depositary will be represented by a Global Security
registered in the name of such Global Depositary or its nominee. Upon the
issuance of such Global Security, and the deposit of such Global Security with
or on behalf of the Global Depositary for such Global Security, the Global
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of institutions that have accounts with such Global
Depositary or its nominee ("participants"). The accounts to be credited will be
designated by the underwriters or agents of such Debt Securities or by the
Operating Partnership, if such Debt Securities are offered and sold directly by
the Operating Partnership. Ownership of beneficial interest in such Global
Security will be limited to participants or Persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Security will be shown on, and the transfer of that ownership interest
will be effected only through, records maintained by the Global Depositary or
its nominee for such Global Security. Ownership of beneficial interests in such
Global Security by Persons that hold through participants will be shown on, and
the transfer of such ownership interests within such participant will be
effected only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such Global
Securities.
So long as the Global Depositary for a Global Security, or its nominee, is
the registered owner of such Global Security, such Global Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as set forth below, unless otherwise specified in
the applicable Prospectus Supplement, owners of beneficial interests in such
Global Security will not be entitled to have Debt Securities of the series
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities of such series in
certificated form and will not be considered the holders thereof for any
purposes under the applicable Indenture. (Sections 204 and 305) Accordingly,
each Person owning a beneficial interest in such Global Security must rely on
the procedures of the Global Depositary and, if such Person is not a
participant, on the procedures of the participant through which such Person owns
its interest, to exercise any rights of a holder under the applicable Indenture.
The Operating Partnership understands that under existing industry practices, if
the Operating Partnership requests any action of holders or an owner of a
beneficial interest in such Global Security desires to give any notice or take
any action a holder is entitled to give or take under the applicable Indenture,
the Global Depositary would authorize the participants to give such notice or
take such action, and participants would authorize beneficial owners owning
through such participants to give such notice or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
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If the Global Depositary for Debt Securities of a series is at any time
unwilling, unable or ineligible to continue as Global Depositary and a successor
Global Depositary is not appointed by the Operating Partnership within 90 days
or an Event of Default under the applicable Indenture has occurred and is
continuing, the Operating Partnership will issue Debt Securities of such series
in definitive form in exchange for the Global Security or Securities
representing the Debt Securities of such series. In addition, the Operating
Partnership may at any time and in its sole discretion, subject to any
limitations described in the applicable Prospectus Supplement, determine not to
have any Debt Securities of a series represented by one or more Global
Securities and, in such event, will issue Debt Securities of such series in
definitive form in exchange for the Global Security or Securities representing
such Debt Securities. Further, if the Operating Partnership so specifies with
respect to the Debt Securities of a series, an owner of a beneficial interest in
a Global Security representing Debt Securities of such series may, on terms
acceptable to the Operating Partnership and the Global Depositary for such
Global Security, receive Debt Securities of such series in definitive form in
exchange for such beneficial interests, subject to any limitations described in
the applicable Prospectus Supplement relating to such Debt Securities. In any
such instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery in definitive form of Debt Securities of the
series represented by such Global Security equal in principal amount to such
beneficial interest and to have such Debt Securities registered in its name (if
the Debt Securities of such series are issuable as registered securities).
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
CERTAIN COVENANTS OF THE OPERATING PARTNERSHIP
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Debt Securities, the Operating Partnership will be subject
to the covenants described therein. In addition, the Operating Partnership will
be subject to the following covenants.
Existence
Except as permitted under "--Consolidation, Merger and Sale of Assets," the
Operating Partnership will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
and franchises; provided, however, that the Operating Partnership shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities. (Section 1005)
Maintenance of Properties
The Operating Partnership will be required to cause all properties used or
useful in the conduct of its business or the business of any subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and to cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Operating Partnership may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that the Operating Partnership shall not be
prevented from discontinuing the operation or maintenance of any of its
properties if such discontinuance is, in the judgment of the Operating
Partnership, desirable in the conduct of its business or the business of any
subsidiary and not disadvantageous in any material respect to the Holders.
(Section 1006)
Payment of Taxes and Other Claims
The Operating Partnership will be required to pay or discharge or cause to
be paid or discharged, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges levied or imposed upon the Operating
Partnership or any subsidiary or upon the income, profits or property of the
Operating Partnership or any subsidiary, and (ii) all lawful claims for labor,
materials and supplies which, if unpaid,
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might by law become a lien upon the property of the Operating Partnership or any
subsidiary; provided, however, that the Operating Partnership shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings. (Section 1007)
Insurance
The Operating Partnership will be required to, and to cause each of its
subsidiaries to, keep all of its insurable properties insured against loss or
damage with insurers of recognized responsibility in commercially reasonable
amounts and types. (Section 1008)
Provision of Financial Information
Whether or not the Operating Partnership is subject to Section 13 or
Section 15(d) of the Exchange Act and for so long as any Debt Securities are
outstanding, the Operating Partnership will, to the extent permitted under the
Exchange Act, file with the Commission the annual reports, quarterly reports and
other documents which the Operating Partnership would have been required to file
with the Commission pursuant to Section 13 or Section 15(d) (the "Financial
Statements") if the Operating Partnership were so subject, such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Operating Partnership would have been required so to
file such documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities
whose names appear in the security register for such Debt Securities, as their
names and addresses appear in the security register for such Debt Securities,
without cost to such Holders, copies of the annual reports and quarterly reports
which the Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act if the
Operating Partnership were subject to such Sections and (ii) file with any
Trustee copies of the annual reports, quarterly reports and other documents
which the Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act if the
Operating Partnership were subject to such Sections and (y) if filing such
documents by the Operating Partnership with the Commission is not permitted
under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to
any prospective Holder. (Section 1009)
EVENTS OF DEFAULT
The following are Events of Default under the Indentures with respect to
Debt Securities of any series: (a) failure to pay principal of or premium, if
any, on any Debt Security of that series when due; (b) failure to pay any
interest on any Debt Security of that series when due, continued for 30 days;
(c) failure in the deposit of any sinking fund payment in respect of any Debt
Security of that series; (d) failure to perform any other covenant of the
Operating Partnership in the Indentures (other than a covenant included in the
applicable Indenture solely for the benefit of a series of Debt Securities other
than that series), continued for 60 days after written notice to the Operating
Partnership as provided in the applicable Indenture; (e) the acceleration of, or
failure to pay at maturity (including any applicable grace period), any
indebtedness for money borrowed by the Operating Partnership with at least
$50,000,000 in principal amount outstanding, which acceleration or failure to
pay is not rescinded or annulled or such indebtedness paid, in each case within
10 days after the date on which written notice thereof shall have first been
given to the Operating Partnership as provided in the applicable Indenture; (f)
certain events of bankruptcy, insolvency or reorganization; and (g) any other
Event of Default provided with respect to Debt Securities of that series.
(Section 501)
If an Event of Default with respect to Outstanding Debt Securities of any
series shall occur and be continuing, either the applicable Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of that series by notice as provided in the Indentures may declare
the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities, such portion of the
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principal amount as may be specified in the terms of that series) of all Debt
Securities of that series to be due and payable immediately. However, at any
time after a declaration of acceleration with respect to Debt Securities of any
series has been made, but before a judgment or decree based on such acceleration
has been obtained, the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. (Section 502) For information as to waiver
or defaults, see "-- Modification and Waiver" below.
The Indentures provide that, subject to the duty of the Trustees thereunder
during an Event of Default to act with the required standard of care, such
Trustees will be under no obligation to exercise any of its rights or powers
under the Indentures at the request or direction of any of the Holders, unless
such Holders shall have offered to such Trustees reasonable security or
indemnity. (Sections 601 and 603) Subject to certain provisions, including those
requiring security or indemnification of the Trustees, the Holders of a majority
in principal amount of the Outstanding Debt Securities of any series will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustees, or exercising any trust or power conferred
on such Trustees, with respect to the Debt Securities of that series. (Section
512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indentures or for any remedy thereunder,
unless (i) such Holder shall have previously given to the applicable Trustee
written notice of a continuing Event of Default (as defined) with respect to
Debt Securities of that series; (ii) the Holders of not less than 25% in
aggregate principal amount of the Outstanding Debt Securities of the same series
shall have made written request, and offered reasonable indemnity, to the
applicable Trustee to institute proceedings in respect of such Event of Default
in its own name as trustee under the Indenture; (iii) the Trustee shall have
failed to institute such proceedings within 60 days; and (iv) the Trustee shall
not have received from the Holders of a majority in aggregate principal amount
of the outstanding Debt Securities of the same series a direction inconsistent
with such request (Section 507); provided, however, that such limitations do not
apply to a suit instituted by a Holder of a Debt Security for enforcement of
payment of the principal of and any premium and interest on such Debt Security
on or after the respective due dates expressed in such Debt Security. (Section
508)
The Operating Partnership will be required to furnish to the Trustees
annually a statement as to the performance by the Operating Partnership of its
obligations under the Indentures and as to any default in such performance.
(Section 1004)
MODIFICATION AND WAIVER
Without the consent of any Holder of Outstanding Debt Securities, the
Operating Partnership and the applicable Trustee may amend or supplement the
applicable Indenture or the Debt Securities to cure any ambiguity, defect or
inconsistency, or to make any change that does not materially adversely affect
the rights of any Holder of Debt Securities. (Section 901) Other modifications
and amendments of the Indentures may be made by the Operating Partnership and
the applicable Trustee only with the consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Debt Securities of
each series affected thereby; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Debt
Security affected thereby: (a) change the Stated Maturity of the principal of,
or any installment of principal of, or interest on, any Debt Security; (b)
reduce the principal amount of, the rate of interest on, or the premium, if any,
payable upon the redemption of, any Debt Security; (c) reduce the amount of
principal of an Original Issue Discount Security payable upon acceleration of
the Maturity thereof; (d) change the place or currency of payment of principal
of, or premium, if any, or interest on any Debt Security; (e) impair the right
to institute suit for the enforcement of any payment on or with respect to any
Debt Security on or after the Stated Maturity or Redemption Date thereof; (f)
modify the subordination provisions applicable to any series of Debt Securities
in a manner adverse to the holders thereof; or (g) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
the Holders of which is required for modification or amendment of the Indentures
or for waiver of compliance with certain provisions of the applicable Indenture
or for waiver of certain defaults. (Section 902)
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Unless otherwise indicated in the applicable Prospectus Supplement, the
Holders of at least a majority in aggregate principal amount of the Outstanding
Debt Securities of any series may on behalf of the Holders of all Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Operating Partnership with certain covenants of the Indentures. (Section
1008) Unless otherwise indicated in the applicable Prospectus Supplement, the
Holders of not less than a majority in principal amount of the Outstanding Debt
Securities of any series may, on behalf of the Holders of all Debt Securities of
that series, waive any past default under the applicable Indenture with respect
to that series, except a default in the payment of the principal of, or premium,
if any, or interest on, any Debt Security of that series or in respect of a
provision which under such applicable Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security of that
series affected. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Operating Partnership, without the consent of any Holders of outstanding Debt
Securities, may consolidate with or merge into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate with or merge into, or transfer or lease its assets substantially as
an entirety to, the Operating Partnership, provided that (a) the Person (if
other than the Operating Partnership) formed by such consolidation or into which
the Operating Partnership is merged or which acquires or leases the assets of
the Operating Partnership substantially as an entirety assumes the Operating
Partnership's obligations on the Debt Securities and under the Indenture
relating thereto and (b) after giving effect to such transaction no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing. (Article Eight) A
Prospectus Supplement may set forth any additional provisions regarding a
consolidation with, merger into, or transfer or lease of its assets
substantially as an entirety to, any Person (or of such Person with, into or to
the Operating Partnership).
