VORNADO REALTY TRUST, 10-K405/A, 1997-08-08

VORNADO REALTY TRUST
10-K405/A, 1997-08-08
REAL ESTATE INVESTMENT TRUSTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------

FORM 10-K/A

AMENDMENT NO. 2

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-11954

VORNADO REALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
MARYLAND 22-1657560
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW
JERSEY 07663
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (201) 587-1000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
---------------- ----------------------------------------
COMMON SHARES OF BENEFICIAL NEW YORK STOCK EXCHANGE
INTEREST, $.04 PAR VALUE PER SHARE
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting shares held by non-affiliates of
the registrant, i.e. by persons other than officers and trustees of Vornado
Realty Trust as reflected in the table in Item 12 of this Annual Report, at
March 7, 1997 was $1,085,100,000.

As of March 8, 1997, there were 26,547,680 shares of the registrant's
shares of beneficial interest outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III: Proxy Statement for Annual Meeting of Shareholders held on May
28, 1997.

================================================================================
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THIS FORM 10-K/A AMENDS THE COMPANY'S ANNUAL REPORT ON FORM 10-K PREVIOUSLY
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1997 AND AMENDED
ON JULY 18, 1997.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C> <C> <C>
PART I. 1. Business............................................................... 2
2. Properties............................................................. 6
3. Legal Proceedings...................................................... 11
4. Submission of Matters to a Vote of Security Holders.................... 11
Executive Officers of the Registrant................................... 11
PART II. 5. Market for the Registrant's Common Equity and Related Stockholder
Matters................................................................ 11
6. Selected Consolidated Financial Data................................... 12
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 14
8. Financial Statements and Supplementary Data............................ 20
9. Changes in and Disagreements with Independent Auditors' on Accounting
and Financial Disclosure............................................... 20
PART III. 10. Directors and Executive Officers of the Registrant..................... 38(1)
11. Executive Compensation................................................. 38(1)
12. Security Ownership of Certain Beneficial Owners and Management......... 38(1)
13. Certain Relationships and Related Transactions......................... 38(1)
PART IV. 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....... 38

SIGNATURES............................................................................... 40
</TABLE>

- ---------------

(1) These items are omitted because the Registrant filed a definitive Proxy
Statement pursuant to Regulation 14A involving the election of directors
with the Securities and Exchange Commission not later than 120 days after
December 31, 1996, which is incorporated by reference herein. Information
relating to Executive Officers of the Registrant appears on page 11 of this
Annual Report on Form 10-K.

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PART I

ITEM 1. BUSINESS

GENERAL

The Company is a fully-integrated real estate investment trust ("REIT")
which owns, leases, develops, redevelops and manages retail and industrial
properties primarily located in the Midatlantic and Northeast regions of the
United States.

On December 2, 1996, Michael D. Fascitelli became the President of the
Company and was elected to the Company's Board. Mr. Fascitelli was formerly the
Partner at Goldman, Sachs & Co. in charge of its real estate practice. Mr.
Fascitelli also has been elected a director of Alexander's, Inc.

To date, the Company's primary focus has been on shopping centers. The
Company may expand its focus by utilizing its senior management's skills and its
access to capital to take advantage of strategic opportunities to acquire
additional real estate assets or interests therein, mortgage loans secured by
underlying real estate and companies that own real estate. Acquisitions may
include, among others, assets or interests in the retail, office building, hotel
and residential sectors in the geographic areas where it presently operates or
in other comparable markets. Investments are not necessarily required to be
based on specific allocation by type of property. To the extent to which the
Company would use that financing varies with the type of investment and the
economic conditions. The Company may offer its shares in exchange for property
and repurchase or otherwise reacquire its shares or any other securities and may
engage in such activities in the future.

On March 12, 1997, the Company entered into a definitive agreement (the
"Agreement") to acquire interests in all or a portion of seven Manhattan office
buildings and a management company held by the Mendik Company and certain of its
affiliates. In conjunction with this transaction, the Company will convert to an
Umbrella Partnership REIT (UPREIT). The estimated consideration for the
transaction is approximately $654,000,000, including $269,000,000 in cash,
$168,000,000 in UPREIT limited partnership units and $217,000,000 in
indebtedness. The Agreement is subject to the consent of third parties and other
customary conditions. It is currently expected that the proposed transaction
would be consummated in the second quarter, but there can be no assurance that
the proposed transaction will be completed.