DEFEASANCE
If so indicated in the applicable Prospectus Supplement with respect to the
Debt Securities of a series, the Operating Partnership, at its option (i) will
be discharged from any and all obligations in respect of the Debt Securities of
such series (except for certain obligations to register the transfer or exchange
of Debt Securities of such series, to replace destroyed, stolen, lost or
mutilated Debt Securities of such series, and to maintain an office or agency in
respect of the Debt Securities and hold monies for payment in trust) or (ii)
will be released from its obligations to comply with any covenants that may be
specified in the applicable Prospectus Supplement with respect to the Debt
Securities of such series, and the occurrence of an event described in clause
(d) under "-- Events of Default" above with respect to any defeased covenants
shall no longer be an Event of Default, if in either case the Operating
Partnership irrevocably deposits with the applicable Trustee, in trust, money or
U.S. Government Obligations that through the payment of interest thereon and
principal thereof in accordance with their terms will provide money in an amount
sufficient to pay all of the principal of and premium, if any, and any interest
on the Debt Securities of such series on the dates such payments are due (which
may include one or more redemption dates designated by the Operating
Partnership) in accordance with the terms of such Debt Securities. Such a trust
may only be established if, among other things, (a) no Event of Default or event
which with the giving of notice or lapse of time, or both, would become an Event
of Default under the applicable Indenture shall have occurred and be continuing
on the date of such deposit, (b) no Event of Default described under clause (e)
under "-- Events of Default" above or event which with the giving of notice or
lapse of time, or both, would become an Event of Default described under such
clause (e) shall have occurred and be continuing at any time during the period
ending on the 91st day following such date of deposit and (c) the Operating
Partnership shall have delivered an Opinion of Counsel to the effect that the
Holders of the Debt Securities will not recognize gain or loss for United States
Federal income tax purposes as a result of such deposit or defeasance and will
be subject to United States Federal income tax in the same manner as if such
deposit and defeasance had not occurred, which Opinion of Counsel, in the case
of a deposit and defeasance of such Indenture with respect to the Debt
Securities of any series as described under clause (i) above, shall be based on
either (A) a ruling to such effect that the Operating Partnership has received
from, or that has been published by, the Internal Revenue
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Service or (B) a change in the applicable Federal income tax law, occurring
after the date of the applicable Indenture, to such effect. In the event the
Operating Partnership omits to comply with its remaining obligations under such
Indenture after a defeasance of such Indenture with respect to the Debt
Securities of any series as described under clause (ii) above and the Debt
Securities of such series are declared due and payable because of the occurrence
of any undefeased Event of Default, the amount of money and U.S. Government
Obligations on deposit with the applicable Trustee may be insufficient to pay
amounts due on the Debt Securities of such series at the time of the
acceleration resulting from such Event of Default. However, the Operating
Partnership will remain liable in respect to such payments. (Article Thirteen)
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt, including the Senior Debt Securities. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Operating Partnership, the holders of Senior Debt
will first be entitled to receive payment in full of principal of (and premium,
if any) and interest, if any, on such Senior Debt before the holders of the
Subordinated Debt Securities will be entitled to receive or retain any payment
in respect of the principal of (and premium, if any) or interest, if any, on the
Subordinated Debt Securities. (Article Fifteen of the Subordinated Indenture)
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Operating Partnership who are not holders of Senior Debt or
Subordinated Debt Securities may recover less, ratably, than holders of Senior
Debt and may recover more, ratably, than the holders of the Subordinated Debt
Securities.
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon before the Holders of the Subordinated Debt Securities will be
entitled to receive any payment upon the principal of (or premium, if any) or
interest, if any, on the Subordinated Debt Securities.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Debt, or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
Unless otherwise indicated in the applicable Prospectus Supplement, "Senior
Debt" means the principal of (and premium, if any) and interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Operating Partnership to the extent such claim
for post-petition interest is allowed in such proceeding) on all indebtedness of
the Operating Partnership (including indebtedness of others guaranteed by the
Operating Partnership), other than the Subordinated Debt Securities whether
outstanding on the date of the Subordinated Indenture or thereafter created,
incurred or assumed, which is: (i) for money borrowed, (ii) evidenced by a note
or similar instrument given in connection with the acquisition of any
businesses, properties or assets of any kind or (iii) obligations of the
Operating Partnership as lessee under leases required to be capitalized on the
balance sheet of the lessee under generally accepted accounting principles or
leases of property or assets made as part of any sale and lease-back transaction
to which the Operating Partnership is a party, including amendments, renewals,
extensions, modifications and refundings of any such indebtedness or obligation,
unless in any case in the instrument creating or evidencing any such
indebtedness or obligation or pursuant to which the same is outstanding it is
provided that such indebtedness or obligation is not superior in right of
payment to the Subordinated Debt Securities.
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The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Debt, which may include indebtedness that is senior to the
Subordinated Debt Securities, but subordinate to other obligations of the
Operating Partnership. The Senior Debt Securities, when issued, will constitute
Senior Debt.
The Prospectus Supplement will set forth the aggregate amount of
outstanding indebtedness as of the most recent practicable date that by the
terms of such indebtedness and the terms of the offered Subordinated Debt
Securities would rank senior to or pari passu with such Subordinated Debt
Securities and any limitation on the issuance of additional senior or pari passu
indebtedness. The Prospectus Supplement may further describe the provisions, if
any, applicable to the subordination of the Subordinated Debt Securities of a
particular series.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State of New York. (Section 112)
REGARDING THE TRUSTEES
The Operating Partnership and certain of its subsidiaries in the ordinary
course of business maintain general banking relations with The Bank of New York.
Pursuant to the provisions of the Trust Indenture Act of 1939, upon a default
under either the Senior Indenture or the Subordinated Indenture, The Bank of New
York may be deemed to have a conflicting interest by virtue of its acting as
both the Senior Trustee and the Subordinated Trustee requiring it to resign and
be replaced by a successor trustee in one of such positions.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following descriptions of the material terms of the shares of
beneficial interest of Vornado do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the more complete descriptions
thereof set forth in the following documents: (i) Vornado's Amended and Restated
Declaration of Trust, including the articles supplementary for the Series A
Preferred Shares (the "Declaration of Trust"), and (ii) its Bylaws, which
documents are exhibits to this Registration Statement.
For Vornado to qualify as a REIT under the Code, not more than 50% of the
value of its outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year and the shares must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (or during a proportionate part of a shorter taxable year).
Accordingly, the Declaration of Trust contains provisions that restrict the
ownership and transfer of shares of beneficial interest.
The Declaration of Trust authorizes the issuance of up to 180,000,000
shares, consisting of 70,000,000 Common Shares, 20,000,000 preferred shares of
beneficial interest, no par value per share ("Preferred Shares"), and 90,000,000
excess shares of beneficial interest, $.04 par value per share ("Excess
Shares"). See "-- Description of Preferred Shares -- Restrictions on Ownership"
and "-- Description of Common Shares -- Restrictions on Ownership" for a
discussion of the possible issuance of Excess Shares.
DESCRIPTION OF PREFERRED SHARES
The following is a description of the material terms and provisions of the
Preferred Shares. The particular terms of any series of Preferred Shares will be
described in the applicable Prospectus Supplement, which will supplement the
information set forth below.
The summary of the material terms of Vornado's Preferred Shares contained
in this Prospectus does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Declaration of Trust and the
articles supplementary relating to each series of the Preferred Shares (the
"Articles Supplementary"), which will be filed as an exhibit to or incorporated
by reference in the Registration
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Statement of which this Prospectus is a part at or prior to the time of issuance
of such series of the Preferred Shares.
As of the date hereof, the Declaration of Trust authorizes the issuance of
20,000,000 Preferred Shares. As of July 31, 1997, 5,750,000 Series A Preferred
Shares were outstanding. The Series A Preferred Shares are listed on the NYSE
under the symbol "VNO Pr A". A description of Vornado's Series A Preferred
Shares is set forth in Vornado's Registration Statement on Form 8-A, filed with
the Commission on April 3, 1997, and incorporated herein by reference. The
Preferred Shares authorized by the Declaration of Trust may be issued from time
to time in one or more series in such amounts and with such designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as may be fixed by the Board of Trustees. Under certain
circumstances, the issuance of Preferred Shares could have the effect of
delaying, deferring or preventing a change of control of Vornado and may
adversely affect the voting and other rights of the holders of Common Shares.
The Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued Preferred Shares by setting or changing the
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and
conditions of redemption of such Preferred Shares.
The Preferred Shares shall have the dividend, liquidation, redemption and
voting rights described below as such description may be supplemented in a
Prospectus Supplement relating to a particular series of the Preferred Shares.
The applicable Prospectus Supplement will describe the following terms of the
series of Preferred Shares in respect of which this Prospectus is being
delivered: (1) the title of such Preferred Shares and the number of shares
offered; (2) the amount of liquidation preference per share; (3) the initial
public offering price at which such Preferred Shares will be issued; (4) the
dividend rate (or method of calculation), the dates on which dividends shall be
payable and the dates from which dividends shall commence to cumulate, if any;
(5) any redemption or sinking fund provisions; (6) any conversion or exchange
rights; (7) any additional voting, dividend, liquidation, redemption, sinking
fund and other rights, preferences, limitations and restrictions; (8) any
listing of such Preferred Shares on any securities exchange; (9) the relative
ranking and preferences of such Preferred Shares as to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of Vornado;
(10) any limitations on issuance of any series of Preferred Shares ranking
senior to or on a parity with such series of Preferred Shares as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs of
Vornado; and (11) any limitations on direct, beneficial or constructive
ownership and restrictions on transfer, in each case as may be appropriate to
preserve the status of Vornado as a REIT. The applicable Prospectus Supplement
will also include a discussion of Federal income tax considerations applicable
to such Preferred Shares.
General
The Preferred Shares offered hereby will be issued in one or more series.
The Preferred Shares, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The liquidation preference is
not indicative of the price at which the Preferred Shares will actually trade on
or after the date of issuance.
Rank
The Preferred Shares shall, with respect to dividend rights and rights upon
liquidation, dissolution and winding up of Vornado, rank prior to the Common
Shares and Excess Shares (other than certain Excess Shares resulting from the
conversion of Preferred Shares) and to all other classes and series of equity
securities of Vornado now or hereafter authorized, issued or outstanding (the
Common Shares and such other classes and series of equity securities
collectively may be referred to herein as the "Junior Stock"), other than any
classes or series of equity securities of Vornado which by their terms
specifically provide for a ranking on a parity with (the "Parity Stock") or
senior to (the "Senior Stock") the Preferred Shares as to dividend rights and
rights upon liquidation, dissolution or winding up of Vornado. The Preferred
Shares shall be junior to all outstanding debt of Vornado. The Preferred Shares
shall be subject to creation of Senior Stock, Parity Stock and Junior Stock to
the extent not expressly prohibited by the Declaration of Trust.
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Dividends
Holders of Preferred Shares shall be entitled to receive, when, as and if
authorized by the Board of Trustees out of assets of Vornado legally available
for payment, dividends, or distributions in cash, property or other assets of
Vornado or in Securities of Vornado or from any other source as the Board of
Trustees in its discretion shall determine and at such dates and at such rates
per share per annum as described in the applicable Prospectus Supplement. Such
rate may be fixed or variable or both. Each authorized dividend shall be payable
to holders of record as they appear at the close of business on the books of
Vornado on such record dates, not more than 90 calendar days preceding the
payment dates therefor, as are determined by the Board of Trustees (each of such
dates, a "Record Date").
Such dividends may be cumulative or noncumulative, as described in the
applicable Prospectus Supplement. If dividends on a series of Preferred Shares
are noncumulative and if the Board of Trustees fails to authorize a dividend in
respect of a dividend period with respect to such series, then holders of such
Preferred Shares will have no right to receive a dividend in respect of such
dividend period, and Vornado will have no obligation to pay the dividend for
such period, whether or not dividends are authorized payable on any future
dividend payment dates. If dividends of a series of Preferred Shares are
cumulative, the dividends on such shares will accrue from and after the date set
forth in the applicable Prospectus Supplement.
No full dividends shall be authorized or paid or set apart for payment on
Preferred Shares of any series ranking, as to dividends, on a parity with or
junior to the series of Preferred Shares offered by the applicable Prospectus
Supplement for any period unless full dividends for the immediately preceding
dividend period on such Preferred Shares (including any accumulation in respect
of unpaid dividends for prior dividend periods, if dividends on such Preferred
Shares are cumulative) have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof is set apart for such
payment. When dividends are not so paid in full (or a sum sufficient for such
full payment is not so set apart) upon such Preferred Shares and any other
Preferred Shares of Vornado ranking on a parity as to dividends with the
Preferred Shares, dividends upon such Preferred Shares and dividends on such
other Preferred Shares ranking on a parity with the Preferred Shares shall be
authorized pro rata so that the amount of dividends authorized per share on such
Preferred Shares and such other Preferred Shares ranking on a parity with the
Preferred Shares shall in all cases bear to each other the same ratio that
accrued dividends for the then-current dividend period per share on such
Preferred Shares (including any accumulation in respect of unpaid dividends for
prior dividend periods, if dividends on such Preferred Shares are cumulative)
and accrued dividends, including required or permitted accumulations, if any, on
shares of such other Preferred Shares, bear to each other. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment(s) on Preferred Shares which may be in arrears. Unless full dividends on
the series of Preferred Shares offered by the applicable Prospectus Supplement
have been authorized and paid or set apart for payment for the immediately
preceding dividend period (including any accumulation in respect of unpaid
dividends for prior dividend periods, if dividends on such Preferred Shares are
cumulative), (a) no cash dividend or distribution (other than in shares of
Junior Stock) may be authorized, set aside or paid on the Junior Stock, (b)
Vornado may not, directly or indirectly, repurchase, redeem or otherwise acquire
any shares of its Junior Stock (or pay any monies into a sinking fund for the
redemption of any shares) except by conversion into or exchange for Junior
Stock, and (c) Vornado may not, directly or indirectly, repurchase, redeem or
otherwise acquire any Preferred Shares or Parity Stock (or pay any monies into a
sinking fund for the redemption of any shares of any such stock) otherwise than
pursuant to pro rata offers to purchase or a concurrent redemption of all, or a
pro rata portion, of the outstanding Preferred Shares and shares of Parity Stock
(except by conversion into or exchange for Junior Stock).
Any dividend payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series.
Redemption
The terms, if any, on which Preferred Shares of any series may be redeemed
will be set forth in the applicable Prospectus Supplement.
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Liquidation
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of Vornado, the holders of a series of Preferred
Shares will be entitled, subject to the rights of creditors, but before any
distribution or payment to the holders of Common Shares, Excess Shares (other
than certain Excess Shares resulting from the conversion of Preferred Shares) or
any Junior Stock on liquidation, dissolution or winding up of Vornado, to
receive a liquidating distribution in the amount of the liquidation preference
per share as set forth in the applicable Prospectus Supplement plus accrued and
unpaid dividends for the then-current dividend period (including any
accumulation in respect of unpaid dividends for prior dividend periods, if
dividends on such series of Preferred Shares are cumulative). If the amounts
available for distribution with respect to the Preferred Shares and all other
outstanding Parity Stock are not sufficient to satisfy the full liquidation
rights of all the outstanding Preferred Shares and Parity Stock, then the
holders of each series of such stock will share ratably in any such distribution
of assets in proportion to the full respective preferential amount (which in the
case of Preferred Shares may include accumulated dividends) to which they are
entitled. After payment of the full amount of the liquidation distribution, the
holders of Preferred Shares will not be entitled to any further participation in
any distribution of assets by Vornado.
Title 8 does not contain any sections on the power of a Maryland real
estate investment trust, such as the Company, to make distributions, including
dividends, to its shareholders. It is possible that a Maryland court may look to
the Maryland General Corporation Law ("MGCL") for guidance on matters, such as
the making of distributions to shareholders, not covered by Title 8. The MGCL
requires that, after giving effect to a distribution, (1) the corporation must
be able to pay its debts as they become due in the usual course of business and
(2) the corporation's assets must at least equal the sum of its liabilities and
the preferential rights on dissolution of stockholders whose rights on
dissolution are superior to those stockholders receiving the distribution.
However, the MGCL also provides that the charter of the corporation may provide
that senior dissolution preferences shall not be included with liabilities for
purposes of determining amounts available for distribution. The applicable
articles supplementary may include such a provision.
Voting
The Preferred Shares of a series will not be entitled to vote, except as
described below or in the applicable Prospectus Supplement. Without the
affirmative vote of a majority of the Preferred Shares then outstanding (voting
separately as a class together with any Parity Stock), Vornado may not (i)
increase or decrease the aggregate number of authorized shares of such class or
any security ranking prior to the Preferred Shares, (ii) increase or decrease
the par value of the shares of holders of such class or (iii) alter or change
the voting or other powers, preferences or special rights of such class so as to
affect them adversely. An amendment which increases the number of authorized
shares of or authorizes the creation or issuance of other classes or series of
Junior Stock or Parity Stock, or substitutes the surviving entity in a merger,
consolidation, reorganization or other business combination for Vornado, shall
not be considered to be such an adverse change.
No Other Rights
The shares of a series of Preferred Shares will not have any preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications, and terms and conditions of
redemption except as set forth above or in the applicable Prospectus Supplement,
the Declaration of Trust and in the applicable Articles Supplementary or as
otherwise required by law.
Transfer Agent and Registrar
The transfer agent for each series of Preferred Shares will be described in
the related Prospectus Supplement.
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Restrictions on Ownership
As discussed below, for Vornado to qualify as a REIT under the Code, not
more than 50% in value of its outstanding shares of beneficial interest may be
owned, directly or constructively, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year,
and the shares of beneficial interest must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months (or during a
proportionate part of a shorter taxable year). Therefore, the Declaration of
Trust contains, and the Articles Supplementary for each series of Preferred
Shares may contain, provisions restricting the ownership and transfer of the
Preferred Shares.
The Declaration of Trust contains a limitation that restricts shareholders
from owning, under the applicable attribution rules of the Code, more than 9.9%
of the outstanding Preferred Shares of any series (the "Preferred Shares
Beneficial Ownership Limit"). The attribution rules which apply for purposes of
the Common Shares Beneficial Ownership Limit (as defined below) also apply for
purposes of the Preferred Shares Beneficial Ownership Limit. See "-- Description
of Common Shares -- Restrictions on Ownership". Shareholders should be aware
that events other than a purchase or other transfer of Preferred Shares may
result in ownership, under the applicable attribution rules of the Code, of
Preferred Shares in excess of the Preferred Shares Beneficial Ownership Limit.
Shareholders are urged to consult their own tax advisors concerning the
application of the attribution rules of the Code in their particular
circumstances.
Holders of Preferred Shares are also subject to the Constructive Ownership
Limit (as defined below in "-- Description of Common Shares -- Restrictions on
Ownership"), which restricts them from owning, under the applicable attribution
rules of the Code, more than 9.9% of the outstanding Preferred Shares of any
series. The attribution rules which apply for purposes of the Constructive
Ownership Limit differ from those that apply for purposes of the Preferred
Shares Beneficial Ownership Limit. See "-- Description of Common
Shares -- Restrictions on Ownership". Shareholders should be aware that events
other than a purchase or other transfer of Preferred Shares may result in
ownership, under the applicable attribution rules of the Code, of Preferred
Shares in excess of the Constructive Ownership Limit. Shareholders are urged to
consult their own tax advisors concerning the application of the attribution
rules of the Code in their particular circumstances.
The Declaration of Trust provides that a transfer of Preferred Shares that
would otherwise result in ownership, under the applicable attribution rules of
the Code, of Preferred Shares in excess of the Preferred Shares Beneficial
Ownership Limit or the Constructive Ownership Limit, or which would cause the
shares of beneficial interest of Vornado to be beneficially owned by fewer than
100 persons, will be null and void and the Declaration of Trust provides that
the purported transferee will acquire no rights or economic interest in such
Preferred Shares. In addition, Preferred Shares that would otherwise be owned,
under the applicable attribution rules of the Code, in excess of the Preferred
Shares Beneficial Ownership Limit or the Constructive Ownership Limit will be
automatically exchanged for Excess Shares that will be transferred, by operation
of law, to Vornado as trustee of a trust for the exclusive benefit of a
beneficiary designated by the purported transferee or purported holder. While so
held in trust, Excess Shares are not entitled to vote and are not entitled to
participate in any dividends or distributions made by Vornado. Any dividends or
distributions received by the purported transferee or other purported holder of
such Excess Shares prior to the discovery by Vornado of the automatic exchange
for Excess Shares shall be repaid to Vornado upon demand.
If the purported transferee or purported holder elects to designate a
beneficiary of an interest in the trust with respect to such Excess Shares, only
a person whose ownership of the shares will not violate the Preferred Shares
Beneficial Ownership Limit or the Constructive Ownership Limit may be
designated, at which time the Excess Shares will be automatically exchanged for
Preferred Shares of the same class as the Preferred Shares which were originally
exchanged for such Excess Shares. The Declaration of Trust contains provisions
designed to ensure that the purported transferee or other purported holder of
the Excess Shares may not receive in return for such a transfer an amount that
reflects any appreciation in the Preferred Shares for which such Excess Shares
were exchanged during the period that such Excess Shares were outstanding but
will bear the burden of any decline in value during such period. Any amount
received by a purported transferee or other purported holder for designating a
beneficiary in excess of the amount permitted to be received must be turned
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over to Vornado. The Declaration of Trust provides that Vornado may purchase any
Excess Shares that have been automatically exchanged for Preferred Shares as a
result of a purported transfer or other event. The price at which Vornado may
purchase such Excess Shares shall be equal to the lesser of (i) in the case of
Excess Shares resulting from a purported transfer for value, the price per share
in the purported transfer that resulted in the automatic exchange for Excess
Shares or, in the case of Excess Shares resulting from some other event, the
market price of the Preferred Shares exchanged on the date of the automatic
exchange for Excess Shares and (ii) the market price of the Preferred Shares
exchanged for such Excess Shares on the date that the Company accepts the deemed
offer to sell such Excess Shares. Vornado's purchase right with respect to
Excess Shares shall exist for 90 days, beginning on the date that the automatic
exchange for Excess Shares occurred or, if Vornado did not receive a notice
concerning the purported transfer that resulted in the automatic exchange for
Excess Shares, the date that the Board of Trustees determines in good faith that
an exchange for Excess Shares has occurred.
The Board of Trustees may exempt certain persons from the Preferred Shares
Beneficial Ownership Limit or the Constructive Ownership Limit if evidence
satisfactory to the trustees is presented showing that such exemption will not
jeopardize Vornado's status as a REIT under the Code. As a condition of such
exemption, the Board of Trustees may require a ruling from the Internal Revenue
Service and/or an opinion of counsel satisfactory to it and/or representations
and undertakings from the applicant with respect to preserving the REIT status
of Vornado.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of Vornado to attempt to qualify, or to continue to qualify, as a REIT.
All certificates evidencing Preferred Shares will bear a legend referring
to the restrictions described above.
All persons who own, directly or by virtue of the applicable attribution
rules of the Code, more than 2% of the outstanding Preferred Shares of any
series must give a written notice to Vornado containing the information
specified in the Declaration of Trust by January 31 of each year. In addition,
each shareholder shall upon demand be required to disclose to Vornado such
information as Vornado may request, in good faith, in order to determine
Vornado's status as a REIT or to comply with Treasury Regulations promulgated
under the REIT provisions of the Code.
DEPOSITARY SHARES
Vornado may, at its option, elect to offer receipts for fractional
interests ("Depositary Shares") in Preferred Shares, rather than full Preferred
Shares. In such event, receipts ("Depositary Receipts") for Depositary Shares,
each of which will represent a fraction (to be set forth in the Prospectus
Supplement relating to a particular series of Preferred Shares) of a share of a
particular series of Preferred Shares, will be issued as described below.
The description set forth below of the material provisions of the Deposit
Agreement and of the Depositary Shares and Depositary Receipts (each as defined
below) does not purport to be complete and is subject to and qualified in its
entirety by reference to the forms of Deposit Agreement and Depositary Receipts
relating to each series of the Preferred Shares which have been or will be filed
with the Commission at or prior to the time of the offering of such series of
the Preferred Shares. The particular terms of Depositary Shares representing
fractional interests in any particular series of Preferred Shares will be
described in the applicable Prospectus Supplement, which will supplement the
information set forth herein.
General
The shares of any series of Preferred Shares represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between Vornado and the depositary (the "Depositary"). Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a Preferred Share represented by such
Depositary Share, to all the
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preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption of the Preferred Shares represented thereby.
Dividends and Other Distributions
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Shares to the record holders
of Depositary Shares relating to such Preferred Shares in proportion to the
numbers of such Depositary Shares owned by such holders.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares in
an equitable manner, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may sell such property and
distribute the net proceeds from such sale to such holders.
Withdrawal of Preferred Shares
Upon surrender of Depositary Receipts at the corporate trust office of the
Depositary (unless the related Depositary Shares have previously been called for
redemption or converted into Excess Shares or otherwise), the holders thereof
will be entitled to delivery at such office, to or upon such holder's order, of
the number of whole or fractional shares of the class or series of Preferred
Shares and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related class or series of
Preferred Shares on the basis of the proportion of Preferred Shares represented
by each Depositary Share as specified in the applicable Prospectus Supplement,
but holders of such Preferred Shares will not thereafter be entitled to receive
Depositary Shares thereof. If the Depositary Receipts delivered by the holder
evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of shares of Preferred Shares to be withdrawn,
the Depositary will deliver to such holder at the same time a new Depositary
Receipt evidencing such excess number of Depositary Shares.
Redemption of Depositary Shares
If a series of Preferred Shares represented by Depositary Shares is subject
to redemption, the Depositary Shares will be redeemed from the proceeds received
by the Depositary resulting from the redemption, in whole or in part, of such
series of Preferred Shares held by the Depositary. The redemption price per
Depositary Share will be equal to the applicable fraction of the redemption
price per share payable with respect to such series of the Preferred Shares.
Whenever Vornado redeems Preferred Shares held by the Depositary, the Depositary
will redeem as of the same redemption date the number of Depositary Shares
representing Preferred Shares so redeemed. If fewer than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be selected
by lot, pro rata or by any other equitable method as may be determined by the
Depositary.
Voting the Preferred Shares
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Depositary will mail the information contained
in such notices of meeting to the record holders of the Depositary Shares
relating to such Preferred Shares. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Shares) will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the amount of the Preferred Shares
represented by such holder's Depositary Shares. The Depositary will endeavor,
insofar as practicable, to vote the amount of the Preferred Shares represented
by such Depositary Shares in accordance with such instructions, and Vornado will
agree to take all reasonable action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting the Preferred Shares to the extent it does not receive
specific instructions from the holder of Depositary Shares representing such
Preferred Shares.
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Amendment and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between Vornado and the Depositary. However, any amendment which materially and
adversely alters the rights of the holders of Depositary Shares will not be
effective unless such amendment has been approved by the holders of at least a
majority of the Depositary Shares then outstanding. The Deposit Agreement will
only terminate if (i) all outstanding Depositary Shares have been redeemed or
(ii) there has been a final distribution in respect of the Preferred Shares in
connection with any liquidation, dissolution or winding up of Vornado and such
distribution has been distributed to the holders of the related Depositary
Shares.