The Company's shopping centers are generally located on major regional
highways in mature densely populated areas. The Company believes its shopping
centers attract consumers from a regional, rather than a neighborhood,
marketplace because of their location on regional highways and the high
percentage of square feet dedicated to large stores. As of December 31, 1996,
the Company owned 57 shopping centers in seven states containing 10.0 million
square feet, including 1.2 million square feet built by tenants on land leased
from the Company. The Company's shopping centers accounted for 92% of the
Company's rental revenue for the years ended December 31, 1996 and 1995. The
occupancy rate of the Company's shopping center properties was 90% and 91% as of
February 1, 1997 and 1996, respectively, and has been over 90% in each of the
past five years.

Further, the Company owns eight warehouse/industrial properties in New
Jersey containing 2.0 million square feet and two office buildings containing
250,000 square feet. In addition, the Company owns 29.3% of the common stock of
Alexander's, Inc. ("Alexander's") which has nine properties in the New York City
region. See "Relationship with Alexander's" for a discussion of Alexander's
properties.

As of December 31, 1996, approximately 80% of the square footage of the
Company's 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

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Company believes that this tenant mix mitigates the effects on its properties of
adverse changes in general economic conditions. 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 $87,424,000 of rental
revenue in 1996, base rents accounted for approximately 99% and percentage rents
accounted for approximately 1%. The Company's leases generally pass through to
tenants the tenant's share of all common area charges (including roof and
structure, unless it is the tenant's direct responsibility), real estate taxes
and insurance costs and certain capital expenditures. As of December 31, 1996,
the average annual base rent per square foot for the Company's shopping centers
was $9.09.

From 1992 through 1996, the Company's property rentals from shopping
centers (including the effects of straight-lining of rents) were $56,900,000,
$61,900,000, $64,700,000, $74,300,000 and $80,000,000, respectively.
Straight-lining of rents averages the rent increases provided for in leases such
that property rentals for financial statement purposes is constant throughout
the term of the lease. This convention applies to leases entered into after
November 14, 1985.

As of December 31, 1996, no single shopping center property accounted for
more than 6.2% of the Company's total leasable area for its shopping center
properties or more than 5.8% of property rentals for its shopping center
properties. Bradlees, Inc. ("Bradlees") accounted for 22%, 21% and 19% of total
property rentals for the years ended December 31, 1996, 1995 and 1994,
respectively. Home Depot represented 5.5% and Sam's Wholesale/Wal*Mart, Shop
Rite, Pathmark, T.J. Maxx/Marshalls and Staples each accounted for approximately
3.0% of the total property rentals for the year ended December 31, 1996.

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. Several of the
Company's other tenants, whose rents aggregated less than 3.0% of the Company's
total property rentals for the year ended December 31, 1996, have also filed for
protection under Chapter 11.

Vornado, Inc., the immediate predecessor to the Company, was merged with
the Company on May 6, 1993 in connection with the Company's conversion to a
REIT.

The Company administers all operating functions, including leasing,
management, construction, finance, legal, accounting and data processing, from
its executive offices (other than the leasing of the Company's three Texas
properties, which is done by an employee locally).

The Company's principal executive offices are located at Park 80 West,
Plaza II, Saddle Brook, New Jersey 07663; telephone (201) 587-1000.

RELATIONSHIP WITH ALEXANDER'S

In March 1995, the Company purchased all of the 1,353,468 shares of common
stock of Alexander's then owned by Citibank, N.A. ("Citibank"), representing
27.1% of the outstanding shares of common stock of Alexander's, for $40.50 per
share in cash. As a result of the acquisition, the Company owns 29.3% of the
common stock of Alexander's. (See "Interstate Properties" for a description of
its 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;

(ii) a 50% interest in the 427,000 square feet of mall stores at the
Kings Plaza Shopping Center (the "Kings Plaza Mall") in Brooklyn, New York;

(iii) the Fordham Road property located in the Bronx, New York;

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(iv) the Flushing property located in Flushing, New York; and

(v) the Third Avenue property in the Bronx, New York.