Charges of Depositary
Vornado will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. Vornado will
pay charges of the Depositary in connection with the initial deposit of the
Preferred Shares and issuance of Depositary Receipts, all withdrawals of
Preferred Shares by owners of Depositary Shares and any redemption of the
Preferred Shares. Holders of Depositary Receipts will pay other transfer and
other taxes and governmental charges and such other charges as are expressly
provided in the Deposit Agreement to be for their accounts.
Resignation and Removal of Depositary
The Depositary may resign at any time by delivering to Vornado notice of
its election to do so, and Vornado may at any time remove the Depositary, any
such resignation or removal to take effect upon the appointment of a successor
Depositary and its acceptance of such appointment. Such successor Depositary
must be appointed within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least $50,000,000.
Restrictions on Ownership
In order to safeguard Vornado against an inadvertent loss of REIT status,
the Deposit Agreement or the Declaration of Trust will contain provisions
restricting the ownership and transfer of Depositary Shares. Such restrictions
will be described in the applicable Prospectus Supplement.
Miscellaneous
The Depositary will forward all reports and communications from Vornado
which are delivered to the Depositary and which Vornado is required or otherwise
determines to furnish to the holders of the Preferred Shares.
Neither the Depositary nor Vornado will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of Vornado and the
Depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder and they will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Shares or Preferred
Shares unless satisfactory indemnity is furnished. They may rely upon written
advice of counsel or accountants, or information provided by persons presenting
Preferred Shares for deposit, holders of Depositary Shares or other persons
believed to be competent and on documents believed to be genuine.
DESCRIPTION OF COMMON SHARES
As of July 31, 1997, 26,553,161 Common Shares were issued and outstanding
and no Excess Shares were issued and outstanding. The Common Shares of Vornado
are listed on the NYSE under the symbol "VNO".
The holders of Common Shares are entitled to receive dividends when, if and
as authorized by the Board of Trustees of Vornado out of assets legally
available therefor, provided that if any Preferred Shares are at the
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time outstanding, the payment of dividends on Common Shares or other
distributions (including purchases of Common Shares) may be subject to the
declaration and payment of full cumulative dividends, and the absence of
arrearages in any mandatory sinking fund, on outstanding Preferred Shares.
The holders of Common Shares are entitled to one vote for each share on all
matters voted on by stockholders, including elections of trustees. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of the outstanding Common Shares can elect all of the trustees then
standing for election. The holders of Common Shares do not have any conversion,
redemption or preemptive rights to subscribe to any securities of the Company.
In the event of the dissolution, liquidation or winding up of Vornado, holders
of Common Shares are entitled to share ratably in any assets remaining after the
satisfaction in full of the prior rights of creditors, including holders of the
Company's indebtedness, and the aggregate liquidation preference of any
Preferred Shares then outstanding.
The Common Shares have equal dividend, distribution, liquidation and other
rights, and shall have no preference, appraisal or exchange rights. All
outstanding shares of Common Shares are, and any Common Shares offered by a
Prospectus Supplement, upon issuance, will be, fully paid and non-assessable.
The transfer agent for the Common Shares is First Fidelity Bank, N.A., New
Jersey.
Restrictions on Ownership
The Declaration of Trust contains a number of provisions which restrict the
ownership and transfer of shares and which are designed to safeguard Vornado
against an inadvertent loss of its REIT status. In order to prevent any Vornado
shareholder from owning shares in an amount which would cause more than 50% in
value of the outstanding shares of Vornado to be owned by five or fewer
individuals, the Declaration of Trust contains a limitation that restricts, with
certain exceptions, shareholders from owning, under the applicable attribution
rules of the Code, more than a specified percentage of the outstanding Common
Shares (the "Common Shares Beneficial Ownership Limit"). The Common Shares
Beneficial Ownership Limit was initially set at 2.0% of the outstanding Common
Shares. The Board of Trustees subsequently adopted a resolution raising the
Common Shares Beneficial Ownership Limit from 2.0% to 6.7% of the outstanding
Common Shares. The shareholders who owned, under the applicable attribution
rules of the Code, more than 6.7% of the Common Shares immediately after the
merger of Vornado, Inc. into Vornado in May 1993 (the "Merger") may continue to
do so and may acquire additional Common Shares through stock option and similar
plans or from other shareholders who owned, under the applicable attribution
rules of the Code, more than 6.7% of the Common Shares immediately after the
Merger, subject to the restriction that Common Shares cannot be transferred if,
as a result, more than 50% in value of the outstanding shares of Vornado would
be owned by five or fewer individuals. While such shareholders are not generally
permitted to acquire additional Common Shares from any other source, such
shareholders may acquire additional Common Shares from any source in the event
that additional Common Shares are issued by Vornado, up to the percentage held
by them immediately prior to such issuance.
Shareholders should be aware that events other than a purchase or other
transfer of Common Shares can result in ownership, under the applicable
attribution rules of the Code, of Common Shares in excess of the Common Shares
Beneficial Ownership Limit. For instance, if two shareholders, each of whom
owns, under the applicable attribution rules of the Code, 3.5% of the
outstanding Common Shares, were to marry, then after their marriage both
shareholders would own, under the applicable attribution rules of the Code, 7.0%
of the outstanding Common Shares, which is in excess of the Common Shares
Beneficial Ownership Limit. Similarly, if a shareholder who owns, under the
applicable attribution rules of the Code, 4.9% of the outstanding Common Shares
were to purchase a 50% interest in a corporation which owns 4.8% of the
outstanding Common Shares, then the shareholder would own, under the applicable
attribution rules of the Code, 7.3% of the outstanding Common Shares.
Shareholders are urged to consult their own tax advisors concerning the
application of the attribution rules of the Code in their particular
circumstances.
Under the Code, rental income received by a REIT from persons in which the
REIT is treated, under the applicable attribution rules of the Code, as owning a
10% or greater interest does not constitute qualifying income for purposes of
the income requirements that REITs must satisfy. For these purposes, a REIT is
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treated as owning any stock owned, under the applicable attribution rules of the
Code, by a person that owns 10% or more of the value of the outstanding shares
of the REIT. Therefore, in order to ensure that rental income of the Company
will not be treated as nonqualifying income under the rule described above, and
thus to ensure that there will not be an inadvertent loss of REIT status as a
result of the ownership of shares of a tenant, or a person that holds an
interest in a tenant, the Declaration of Trust also contains an ownership limit
that restricts, with certain exceptions, shareholders from owning, under the
applicable attribution rules of the Code (which are different from those
applicable with respect to the Common Shares Beneficial Ownership Limit), more
than 9.9% of the outstanding shares of any class (the "Constructive Ownership
Limit"). The shareholders who owned, under the applicable attribution rules of
the Code, shares in excess of the Constructive Ownership Limit immediately after
the Merger generally are not subject to the Constructive Ownership Limit.
Subject to an exception for tenants and subtenants from whom the REIT receives,
directly or indirectly, rental income that is not in excess of a specified
threshold, the Declaration of Trust also contains restrictions that are designed
to ensure that the shareholders who owned, under the applicable attribution
rules of the Code, shares in excess of the Constructive Ownership Limit
immediately after the Merger will not, in the aggregate, own an interest in a
tenant or subtenant of the REIT of sufficient magnitude to cause rental income
received, directly or indirectly, by the REIT from such tenant or subtenant to
be treated as nonqualifying income for purposes of the income requirements that
REITs must satisfy.
Shareholders should be aware that events other than a purchase or other
transfer of shares can result in ownership, under the applicable attribution
rules of the Code, of shares in excess of the Constructive Ownership Limit. As
the attribution rules that apply with respect to the Constructive Ownership
Limit differ from those that apply with respect to the Common Shares Beneficial
Ownership Limit, the events other than a purchase or other transfer of shares
which can result in share ownership in excess of the Constructive Ownership
Limit can differ from those which can result in share ownership in excess of the
Common Shares Beneficial Ownership Limit. Shareholders are urged to consult
their own tax advisors concerning the application of the attribution rules of
the Code in their particular circumstances.
The Declaration of Trust provides that a transfer of Common Shares that
would otherwise result in ownership, under the applicable attribution rules of
the Code, of Common Shares in excess of the Common Shares Beneficial Ownership
Limit or the Constructive Ownership Limit, or which would cause the shares of
beneficial interest of the Company to be beneficially owned by fewer than 100
persons, will be null and void and the purported transferee will acquire no
rights or economic interest in such Common Shares. In addition, the Declaration
of Trust provides that Common Shares that would otherwise be owned, under the
applicable attribution rules of the Code, in excess of the Common Shares
Beneficial Ownership Limit or the Constructive Ownership Limit will be
automatically exchanged for Excess Shares that will be transferred, by operation
of law, to Vornado as trustee of a trust for the exclusive benefit of a
beneficiary designated by the purported transferee or purported holder. While so
held in trust, Excess Shares are not entitled to vote and are not entitled to
participate in any dividends or distributions made by Vornado. Any dividends or
distributions received by the purported transferee or other purported holder of
such Excess Shares prior to the discovery by Vornado of the automatic exchange
for Excess Shares shall be repaid to Vornado upon demand.
If the purported transferee or purported holder elects to designate a
beneficiary of an interest in the trust with respect to such Excess Shares, only
a person whose ownership of the shares will not violate the Common Shares
Beneficial Ownership Limit or the Constructive Ownership Limit may be
designated, at which time the Excess Shares will be automatically exchanged for
Common Shares. The Declaration of Trust contains provisions designed to ensure
that the purported transferee or other purported holder of the Excess Shares may
not receive in return for such a transfer an amount that reflects any
appreciation in the Common Shares for which such Excess Shares were exchanged
during the period that such Excess Shares were outstanding but will bear the
burden of any decline in value during such period. Any amount received by a
purported transferee or other purported holder for designating a beneficiary in
excess of the amount permitted to be received must be turned over to Vornado.
The Declaration of Trust provides that Vornado may purchase any Excess Shares
that have been automatically exchanged for Common Shares as a result of a
purported transfer or other event. The price at which Vornado may purchase such
Excess Shares shall be equal to the lesser of (i) in the case of Excess Shares
resulting from a purported transfer for value, the price per share in the
purported transfer that
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resulted in the automatic exchange for Excess Shares or, in the case of Excess
Shares resulting from some other event, the market price of the Common Shares
exchanged on the date of the automatic exchange for Excess Shares and (ii) the
market price of the Common Shares exchanged for such Excess Shares on the date
that Vornado accepts the deemed offer to sell such Excess Shares. Vornado's
purchase right with respect to Excess Shares shall exist for 90 days, beginning
on the date that the automatic exchange for Excess Shares occurred or, if
Vornado did not receive a notice concerning the purported transfer that resulted
in the automatic exchange for Excess Shares, the date that the Board of Trustees
determines in good faith that an exchange for Excess Shares has occurred.
The Board of Trustees of Vornado may exempt certain persons from the Common
Shares Beneficial Ownership Limit or the Constructive Ownership Limit, including
the limitations applicable to holders who owned in excess of 6.7% of the Common
Shares immediately after the Merger, if evidence satisfactory to the Board of
Trustees is presented showing that such exemption will not jeopardize Vornado's
status as a REIT under the Code. As a condition of such exemption, the Board of
Trustees may require a ruling from the Internal Revenue Service and/or an
opinion of counsel satisfactory to it and/or representations and undertakings
from the applicant with respect to preserving the REIT status of Vornado.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of Vornado to attempt to qualify, or to continue to qualify, as a REIT.
All persons who own, directly or by virtue of the applicable attribution
rules of the Code, more than 2.0% of the outstanding Common Shares must give a
written notice to Vornado containing the information specified in the
Declaration of Trust by January 31 of each year. In addition, each shareholder
shall upon demand be required to disclose to the Company such information as
Vornado may request, in good faith, in order to determine Vornado's status as a
REIT or to comply with Treasury Regulations promulgated under the REIT
provisions of the Code.
The ownership restrictions described above may have the effect of
precluding acquisition of control of Vornado unless the Board of Trustees
determines that maintenance of REIT status is no longer in the best interests of
Vornado.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the taxation of Vornado and the material Federal
income tax consequences to holders of the Securities is for general information
only, and is not tax advice. The tax treatment of a holder of Securities will
vary depending upon the holder's particular situation, and this discussion
addresses only holders that hold Securities as capital assets and does not
purport to deal with all aspects of taxation that may be relevant to particular
holders in light of their personal investment or tax circumstances, or to
certain types of holders (including dealers in securities or currencies, banks,
tax-exempt organizations, life insurance companies, persons that hold Securities
that are a hedge or that are hedged against currency risks or that are part of a
straddle or conversion transaction) subject to special treatment under the
Federal income tax laws. This summary is based on the Code, its legislative
history, existing and proposed regulations thereunder, published rulings and
court decisions, all as currently in effect and all subject to change at any
time, perhaps with retroactive effect.
INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND SALE OF SECURITIES,
INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SUCH
ACQUISITION, OWNERSHIP AND SALE IN THEIR PARTICULAR CIRCUMSTANCES AND POTENTIAL
CHANGES IN APPLICABLE LAWS.
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TAXATION OF THE COMPANY AS A REIT
General
In the opinion of Sullivan & Cromwell, commencing with its taxable year
ended December 31, 1993, Vornado has been organized and operated in conformity
with the requirements for qualification and taxation as a REIT under the Code,
and Vornado's proposed method of operation will enable it to continue to meet
the requirements for qualification and taxation as a REIT under the Code.
Investors should be aware, however, that opinions of counsel are not binding
upon the Internal Revenue Service or any court. In providing its opinion,
Sullivan & Cromwell is relying upon (i) representations received from Vornado
and (ii) an opinion of Shearman & Sterling as to the qualification of
Alexander's as a REIT. In providing its opinion to the effect that, commencing
with Alexander's taxable year ending December 31, 1995, Alexander's has been
organized and operated in conformity with the requirements for qualification and
taxation as a REIT under the Code, and Alexander's proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code, Shearman & Sterling is in turn relying upon
representations received from Alexander's. The qualification and taxation of
Vornado and Alexander's as REITs depends upon their ability to meet, through
actual annual operating results, distribution levels, stock ownership
requirements and the various qualification tests imposed under the Code.
Accordingly, while Vornado intends to continue to qualify to be taxed as a REIT,
no assurance can be given that the actual results of Vornado's or Alexander's
operations for any particular year will satisfy such requirements. Neither
Sullivan & Cromwell nor Shearman & Sterling will monitor the compliance of the
Company or Alexander's with the requirements for REIT qualification on an
ongoing basis.
The sections of the Code applicable to REITs are highly technical and
complex. The material aspects thereof are summarized below.
As a REIT, Vornado generally will not be subject to Federal corporate
income taxes on its net income that is currently distributed to shareholders.
This treatment substantially eliminates the "double taxation" (at the corporate
and shareholder levels) that generally results from investment in a regular
corporation. However, Vornado will be subject to federal income tax as follows.
First, Vornado will be taxed at regular corporate rates on any undistributed
real estate investment trust taxable income, including undistributed net capital
gains. Second, under certain circumstances, Vornado may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if Vornado has
(i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying income from foreclosure property, it will be
subject to tax at the highest corporate rate on such income. Fourth, if Vornado
has net income from "prohibited transactions" (which are, in general, certain
sales or other dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% tax. Fifth, if Vornado should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount equal
to (a) the gross income attributable to the greater of the amount by which
Vornado fails the 75% or 95% test, multiplied by (b) a fraction intended to
reflect Vornado's profitability. Sixth, if Vornado should fail to distribute
during each calendar year at least the sum of (i) 85% of its real estate
investment trust ordinary income for such year, (ii) 95% of its real estate
investment trust capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, Vornado would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if during the 10-year period (the "Recognition
Period") beginning on the first day of the first taxable year for which Vornado
qualified as a REIT, Vornado recognizes gain on the disposition of any asset
held by Vornado as of the beginning of the Recognition Period, then, to the
extent of the excess of (a) fair market value of such asset as of the beginning
of the Recognition Period over (b) Vornado's adjusted basis in such asset as of
the beginning of the Recognition Period (the "Built-in Gain"), such gain will be
subject to tax at the highest regular corporate rate pursuant to Treasury
regulations that have not been promulgated; provided, however, that Vornado
shall not be subject to tax on recognized Built-in Gain with respect to assets
held as of the first day of the Recognition Period to the extent that the
aggregate amount of such recognized Built-in Gain exceeds the net aggregate
amount of Vornado's unrealized Built-in Gain as of the first day of the
Recognition
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Period. Eighth, if Vornado acquires any asset from a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in certain
transactions in which the basis of the asset in the hands of Vornado is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation, and Vornado recognizes gain on the disposition of
such asset during the Recognition Period beginning on the date on which such
asset was acquired by Vornado, then, pursuant to the Treasury regulations that
have not yet been issued and to the extent of the Built-in Gain, such gain will
be subject to tax at the highest regular corporate rate.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees or directors, (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest, (3) which would otherwise be taxable as a domestic
corporation, but for Sections 856 through 859 of the Code, (4) which is neither
a financial institution nor an insurance company subject to certain provisions
of the Code, (5) the beneficial ownership of which is held by 100 or more
persons, (6) during the last half of each taxable year, not more than 50% in
value of the outstanding stock of which is owned, directly or constructively, by
five or fewer individuals (as defined in the Code to include certain entities)
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) to (4) must be
met during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months.
Vornado has satisfied conditions (1) through (5) and believes that it has
also satisfied condition (6). In addition, Vornado's Declaration of Trust
provides for restrictions regarding the ownership and transfer of Vornado's
shares of beneficial interest, which restrictions are intended to assist Vornado
in continuing to satisfy the share ownership requirements described in (5) and
(6) above. The ownership and transfer restrictions pertaining to the Preferred
Shares and the Common Shares are described above under the headings "Description
of Shares of Beneficial Interest -- Description of Preferred
Shares -- Restrictions on Ownership" and "Description of Shares of Beneficial
Interest -- Description of Common Shares -- Restrictions on Ownership."
Vornado owns a number of wholly-owned subsidiaries. Code Section 856(i)
provides that a corporation which is a "qualified REIT subsidiary" shall not be
treated as a separate corporation, and all assets, liabilities, and items of
income, deduction, and credit of a "qualified REIT subsidiary" shall be treated
as assets, liabilities and such items (as the case may be) of the REIT. Thus, in
applying the requirements described herein, Vornado's "qualified REIT
subsidiaries" will be ignored, and all assets, liabilities and items of income,
deduction, and credit of such subsidiaries will be treated as assets,
liabilities and such items (as the case may be) of Vornado. Vornado believes
that all of its wholly-owned subsidiaries are "qualified REIT subsidiaries."
In the case of a REIT that is a partner in a partnership, Treasury
regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and the asset tests. Thus, Vornado's proportionate share
of the assets, liabilities and items of income of any partnership in which
Vornado is a partner, including the Operating Partnership, will be treated as
assets, liabilities and items of income of Vornado for purposes of applying the
requirements described herein. Thus, actions taken by partnerships in which
Vornado owns an interest either directly or through one or more tiers of
partnerships or qualified REIT subsidiaries, can affect Vornado's ability to
satisfy the REIT income and assets tests and the determination of whether
Vornado has net income from "prohibited transactions".
Income Tests. In order to maintain qualification as a REIT, Vornado
annually must satisfy three gross income requirements. First, at least 75% of
Vornado's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property"-- which term generally includes
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expenses of Vornado that are paid or reimbursed by tenants) or from certain
types of temporary investments. Second, at least 95% of Vornado's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, for taxable years beginning on or before August 5, 1997,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of Vornado's gross
income (including gross income from prohibited transactions) for such taxable
year.
Rents received by Vornado will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the terms "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, directly or under the applicable attribution rules,
owns a 10% or greater interest in such tenant (a "Related Party Tenant"). Third,
if rent attributable to personal property leased in connection with a lease of
real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property". Finally, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the property
or furnish or render services to the tenants of such property, other than
through an independent contractor from whom the REIT derives no revenue;
provided, however, that Vornado may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only or are not considered "rendered to the occupant" of the property.
Vornado does not derive significant rents from Related Party Tenants, and
Vornado does not and will not derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent received
under the lease). Vornado directly performs services for certain of its tenants.
Vornado does not believe that the provision of such services will cause its
gross income attributable to such tenants to fail to be treated as "rents from
real property." For taxable years of Vornado beginning after August 5, 1997, if
Vornado provides services to a tenant that are other than those usually or
customarily provided in connection with the rental of space for occupancy only,
amounts received or accrued by Vornado for any such services will not be treated
as "rents from real property" for purposes of the REIT gross income tests but
will not cause other amounts received with respect to the property to fail to be
treated as "rents from real property" unless the amounts received in respect of
such services, together with amounts received for certain management services,
exceeds 1% of all amounts received or accrued by Vornado during the taxable year
with respect to such property. Under the literal wording of Section 856 of the
Code, if the 1% threshold is exceeded, then all amounts received or accrued by
Vornado with respect to the property will not qualify as "rents from real
property", even if the impermissible services are provided to some, but not all,
of the tenants of the property.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If Vornado fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if Vornado's failure to meet such tests
was due to reasonable cause and not due to willful neglect, Vornado attaches a
schedule of the sources of its income to its Federal income tax return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances Vornado
would be entitled to the benefit of these relief provisions. As discussed above
under "-- General," even if these relief provisions apply, a tax would be
imposed with respect to the excess income.
Asset Tests. Vornado, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of Vornado's total assets must be represented
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by real estate assets (including (i) real estate assets held by Vornado's
qualified REIT subsidiaries and Vornado's allocable share of real estate assets
held by partnerships in which Vornado owns an interest, (ii) for a period of one
year from the date of Vornado's receipt of proceeds of an offering of its shares
of beneficial interest or long-term (at least five years) debt, stock or debt
instruments purchased with such proceeds and (iii) stock issued by another
REIT), cash, cash items and government securities. Second, not more than 25% of
Vornado's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities (other than securities issued by another
REIT) owned by Vornado may not exceed 5% of the value of Vornado's total assets
and Vornado may not own more than 10% of any one issuer's outstanding voting
securities.
Since March 2, 1995, Vornado has owned more than 10% of the voting
securities of Alexander's. Since April of 1997, Vornado's ownership of
Alexander's has been through the Operating Partnership rather than direct.
Vornado's ownership interest in Alexander's will not cause Vornado to fail to
satisfy the asset tests for REIT status so long as Alexander's qualified as a
REIT for each of taxable years beginning with its taxable year ending December
31, 1995 and continues to so qualify. In the opinion of Shearman & Sterling,
commencing with Alexander's taxable year ended December 31, 1995, Alexander's
has been organized and operated in conformity with the requirements for
qualification and taxation as a REIT under the Code, and its proposed method of
operation will enable it to continue to meet the requirements for qualification
and taxation as a REIT under the Code. In providing its opinion, Shearman &
Sterling is relying upon representations received from Alexander's.
Since April of 1997 Vornado has also owned, through the Operating
Partnership, more than 10% of the voting securities of Two Penn Plaza REIT, Inc.
("Two Penn REIT"). Vornado's indirect ownership interest in Two Penn REIT will
not cause Vornado to fail to satisfy the asset tests for REIT status so long as
Two Penn REIT qualifies as a REIT for its first taxable year and each taxable
year thereafter. Vornado believes that Two Penn REIT will also qualify.
In order to ensure compliance with the 95% gross income test described
above, Vornado transferred certain contract rights and obligations to VMC, a New
Jersey corporation, in return for all of VMC's nonvoting preferred stock (the
"Nonvoting Stock"). Since April of 1997, the Nonvoting Stock has been held by
the Operating Partnership. The Nonvoting Stock entitles the holder thereof to
95% of the dividends paid by VMC. Vornado does not believe that its indirect
ownership of the Nonvoting Stock will adversely affect its ability to satisfy
the asset tests described above.
Since April of 1997 and June of 1997, respectively, Vornado has also owned,
through the Operating Partnership, nonvoting shares in the Management
Corporation and Vornado RR, Inc. Vornado does not believe that the
characteristics or value of such shares will cause Vornado to fail to satisfy
the REIT asset tests described above.
Annual Distribution Requirements. Vornado, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (A) the sum of (i) 95% of Vornado's
"real estate investment trust taxable income" (computed without regard to the
dividends paid deduction and Vornado's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property minus (B) the sum of
certain items of non-cash income. In addition, if Vornado disposes of any asset
during its Recognition Period, Vornado will be required, pursuant to Treasury
regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before Vornado timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that Vornado does not distribute all of
its net capital gain or distributes at least 95%, but less than 100%, of its
"real estate investment trust taxable income," as adjusted, it will be subject
to tax thereon at regular ordinary and capital gain corporate tax rates.
Furthermore, if Vornado should fail to distribute during each calendar year at
least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, Vornado would be subject to a 4% excise tax on
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the excess of such required distribution over the amounts actually distributed.
Vornado intends to satisfy the annual distribution requirements.
It is possible that Vornado, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of Vornado. In the event that such
timing differences occur, in order to meet the 95% distribution requirement,
Vornado may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, Vornado may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in Vornado's deduction for
dividends paid for the earlier year. Thus, Vornado may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, Vornado will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Failure to Qualify
If Vornado fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, Vornado will be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to shareholders in any year in which Vornado
fails to qualify will not be deductible by Vornado nor will they be required to
be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as ordinary income
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, Vornado will also be disqualified from taxation
as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
Vornado would be entitled to such statutory relief.
TAXATION OF HOLDERS OF DEBT SECURITIES
As used herein, the term "U.S. Holder" means a holder of a Debt Security
who (for United States Federal income tax purposes) is (i) a citizen or resident
of the United States, (ii) a domestic corporation or (iii) otherwise subject to
United States Federal income taxation on a net income basis in respect of the
Debt Security and "U.S. Alien Holder" means a holder of a Debt Security who (for
United States Federal income tax purposes) is (i) a nonresident alien individual
or (ii) a foreign corporation, partnership or estate or trust, in either case
not subject to United States Federal income tax on a net income basis in respect
of income or gain from the Debt Security.
U.S. Holders
Payments of Interest. Interest on a Debt Security will be taxable to a
U.S. Holder as ordinary income at the time it is received or accrued, depending
on the U.S. Holder's method of accounting for tax purposes.