The occupancy rate of Alexander's operating properties was 95% and 69% as
of December 31, 1996 and 1995, respectively.

Non-operating properties to be redeveloped:

(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
million. 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 9 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 $14.7 million 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 million and $70 million. 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, and

(ix) Rego Park II, comprising one and one-half blocks of vacant land
adjacent to the Rego Park I location.

Vornado expects to provide a portion of the financing required for
Alexander's redevelopment projects. None of the redevelopment plans for the
non-operating properties above have been finalized. See Item 2.
"Properties -- Alexander's".

In March 1995, the Company lent Alexander's $45 million 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".

In September 1995, Caldor, which leases the Fordham Road and Flushing
properties from Alexander's, filed for protection under Chapter 11. Caldor
accounted for approximately 36% and 56% of Alexander's consolidated revenues for
the years ended December 31, 1996 and 1995, respectively. On February 11, 1997,
Caldor announced that, subject to Bankruptcy Court approval, it expects to close
its Fordham Road store in May 1997.

The Company manages, develops and leases the Alexander's properties under a
management and development agreement (the "Management Agreement") and a leasing
agreement (the "Leasing Agreement") pursuant to which the Company receives
annual fees from Alexander's.

Alexander's common stock is listed on the New York Stock Exchange under the
symbol "ALX".

Interstate Properties

As of December 31, 1996, Interstate Properties owned 24.4% of the common
shares of beneficial interest of the Company and 27.1% of Alexander's common
stock. Interstate Properties is a general partnership in

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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 Alexander's common stock or enter into certain other
transactions with Alexander's, without the consent of the independent directors
of Alexander's.

COMPETITION

The leasing of real estate is highly competitive. 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 or retain tenants. The principal
means of competition are price, location 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.

ENVIRONMENTAL REGULATIONS

See "Note 11 -- Contingencies" to the Consolidated Financial Statements at
page 40.

EMPLOYEES

The Company employs 72 people.

SEGMENT DATA

The company operates in one business segment -- real estate. See "Note
9 -- Leases" to the Consolidated Financial Statements at page 39 for information
on significant tenants. Vornado engages in no foreign operations.

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ITEM 2.

PROPERTIES

The Company leases 27,000 square feet in Saddle Brook, New Jersey for
use as it's executive offices

The following table sets forth certain information as of December 31,
1996 relating to the properties owned by the Company

The Principal Tenants as described below, which are primarily tenants
which occupy 30,000 square feet or more, accounted for approximately 70% of
total square footage.
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER AVERAGE
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS BASE RENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 12/31/96 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 19 10.22
Cherry Hill.................................... 1964 37.6 231,142 63,511 13 8.38
Delran......................................... 1972 17.5 167,340 1,200 5 5.32
Dover.......................................... 1964 19.6 172,673 -- 12 5.87
East Brunswick................................. 1957 19.2 219,056 10,400 7 11.45
East Hanover................................... 1962 24.6 271,066 -- 16 10.21
Hackensack..................................... 1963 21.3 207,548 59,249 19 14.75
Jersey City.................................... 1965 16.7 222,478 3,222 10 11.99
Kearny......................................... 1959 35.3 41,518 62,471 4 6.47
Lawnside....................................... 1969 16.4 145,282 -- 3 9.07
Lodi........................................... 1975 8.7 130,000 -- 1 8.50
Manalapan...................................... 1971 26.3 194,265 2,000 7 8.84
Marlton........................................ 1973 27.8 173,238 6,836 10 8.29
Middletown..................................... 1963 22.7 179,584 52,000 21 12.25
Morris Plains.................................. 1985 27.0 171,493 1,000 18 11.04
North Bergen................................... 1959 4.6 6,515 55,597 3 25.78
North Plainfield(4)............................ 1989 28.7 217,360 -- 16 8.71