Purchase, Sale and Retirement of the Debt Securities. A U.S. Holder's tax
basis in a Debt Security will generally be its U.S. dollar cost.
A U.S. Holder will generally recognize gain or loss on the sale or
retirement of a Debt Security equal to the difference between the amount
realized on the sale or retirement and the U.S. Holder's tax basis in the Debt
Security. Except to the extent attributable to accrued but unpaid interest, gain
or loss recognized on the sale or retirement of a Debt Security will be capital
gain or loss, will be long-term capital gain or loss if the Debt Security was
held for more than one year and may be eligible for a reduced rate of tax if the
Debt Security was held for more than 18 months and in certain other
circumstances.
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U.S. Alien Holders
This discussion assumes that the Debt Security is not subject to the rules
of Section 871(h)(4)(A) of the Code (relating to interest payments that are
determined by reference to the income, profits, changes in the value of property
or other attributes of the debtor or a related party).
Under present United States Federal income and estate tax law, and subject
to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest by the Operating
Partnership or any of its paying agents to any holder of a Debt Security that is
a U.S. Alien Holder will not be subject to United States Federal withholding tax
if, in the case of interest (a) the beneficial owner of the Debt Security does
not actually or constructively own 10% or more of the capital or profits
interest in the Operating Partnership, (b) the beneficial owner of the Debt
Security is not a controlled foreign corporation that is related to the
Operating Partnership through stock ownership, and (c) either (A) the beneficial
owner of the Debt Security certifies to the Operating Partnership or its agent,
under penalties of perjury, that it is not a U.S. person and provides its name
and address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") and holds the Debt Security certifies to
the Operating Partnership or its agent under penalties of perjury that such
statement has been received from the beneficial owner by it or by a financial
institution between it and the beneficial owner and furnishes the payor with a
copy thereof;
(ii) a U.S. Alien Holder of a Debt Security will not be subject to United
States Federal withholding tax on any gain realized on the sale or exchange of a
Debt Security; and
(iii) a Debt Security held by an individual who at death is not a citizen
or resident of the United States will not be includible in the individual's
gross estate for purposes of the United States Federal estate tax as a result of
the individual's death if (a) the individual did not actually or constructively
own 10% or more of the capital or profits interest in the Operating Partnerships
and (b) the income on the Debt Security would not have been effectively
connected with a United States trade or business of the individual at the time
of the individual's death.
Proposed Internal Revenue Service regulations (the "Proposed Regulations")
would provide alternative methods for satisfying the certification requirement
described in clause (i)(c) above. The Proposed Regulations also would require,
in the case of Debt Securities held by a foreign partnership, that (x) the
certification described in clause (i)(c) above be provided by the partners
rather than the partnership and (y) the partnership provide certain information,
including a United States taxpayer identification number. A look-through rule
would apply in the case of tiered partnerships. The Proposed Regulations are
proposed to be effective for payments made after December 31, 1997. There can be
no assurance that the Proposed Regulations will be adopted or as to the
provisions they will include if and when adopted in temporary or final form.
Information Reporting and Backup Withholding
U.S. Holders. In general, information reporting requirements will apply to
payments of principal, any premium and interest on a Debt Security and the
proceeds of the sale of a Debt Security before maturity within the United States
to non-corporate U.S. Holders, and "backup withholding" at a rate of 31% will
apply to such payments if the U.S. Holder fails to provide an accurate taxpayer
identification number or is notified by the Internal Revenue Service that it has
failed to report all interest and dividends required to be shown on its federal
income tax returns.
U.S. Alien Holders. Information reporting and backup withholding will not
apply to payments of principal, premium (if any) and interest made by the
Operating Partnership or a paying agent to a U.S. Alien Holder on a Debt
Security if the certification described in clause (i)(c) under "U.S. Alien
Holders" above is received, provided that the payor does not have actual
knowledge that the holder is a U.S. person. The Operating Partnership or a
paying agent, however, may report (on Internal Revenue Form 1042-S) payments of
interest on the Debt Securities.
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Payments of the proceeds from the sale by a U.S. Alien Holder of a Debt
Security made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a U.S.
person, a controlled foreign corporation for United States Federal income tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Debt Security to or through the United States office
of a broker is subject to information reporting and backup withholding unless
the holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
The applicable Prospectus Supplement will contain a discussion of any
special United States Federal income tax rules with respect to Debt Securities
that are issued at a discount or premium or as a unit with other Securities,
have a maturity of one year or less, provide for conversion rights, contingent
payments, early redemption or payments that are denominated in or determined by
reference to a currency other than the U.S. dollar or otherwise subject to
special United States Federal income tax rules.
TAXATION OF HOLDERS OF COMMON SHARES OR PREFERRED SHARES
U.S. Shareholders
As used herein, the term "U.S. Shareholder" means a holder of Common Shares
or Preferred Shares ("Shares") who (for United States Federal income tax
purposes) is (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, or (iii) an estate or
trust the income of which is subject to United States Federal income taxation
regardless of its source.
As long as Vornado qualifies as a REIT, distributions made by Vornado out
of its current or accumulated earnings and profits (and not designated as
capital gain dividends) will constitute dividends taxable to its taxable U.S.
Shareholders as ordinary income. Such distributions will not be eligible for the
dividends-received deduction in the case of U.S. Shareholders that are
corporations. Distributions made by Vornado that are properly designated by
Vornado as capital gain dividends will be taxable to U.S. Shareholders as gain
from the sale of a capital asset held for more than one year (to the extent that
they do not exceed Vornado's actual net capital gain for the taxable year)
without regard to the period for which a U.S. Shareholder has held his shares.
U.S. Shareholders that are corporations may, however, be required to treat up to
20% of certain capital gain dividends as ordinary income.
To the extent that Vornado makes distributions (not designated as capital
gain dividends) in excess of its current and accumulated earnings and profits,
such distributions will be treated first as a tax-free return of capital to each
U.S. Shareholder, reducing the adjusted basis which such U.S. Shareholder has in
his Shares for tax purposes by the amount of such distribution (but not below
zero), with distributions in excess of a U.S. Shareholder's adjusted basis in
his shares taxable as capital gains (provided that the Shares have been held as
a capital asset). For purposes of determining the portion of distributions on
separate classes of Shares that will be treated as dividends for Federal income
tax purposes, current and accumulated earnings and profits will be allocated to
distributions resulting from priority rights of Preferred Shares before being
allocated to other distributions. Dividends authorized by Vornado in October,
November, or December of any year and payable to a shareholder of record on a
specified date in any such month shall be treated as both paid by Vornado and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by Vornado on or before January 31 of the following
calendar year. Shareholders may not include in their own income tax returns any
net operating losses or capital losses of Vornado.
For taxable years of the Company beginning after August 5, 1997, U.S.
Shareholders holding Shares at the close of Vornado's taxable year will be
required to include, in computing their long-term capital gains for the taxable
year in which the last day of Vornado's taxable year falls, such amount as
Vornado may designate in a written notice mailed to its shareholders. Vornado
may not designate amounts in excess of Vornado's undistributed net capital gain
for the taxable year. Each U.S. Shareholder required to include such a
designated amount in determining such shareholder's long-term capital gains will
be deemed to have paid, in
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the taxable year of the inclusion, the tax paid by Vornado in respect of such
undistributed net capital gains. U.S. Shareholders subject to these rules will
be allowed a credit or a refund, as the case may be, for the tax deemed to have
paid by such shareholders. U.S. Shareholders will increase their basis in their
Shares by the difference between the amount of such includible gains and the tax
deemed paid by the shareholder in respect of such gains.
Distributions made by Vornado and gain arising from the sale or exchange by
a U.S. Shareholder of Shares will not be treated as passive activity income,
and, as a result, U.S. Shareholders generally will not be able to apply any
"passive losses" against such income or gain.
Upon any sale or other disposition of Shares, a U.S. Shareholder will
recognize gain or loss for Federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the Shares for tax purposes. Such gain or loss will be capital
gain or loss if the Shares have been held by the U.S. Shareholder as a capital
asset, will be long-term gain or loss if such Shares have been held for more
than one year any may be eligible for reduced rate of tax if the Shares have
been held for more than 18 months or in certain other circumstances. In general,
any loss recognized by a U.S. Shareholder upon the sale or other disposition of
shares of Vornado that have been held for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions received by such U.S. Shareholder from Vornado which
were required to be treated as long-term capital gains.
Backup Withholding. Vornado will report to its U.S. Shareholders and the
Internal Revenue Service (the "IRS") the amount of dividends paid during each
calendar year, and the amount of tax withheld, if any. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A U.S.
Shareholder that does not provide Vornado with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. In addition, Vornado may be required to withhold a portion
of capital gain distributions to any shareholders who fail to certify their
non-foreign status to Vornado.
Taxation of Tax-Exempt Shareholders. The IRS has ruled that amounts
distributed as dividends by a REIT generally do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on
that ruling, provided that a tax-exempt shareholder (except certain tax-exempt
shareholders described below) has not held its Shares as "debt financed
property" within the meaning of the Code and such Shares are not otherwise used
in a trade or business, the dividend income from Shares will not be UBTI to a
tax-exempt shareholder. Similarly, income from the sale of Shares will not
constitute UBTI unless such tax-exempt shareholder has held such Shares as "debt
financed property" within the meaning of the Code or has used the Shares in a
trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from Federal income taxation under Sections
501(c)(7), (c)(9), (c)(17), and (c)(20) of the Code, respectively, income from
an investment in Vornado's Shares will constitute UBTI unless the organization
is able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its Shares. Such prospective
investors should consult their own tax advisors concerning these "set aside" and
reserve requirements.
Notwithstanding the foregoing, however, a portion of the dividends paid by
a "pension-held REIT" will be treated as UBTI to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax exempt under Section 501(a)
of the Code, and (iii) holds more than 10% (by value) of the equity interests in
the REIT. Tax-exempt pension, profit-sharing and stock bonus funds that are
described in Section 401(a) of the Code are referred to below as "qualified
trusts".
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A REIT is a "pension-held REIT" if (i) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code provides that stock
owned by qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust (rather than by
the trust itself) and (ii) either (A) at least one qualified trust holds more
than 25% (by value) of the interests in the REIT or (B) one or more qualified
trusts, each of which owns more than 10% (by value) of the interests in the
REIT, hold in the aggregate more than 50% (by value) of the interests in the
REIT. The percentage of any REIT dividend treated as UBTI is equal to the ratio
of (i) the gross income (less direct expenses related thereto) of the REIT from
unrelated trades or businesses (determined as though the REIT were a qualified
trust) to (ii) the total gross income (less direct expenses related thereto) of
the REIT. A de minimis exception applies where this percentage is less than 5%
for any year. Vornado does not expect to be classified as a "pension-held REIT".
Tax-exempt entities will be subject to the rules described above, under the
heading "-- U.S. Shareholders" concerning the inclusion of Vornado's designated
undistributed net capital gains in the income of its shareholders. Thus, such
entities will be allowed a credit or refund of the tax deemed paid by such
entities in respect of such includible gains.
Non-U.S. Shareholders
The rules governing U.S. Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a limited summary of such rules.
Prospective Non-U.S. Shareholders should consult with their own tax advisors to
determine the impact of U.S. Federal, state and local income tax laws with
regard to an investment in Shares, including any reporting requirements.
Ordinary Dividends. Distributions, other than distributions that are
treated as attributable to gain from sales or exchanges by Vornado of U.S. real
property interests (discussed below) and other than distributions designated by
Vornado as capital gain dividends, will be treated as ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
Vornado. Such distributions to Non-U.S. Shareholders will ordinarily be subject
to a withholding tax equal to 30% of the gross amount of the distribution,
unless an applicable tax treaty reduces that tax. However, if income from the
investment in the Shares is treated as effectively connected with the Non-U.S.
Shareholder's conduct of a U.S. trade or business, the Non-U.S. Shareholder
generally will be subject to tax at graduated rates in the same manner as U.S.
shareholders are taxed with respect to such dividends (and may also be subject
to the 30% branch profits tax if the shareholder is a foreign corporation).
Vornado expects to withhold U.S. tax at the rate of 30% on the gross amount of
any dividends, other than dividends treated as attributable to gain from sales
or exchanges of U.S. real property interests and capital gain dividends, paid to
a Non-U.S. Shareholder, unless (i) a lower treaty rate applies and the required
form evidencing eligibility for that reduced rate is filed with Vornado or the
appropriate withholding agent or (ii) the Non-U.S. Shareholder files an IRS Form
4224 (or a successor form) with Vornado or the appropriate withholding agent
claiming that the distributions are "effectively connected" income.
Distributions to a Non-U.S. Shareholder that are designated by Vornado at
the time of distribution as capital gain dividends which are not attributable to
or treated as attributable to the disposition by Vornado of a U.S. real property
interest generally will not be subject to U.S. Federal income taxation, except
as described below.
Return of Capital. Distributions in excess of current and accumulated
earnings and profits of Vornado, which are not treated as attributable to the
gain from disposition by Vornado of a U.S. real property interest, will not be
taxable to a Non-U.S. Shareholder to the extent that they do not exceed the
adjusted basis of the Non-U.S. Shareholder's Shares, but rather will reduce the
adjusted basis of such Shares. To the extent that such distributions exceed the
adjusted basis of a Non-U.S. Shareholder's Shares, they will give rise to tax
liability if the Non-U.S. Shareholder otherwise would be subject to tax on any
gain from the sale or disposition of its Shares, as described below. If it
cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S. Shareholder may seek a refund of
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such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of Vornado.
Capital Gain Dividends. For any year in which Vornado qualifies as a REIT,
distributions that are attributable to gain from sales or exchanges by Vornado
of U.S. real property interests will be taxed to a Non-U.S. Shareholder under
the provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Shareholders will be taxed on such distributions at the normal
capital gain rates applicable to U.S. Shareholders (subject to any applicable
alternative minimum tax and special alternative minimum tax in the case of
nonresident alien individuals). Vornado is required by applicable Treasury
Regulations under FIRPTA to withhold 35% of any distribution that could be
designated by Vornado as a capital gain dividend. However, if Vornado designates
as a capital gain dividend a distribution made prior to the day Vornado actually
effects such designation, then (although such distribution may be taxable to a
Non-U.S. Shareholder) such distribution is not subject to withholding under
FIRPTA; rather, Vornado must effect the 35% FIRPTA withholding from
distributions made on and after the date of such designation, until the
distributions so withheld equal the amount of the prior distribution designated
as a capital gain dividend. The amount withheld is creditable against the
Non-U.S. Shareholder's U.S. tax liability.
Sales of Shares. Gain recognized by a Non-U.S. Shareholder upon a sale or
exchange of Common Shares generally will not be taxed under FIRPTA if Vornado is
a "domestically controlled REIT," defined generally as a REIT in respect of
which at all times during a specified testing period less than 50% in value of
the stock is and was held directly or indirectly by foreign persons. It is
currently anticipated that Vornado will continue to be a "domestically
controlled REIT," and, therefore, that the sale of Shares will not be subject to
taxation under FIRPTA. However, gain not subject to FIRPTA will be taxable to a
Non-U.S. Shareholder if (i) investment in the Shares is treated as "effectively
connected" with the Non-U.S. Shareholder's U.S. trade or business, in which case
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, or
maintains an office or a fixed place of business in the United States to which
the gain is attributable, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains. A similar rule will
apply to capital gain dividends not subject to FIRPTA.
If Vornado were not a domestically-controlled REIT, a Non-U.S.
Shareholder's sale of Shares would be subject to tax under FIRPTA only if the
selling Non-U.S. Shareholder owned more than 5% of the class of Shares sold at
any time during a specified period (generally the shorter of the period that the
Non-U.S. Shareholder owned the Shares sold or the five-year period ending on the
date of disposition). If the gain on the sale of Shares were to be subject to
tax under FIRPTA, the Non-U.S. Shareholder would be subject to the same
treatment as U.S. Shareholders with respect to such gain (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals) and the purchaser of such Shares would be
required to withhold 10% of the gross purchase price.
Treaty Benefits. Pursuant to current Treasury Regulations, dividends paid
to an address in a country outside the United States are generally presumed to
be paid to a resident of such country for purposes of determining the
applicability of withholding discussed above and the applicability of a tax
treaty rate. Shareholders that are partnerships or entities that are similarly
fiscally transparent for Federal income tax purposes, and persons holding Shares
through such entities, may be subject to restrictions on their ability to claim
benefits under U.S. tax treaties and should consult a tax advisor.
Under the Proposed Regulations, however, a Non-U.S. Shareholder who wishes
to claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification requirements. In addition, under the Proposed
Regulations, in the case of Shares held by a foreign partnership, (x) the
certification requirement would generally be applied to the partners in the
partnership and (y) the partnership would be required to provide certain
information, including a United States taxpayer identification number. The
Proposed Regulations provide look-through rules in the case of tiered
partnerships. It is not certain whether, or in what form, the Proposed
Regulations will be adopted.
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OTHER TAX CONSEQUENCES
Vornado and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of Vornado and
its shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective shareholders are urged to consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in Vornado.
PLAN OF DISTRIBUTION
Vornado and the Operating Partnership may sell the Securities to one or
more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents. Vornado's Common Shares
being registered hereby may be issued in connection with the exchange of the
Debt Securities of the Operating Partnership. Any such underwriter or agent
involved in the offer and sale of the Securities will be named in the related
Prospectus Supplement. Such underwriters may include Goldman, Sachs & Co., or a
group of underwriters represented by firms including Goldman, Sachs & Co.
Goldman, Sachs & Co. may also act as agents. Vornado and the Operating
Partnership have reserved the right to sell the Securities directly to investors
on their own behalf in those jurisdictions where it is authorized to do so.
Underwriters may offer and sell the Securities at a fixed price or prices
that may be changed or at negotiated prices. Vornado and the Operating
Partnership also may, from time to time, authorize dealers, acting as Vornado's
or the Operating Partnership's agents, to offer and sell the Securities upon
such terms and conditions as set forth in the related Prospectus Supplement. In
connection with the sale of the Securities, underwriters may receive
compensation from Vornado or the Operating Partnership in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell the Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions (which may be changed from time to time) from
the purchasers for whom they may act as agents.
Any underwriting compensation paid by Vornado or the Operating Partnership
to underwriters or agents in connection with the offering of the Securities, and
any discounts, concessions or commissions allowed by underwriters to
participating dealers, will be set forth in the related Prospectus Supplement.
Dealers and agents participating in the distribution of the Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with Vornado
or the Operating Partnership, to indemnification against and contribution
towards certain civil liabilities, including any liabilities under the
Securities Act.
Any Securities issued hereunder (other than Common Shares and Series A
Preferred Shares) will be new issues of securities with no established trading
market. Any underwriters or agents to or through whom such Securities are sold
by Vornado or the Operating Partnership for public offering and sale may make a
market in such Securities, but such underwriters or agents will not be obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any such
Securities.
Certain of the underwriters, dealers or agents and their associates may
engage in transactions with, and perform services for, Vornado, the Operating
Partnership and certain of their affiliates in the ordinary course of business.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedules incorporated in this Prospectus by reference from
Vornado's Annual Report on Form 10-K for the year ended December 31, 1996, as
amended, the Balance Sheet of Vornado Realty L.P. as at April 14, 1997
incorporated
41
<PAGE> 73
by reference in this Prospectus from Vornado Realty L.P.'s Registration
Statement on Form 10 filed with the Commission on June 12, 1997, as amended, and
the combined statement of revenues and certain expenses of Ninety Park Avenue
incorporated by reference in this Prospectus from Vornado Realty Trust's Current
Report on Form 8K/A, dated August 21, 1997 and filed with the Commission on
September 11, 1997 and from Vornado Realty L.P.'s Current Report on Form 8K/A,
dated August 21, 1997 and filed with the Commission on September 11, 1997, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports which are incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The financial statements of 866 U.N. Plaza Associates LLC; the combined
financial statements of M Eleven Associates, M393 Associates and Eleven Penn
Plaza Company; the financial statements of Two Penn Plaza Associates L.P.; the
financial statements of 1740 Broadway Associates, L.P.; and the financial
statements of B&B Park Avenue L.P., all incorporated herein by reference from
Vornado's Current Report on Form 8-K, dated March 12, 1997, as amended by
Vornado's Current Report on Form 8-K/A, dated March 12, 1997, and the combined
financial statements of the Mendik Predecessors incorporated by reference herein
from the Vornado Realty L.P. Registration Statement on Form 10 filed with the
Commission on June 12, 1997, as amended, have been audited by Friedman Alpren &
Green LLP, independent auditors, as stated in their reports which are
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Two Park Company, a New York general
partnership, incorporated herein by reference from Vornado's Current Report on
Form 8-K, dated March 12, 1997, as amended by Vornado's Current Report on Form
8-K/A, dated March 12, 1997, have been audited by KPMG Peat Marwick LLP,
independent auditors, as stated in their report which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The statement of Revenue and Certain Expenses of Green Acres Mall and the
Plaza at Green Acres incorporated by reference in this Prospectus and elsewhere
in the Registration Statement from Vornado Realty Trust's Current Report on Form
8K/A, dated August 21, 1997 and filed with the Commission on September 11, 1997
and from Vornado Realty L.P.'s Current Report on Form 8K/A, dated August 21,
1997 and filed with the Commission on September 11, 1997, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
VALIDITY OF THE SECURITIES
The validity of any Debt Securities issued hereunder will be passed upon
for the Operating Partnership and the validity of any Depositary Shares issued
hereunder will be passed upon for Vornado by Sullivan & Cromwell, New York, New
York, counsel to Vornado and the Operating Partnership, and the validity of any
Preferred Shares, or Common Shares issued hereunder will be passed upon for
Vornado by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, counsel to
Vornado. The validity of any Securities issued hereunder will be passed upon for
any underwriters by the counsel named in the applicable Prospectus Supplement.
42
<PAGE> 74
[RIDER 6]
ACQUISITIONS
<TABLE>
<CAPTION>
TRANSACTION PROPERTY TYPE DESCRIPTION COST
- -------------------- --------------- ------------------------------------------ ---------------
(MILLIONS)
<S> <C> <C> <C>
Mendik Office Interest in all or a portion of seven
Manhattan office buildings containing
approximately 4 million square feet $ 656
Montehiedra Shopping Center 523,000 square foot center in San Juan,
Puerto Rico 77
90 Park Avenue Office Manhattan office building containing
875,000 square feet 185
Riese Retail 4 Manhattan properties, and a mortgage
loan receivable cross-collateralized by
another 10 Manhattan properties 67
Americold/URS Cold storage 60% interest in two logistics and cold
storage warehouse companies 569
Arbor (Green Acres) Shopping Center Super-regional enclosed mall containing
1.7 million square feet 225
Charles E. Smith Office 15% limited partnership interest 60
Commerical Realty,
L.P.
Hotel Pennsylvania Hotel 40% interest in hotel containing 800,000
square feet of hotel space (1,700 rooms),
and
400,000 square feet of retail and office
space 64
Caguas Shopping Center 50% interest in center, currently under
construction, in Caguas, Puerto Rico 68
20 Broad Street Office Mortgage loan on property leased to single
tenant -- the New York Stock Exchange 27
YMCA Property Residential Condominium units to be constructed
overlooking Central Park, Manhattan 63
-------
$ 2,061
===========
</TABLE>
43
<PAGE> 75
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 19, 1997)
14,000,000 SHARES
VORNADO LOGO
COMMON SHARES OF BENEFICIAL INTEREST
------------------------
Vornado Realty Trust ("Vornado" and collectively with its consolidated
subsidiaries, the "Company") is a fully-integrated real estate investment trust
organized under the laws of the State of Maryland. The Company currently owns:
(i) 58 shopping center properties in seven states and Puerto Rico containing
10.5 million square feet, including 1.2 million square feet built by tenants on
land leased from the Company; (ii) all or portions of 10 office building
properties in the New York City metropolitan area (primarily Manhattan)
containing 5.0 million square feet; (iii) eight warehouse/industrial properties
in New Jersey containing 2.0 million square feet; (iv) approximately 29.3% of
the outstanding common stock of Alexander's, Inc., which has nine properties in
the New York City metropolitan area; (v) a 40% interest in a hotel containing
800,000 square feet of space with 1,700 rooms and 400,000 square feet of retail
and office space; (vi) mortgages on various office, restaurant and other retail
properties; and (vii) other owned retail properties. See "Recent Developments"
for information on pending transactions.
Upon completion of the pending investments described herein, the Company
will have completed over $2 billion of real estate investments since January 1,
1997. Although past performance is no indication of future performance, the
total return to holders of Vornado's common shares of beneficial interest (the
"Common Shares") from December 18, 1996, the closing date of the Company's last
offering of Common Shares, through September 30, 1997 was approximately 68%,
including distributions and share price appreciation.
All of the Common Shares offered hereby are being sold by Vornado. Of the
14,000,000 Common Shares offered hereby, 2,800,000 Common Shares are being
initially offered outside of the United States and Canada, and the remaining
11,200,000 Common Shares are being initially offered in the United States and
Canada. See "Underwriting." Upon the closing of this offering, Vornado's
trustees and senior management will beneficially own approximately 28.7% of the
common equity of the Company (representing a market value in excess of $900
million based on the last reported sale price of the Common Shares on the New
York Stock Exchange (the "NYSE") on October 21, 1997). The Common Shares are
listed on the NYSE under the symbol "VNO". On October 20, 1997, Vornado paid a
100% Common Share dividend to holders of record of Common Shares at the close of
business on October 15, 1997 (all per share information in this Prospectus
Supplement has been adjusted to reflect the 100% Common Share dividend). Vornado
currently expects to declare a cash distribution of $.40 per Common Share in the
fourth quarter of 1997, representing an increase of $.08 per Common Share, or
25%, over the $.32 per Common Share distribution declared in the third quarter
of 1997. The last reported sale price of the Common Shares on the NYSE on
October 21, 1997 was $46 per share.