LEASE
EXPIRATION/
PERCENT OPTION
LOCATION LEASED PRINCIPAL TENANTS EXPIRATION
- --------------------------------------------------- ------- ------------------------ -----------
<S> <C> <C> <C>
SHOPPING CENTERS
NEW JERSEY
Atlantic City.................................. -- --
Bordentown..................................... 100% Bradlees(2)(3) 2001/2021
Shop-Rite 2011/2016
Bricktown...................................... 99% Caldor 2008/2028
Shop-Rite 2002/2017
Cherry Hill.................................... 94% Bradlees(2)(3) 2006/2026
Drug Emporium 2002
Shop & Bag 2007/2017
Toys "R" Us 2012/2042
Delran......................................... 95% Sam's Wholesale 2011/2021
Dover.......................................... 97% Ames 2017/2037
Shop-Rite 2012/2022
East Brunswick................................. 100% Bradlees(3) 2003/2023
Shoppers World 2007/2012
T.J. Maxx 1999
East Hanover................................... 97% Home Depot 2009/2019
Marshalls 2004/2009
Pathmark 2001/2024
Todays Man 2009/2014
Hackensack..................................... 96% Bradkees(3) 2012/2017
Pathmark 2014/2024
Rickel Home Center 2003/2013
Jersey City.................................... 92% Bradlees(3) 2002/2022
Shop-Rite 2008/2028
Kearny......................................... 89% Pathmark 2013/2033
Rickel Home Center 2008
Lawnside....................................... 100% Home Deposit 2012/2027
Drug Emporium 2007
Lodi........................................... 100% National Wholesale
Liquidators 2013/2023
Manalapan...................................... 100% Bradlees(3) 2002/2022
Grand Union 2012/2022
Marlton........................................ 100% Kohl's(2)(3) 2011/2031
Shop-Rite 1999/2009
Middletown..................................... 96% Bradlees(3) 2002/2022
Grand Union 2009/2029
Morris Plains.................................. 97% Caldor 2002/2023
Shop-Rite 2002
North Bergen................................... 100% A&P 2012/2032
North Plainfield(4)............................ 96% KMart 2006/2016
Pathmark 2001/2011
</TABLE>

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<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER AVERAGE
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS BASE RENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 12/31/96 PER SQ. FT.(1)
- --------------------------------------------------- ----------- ------- ---------- ------------ -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Totowa......................................... 1957 40.5 201,471 93,613 8 15.96
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 6.95
Watchung....................................... 1959 53.8 49,979 115,660 6 17.80
Woodbridge..................................... 1959 19.7 232,755 3,614 10 13.00
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 6.71
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 86.8 262,607 356,938 19 9.63

LEASE
EXPIRATION/
PERCENT OPTION
LOCATION LEASED PRINCIPAL TENANTS EXPIRATION
- --------------------------------------------------- ------- ------------------------ -----------
<S> <C> <C> <C>
Totowa......................................... 97% Bradlees(3) 2013/2028
Home Depot 2015/2025
Marshall's 2007/2012
Turnersville................................... 100% Bradlees(2)(3) 2011/2031
Union.......................................... 100% Bradlees(3) 2002/2022
Toys "R" Us 2015
Cost Cutter Drug 2000
Vineland....................................... 51% Rickel Home Center 2005/2010
Watchung....................................... 96% BJ Wholesale 2024
Woodbridge..................................... 96% Bradlees(3) 2002/2022
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
Media Play 2002/2017
MJ Design 2006/2017
Toys "R" Us 2013
TJ Maxx 1999
Coram(4)....................................... 100% May Department 2011
Stores(5)
Freeport....................................... 100% Home Depot 2011/2021
Cablevision 2004
New Hyde Park(4)............................... 100% Bradlees(6) 2019/2029
North Syracuse(4).............................. 100% Reisman Properties 2014
Rochester (Henrietta)(4)....................... 47% Hechinger(5) 2005/2025
Rochester...................................... 41% Hechinger(5) 2005/2025
PENNSYLVANIA
Allentown...................................... 98% Hechinger 2011/2031
Shop-Rite 2011/2021
Burlington Coat Factory 2017
Wal-Mart 2024/2094
Sam's Wholesale 2024/2094
TJ Maxx 1998/2008
</TABLE>