In order to maintain Vornado's qualification as a real estate investment
trust ("REIT") for federal income tax purposes, Vornado's Declaration of Trust
provides that no person may own more than 6.7% of the outstanding Common Shares.
Shares owned in excess of such limit shall be deemed "Excess Shares" pursuant to
Vornado's Declaration of Trust, in which case the holder will lose certain
ownership rights with respect to such shares and Vornado will have the right to
purchase such Excess Shares from the holder. See "Description of Common
Shares -- Restrictions on Ownership" in the accompanying Prospectus.
SEE "ADDITIONAL RISK FACTORS" BEGINNING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT AND "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS
FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON SHARES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================================
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNT(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Per Share............................................. $45.00 $2.14 $42.86
- ------------------------------------------------------------------------------------------------------------------------------
Total(3).............................................. $630,000,000 $29,960,000 $600,040,000
==============================================================================================================================
</TABLE>
(1) The Company and Vornado Realty L.P. have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $1,300,000 payable by the Company.
(3) The Company has granted the several International Managers a 30-day option
to purchase up to 420,000 additional Common Shares to cover any
over-allotments, and has granted the several U.S. Underwriters a 30-day
option to purchase up to 1,680,000 additional Common Shares to cover any
over-allotments. If both options are exercised in full, the maximum total
Price to Public, Underwriting Discount and Proceeds to Company will be
$724,500,000, $34,454,000 and $690,046,000, respectively. See
"Underwriting."
------------------------
The Common Shares are offered by the several Underwriters subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to their right to withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that delivery of the Common Shares offered
hereby will be made in New York, New York on or about October 27, 1997.
------------------------
MERRILL LYNCH INTERNATIONAL GOLDMAN SACHS INTERNATIONAL
FURMAN SELZ
SALOMON BROTHERS INTERNATIONAL LIMITED
SMITH
BARNEY INC.
UBS LIMITED
The date of this Prospectus Supplement is October 21, 1997.
<PAGE> 76
UNDERWRITING
Subject to the terms and conditions set forth in the purchase agreement
(the "International Purchase Agreement") among the Company and each of the
underwriters named below (the "International Managers"), the Company has agreed
to sell to each of the International Managers, and each of the International
Managers severally has agreed to purchase from the Company, the aggregate number
of Common Shares set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------
<S> <C>
Merrill Lynch International............................................... 466,670
Goldman Sachs International .............................................. 466,666
Furman Selz LLC........................................................... 466,666
Salomon Brothers International Limited.................................... 466,666
Smith Barney Inc. ........................................................ 466,666
UBS Limited............................................................... 466,666
---------
Total........................................................ 2,800,000
=========
</TABLE>
The Company has also entered into a purchase agreement (the "U.S. Purchase
Agreement" and together with the International Purchase Agreement, the "Purchase
Agreements") with certain underwriters in the United States (the "U.S.
Underwriters" and, together with the International Managers, the "Underwriters")
for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs &
Co., Furman Selz LLC, Salomon Brothers Inc, Smith Barney Inc. and UBS Securities
LLC are acting as representatives. Subject to the terms and conditions set forth
in the U.S. Purchase Agreement, and concurrently with the sale of 2,800,000
Common Shares to the International Managers pursuant to the International
Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters, and
the U.S. Underwriters have severally agreed to purchase from the Company, an
aggregate of 11,200,000 Common Shares. The public offering price per share and
the underwriting discount per share are identical under the International
Purchase Agreement and the U.S. Purchase Agreement.
In each Purchase Agreement, the International Managers and the U.S.
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all of the shares being sold pursuant to each such Purchase
Agreement if any of such Common Shares are purchased. Under certain
circumstances, the commitments of nondefaulting International Managers or U.S.
Underwriters may be increased. The closing with respect to the sale of the
shares to be purchased by the International Managers and the U.S. Underwriters
are conditioned, one upon the other.
The International Managers have advised the Company that the International
Managers propose initially to offer the Common Shares to the public at the price
per share set forth on the cover page of this Prospectus Supplement and to
certain dealers at such price less a concession not in excess of $1.20 per
share. The International Managers may allow, and such dealers may re-allow, a
discount not in excess of $.10 per share on sales to certain other dealers.
After the date of this Prospectus Supplement, the initial price per share to the
public and concession and discount may be changed by the International Managers.
The Company has been informed that the International Managers and the U.S.
Underwriters have entered into an intersyndicate agreement (the "Intersyndicate
Agreement") that provides for the coordination of their activities. Under the
terms of the Intersyndicate Agreement, the International Managers and the U.S.
Underwriters are permitted to sell Common Shares to each other for purposes of
resale at the price per share to the public on the cover page of this Prospectus
Supplement, less an amount not greater than the selling concession. Under the
terms of the Intersyndicate Agreement, the International Managers and any dealer
to whom they sell Common Shares will not offer to sell or sell Common Shares to
persons who are United States persons or Canadian persons or to persons they
believe intend to resell to persons who are United States persons or Canadian
persons, and the U.S. Underwriters and any dealer to whom they sell Common
Shares will not offer to sell or sell Common Shares to persons who are
non-United States and non-Canadian persons, except in each case for transactions
pursuant to the Intersyndicate Agreement.
The Company has granted an option to the International Managers,
exercisable during the 30-day period after the date of this Prospectus
Supplement, to purchase up to 420,000 additional Common Shares solely to cover
over-allotments, if any, at the price per share to the public set forth on the
cover page of this Prospectus
S-27
<PAGE> 77
Supplement, less (i) the underwriting discount set forth on the cover of this
Prospectus Supplement, and (ii) an amount per share equal to any dividends or
distributions declared by the Company and payable on the 2,800,000 Common Shares
firmly underwritten by the International Managers but not payable on the Common
Shares subject to such over-allotment option. To the extent that the
International Managers exercise this option, each International Manager will
have a firm commitment, subject to certain conditions, to purchase approximately
the same percentage thereof which the number of Common Shares to be purchased by
it shown in the foregoing table bears to the Common Shares initially offered
hereby. The Company has granted an option to the U.S. Underwriters, exercisable
during the 30-day period after the date of this Prospectus Supplement, to
purchase up to 1,680,000 additional Common Shares solely to cover over-
allotments, if any, on terms similar to those granted to the International
Managers.
In the Purchase Agreements, the Company and the Operating Partnership have
agreed to indemnify the several Underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933 (the "Securities Act"),
or to contribute to payments the Underwriters may be required to make in respect
thereof. Insofar as indemnification of the Underwriters for liabilities arising
under the Securities Act may be permitted pursuant to such agreements, the
Company and the Operating Partnership have been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and therefore is unenforceable.
Each International Manager has represented and agreed that (i) it has not
offered or sold, and will not for a period of six months following consummation
of the offering offer or sell any Common Shares to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent ) for the purposes
of their businesses or otherwise in circumstances that do not constitute an
offer to the public in the United Kingdom for the purposes of the Public Offers
of Securities Regulations 1995, (ii) it has complied with and will comply with
all applicable provisions of the Public Offers of Securities Regulations 1995
and the Financial Services Act 1986 with respect to anything done by it in
relation to the Common Shares in, from, or otherwise involving the United
Kingdom and (iii) it has only issued or passed on and will only issue or pass on
in the United Kingdom any document received by it in connection with the issue
or sale of the Common Shares to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom the document may otherwise
lawfully be issued or passed on.
Subject to certain exceptions, the Company, Steven Roth, Michael Fascitelli
and Interstate Properties have agreed that, during the period beginning from the
date of this Prospectus Supplement and continuing to and including the date 75
days after the date of this Prospectus Supplement, they will not offer, sell,
contract to sell or otherwise dispose of any Common Shares or any securities
which are convertible into or exercisable or exchangeable for Common Shares,
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, other than (i) Common Shares issued by the Company upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof,(ii) any Common Shares issued or options to purchase Common
Shares granted pursuant to existing employee benefit plans of the Company, (iii)
any Common Shares issued pursuant to any non-employee director stock plan or
dividend reinvestment plan or (iv) any Common Shares (or securities convertible
into or exercisable or exchangeable for Common Shares) issued by the Company in
connection with acquisitions.
In connection with the offering, the rules of the Commission permit the
International Managers and the U.S. Representatives to engage in certain
transactions that stabilize the price of the Common Shares. Such transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Shares.
If the International Managers or the U.S. Underwriters create a short
position in the Common Shares in connection with the offering, i.e., if they
sell more Common Shares than are set forth on the cover page of this Prospectus
Supplement, the International Managers and the U.S. Representatives,
respectively, may reduce that short position by purchasing Common Shares in the
open market.
The International Managers and the U.S. Representatives may also impose a
penalty bid on certain Underwriters and selling group members. This means that
if the International Managers and the U.S. Representatives purchase Common
Shares in the open market to reduce the International Managers' or the U.S.
Underwriters' short position, respectively, or to stabilize the price of the
Common Shares, they may reclaim the amount of the selling concession from the
Underwriters and any selling group members who sold those Common Shares as part
of the offering.
S-28
<PAGE> 78
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Shares. In addition, neither
the Company nor any of the Underwriters makes any representation that the
International Managers or the U.S. Representatives will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates
provide investment banking and other services to the Company. In addition,
Merrill Lynch, Pierce, Fenner & Smith Incorporated represented the Mendik Group
in connection with the Mendik Transaction and received a fee in connection
therewith. Richard West, a trustee of the Company, is also a director or trustee
of various investment companies managed by Merrill Lynch Asset Management, Inc.,
an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Goldman,
Sachs & Co. provides investment banking and other services to the Company and
Alexander's. In addition, Goldman, Sachs & Co. represented the Company in
connection with the Mendik Transaction and received a fee in connection
therewith. Mr. Fascitelli, the President of the Company, was formerly a partner
of Goldman, Sachs & Co. Salomon Brothers Inc provides investment banking and
other services to the Company. In addition, Salomon Brothers Inc represented the
Company in connection with its acquisitions of the Montehiedra Town Center and
its interest in the Caguas Centrum Shopping Center and will receive a fee in
connection therewith. See "Recent Developments -- Puerto Rico Transactions".
Salomon Brothers Inc has also represented the Company in connection with its
pending acquisitions of the Cold Storage Companies and will receive a fee in
connection therewith. UBS, an affiliate of UBS Securities LLC and UBS Limited,
is a major lender to the Company. In April 1997, the Operating Partnership
entered into a Credit Agreement with UBS pursuant to which the Operating
Partnership borrowed $400 million. The Credit Agreement was subsequently
replaced with a $600 million revolving line of credit (the "Line of Credit")
provided by lending institutions led by UBS. UBS received certain fees in
connection with the Credit Agreement and the Line of Credit. The Company intends
to use a portion of the net proceeds realized from the sale of the Common Shares
offered hereby to repay indebtedness owed to UBS under the Line of Credit. See
"Use of Proceeds." In addition, UBS provides investment banking services to the
Company.
The Common Shares are listed on the NYSE under the symbol "VNO."
VALIDITY OF THE COMMON SHARES
The validity of the Common Shares offered hereby will be passed upon for
Vornado by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. In addition,
certain legal matters will be passed upon for Vornado by Sullivan & Cromwell,
New York, New York and for the Underwriters by Skadden, Arps, Slate, Meagher &
Flom LLP, New York, New York. Sullivan & Cromwell and Skadden, Arps, Slate,
Meagher & Flom LLP will rely upon the opinion of Ballard Spahr Andrews &
Ingersoll with respect to certain matters of Maryland law.
EXPERTS
The financial statements of URS, Montehiedra Town Center and Riese
Properties, all incorporated in this Prospectus Supplement by reference from the
Company's Current Report on Form 8-K filed October 8, 1997, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Americold incorporated in this Prospectus
Supplement by reference from the Company's Current Report on Form 8-K filed
October 8, 1997 have been audited by KPMG Peat Marwick LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
S-29
<PAGE> 79
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement Summary......... S-3
Additional Risk Factors............... S-8
The Company........................... S-8
Properties............................ S-12
Recent Developments................... S-19
Use of Proceeds....................... S-22
Capitalization........................ S-23
Description of Shares of Beneficial
Interest............................ S-24
Price Range of the Common Shares
and Distributions................... S-24
Management............................ S-25
Federal Income Tax Considerations..... S-26
Underwriting.......................... S-27
Validity of the Common Shares......... S-29
Experts............................... S-29
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents
by Reference........................ 3
Risk Factors.......................... 4
Vornado and the Operating
Partnership......................... 10
Use of Proceeds....................... 10
Consolidated Ratios of Earnings to
Fixed Charges and Combined Fixed
Charges and Preferred Share Dividend
Requirements........................ 11
Description of Debt Securities........ 11
Description of Shares of Beneficial
Interest............................ 20
Federal Income Tax Considerations..... 30
Plan of Distribution.................. 41
Experts............................... 41
Validity of the Securities............ 42
</TABLE>
======================================================
======================================================
14,000,000 SHARES
VORNADO LOGO
COMMON SHARES OF
BENEFICIAL INTEREST
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
FURMAN SELZ
SALOMON BROTHERS INTERNATIONAL
LIMITED
SMITH BARNEY INC.
UBS LIMITED
======================================================