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<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER AVERAGE
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS BASE RENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 12/31/96 PER SQ. FT.(1)
- --------------------------------------------------- ----------- ------- ---------- ------------ -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Bensalem....................................... 1972 23.2 208,174 6,714 13 7.49
Bethlehem...................................... 1966 23.0 157,212 2,654 12 4.76
Broomall....................................... 1966 21.0 145,776 22,355 5 8.31
Glenolden...................................... 1975 10.0 101,235 -- 3 14.75
Lancaster...................................... 1966 28.0 179,982 -- 7 4.28
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 -- 3 4.83
Baltimore (Towson)............................. 1968 14.6 146,393 6,800 7 9.62
Baltimore (Dundalk)............................ 1966 16.1 183,361 -- 17 6.48
Glen Burnie.................................... 1958 21.2 117,369 3,100 4 5.90
Hagerstown..................................... 1966 13.9 133,343 14,965 6 3.01
CONNECTICUT
Newington...................................... 1965 19.2 134,229 45,000 4 6.24
Waterbury...................................... 1969 19.2 139,717 2,645 10 7.64
MASSACHUSETTS
Chicopee....................................... 1969 15.4 112,062 2,851 3 4.85
Milford(4)..................................... 1976 14.7 83,000 -- 1 5.26
Springfield.................................... 1966 17.4 8,016 117,044 2 11.25

LEASE
EXPIRATION/
PERCENT OPTION
LOCATION LEASED PRINCIPAL TENANTS EXPIRATION
- --------------------------------------------------- ------- ------------------------ -----------
<S> <C> <C> <C>
Bensalem....................................... 89% (2)(3) 2011/2031
Shop-Rite 2011/2031
Bethlehem...................................... 78% Pathmark 2000/2023
Super Petz 2005/2015
Broomall....................................... 100% Bradlees(2)(3) 2006/2026
Glenolden...................................... 100% Bradlees(2)(3) 2012/2022
Lancaster...................................... 50% Weis Markets 1998/2018
Levittown...................................... 100% (2)(3) 2006/2026
10th and Market Streets, Philadelphia.......... 62% Kimco Realty Corporation 2010/2035
Upper Moreland................................. 100% Sam's Wholesale(2) 2010/2015
York........................................... 100% Builders Square 2009/2018
MARYLAND
Baltimore (Belair Rd).......................... 100% Bib B Food 1999/2004
Warehouse Y? Innovatyve 2002/2007
Baltimore (Towson)............................. 100% Staples 2004
Cost Saver Supermarket 2000/2020
Drug Emporium 1999/2004
Baltimore (Dundalk)............................ 97% A&P 1997/2007
Ollie's 1998/2008
Manor Shops 1998
Glen Burnie.................................... 78% Pathmark Stores, Inc(5) 2005
Hagerstown..................................... 100% Big Lots 2002/2012
Pharmhouse 2008/2012
Weis Markets 1999/2009
CONNECTICUT
Newington...................................... 100% (3) 2002/2022
The Wiz 2007/2027
Waterbury...................................... 100% Toys "R" Us 2010
Shaws Supermarkets 2003/2018
MASSACHUSETTS
Chicopee....................................... 93% Bradlees(3) 2002/2022
Milford(4)..................................... 100% Bradlees(3) 2004/2009
Springfield.................................... 100% Wal-Mart 2018/2092
</TABLE>

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<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER AVERAGE
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS BASE RENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 12/31/96 PER SQ. FT.(1)
- --------------------------------------------------- ----------- ------- ---------- ------------ -------- --------------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
Lewisville..................................... 1990 13.3 34,893 1,204 14 13.60
Mesquite....................................... 1990 5.5 71,246 -- 14 13.90
Dallas......................................... 1990 9.9 99,733 -- 8 9.25
------- ---------- ------------ --- ------
Total Shopping Centers..................... 1,182.1 8,785,082 1,233,637 411 9.09
------- ---------- ------------ --- ------
WAREHOUSE/INDUSTRIAL
E. Brunswick..................................... 1972 16.1 325,800 -- 2 2.17
E. Hanover....................................... 1963-1967 45.5 941,429 -- 12 3.64
Edison........................................... 1982 18.7 272,071 -- 1 2.75
Garfield......................................... 1959 31.6 486,620 -- 3 3.46
------- ---------- ------------ --- ------
Total Warehouse/Industrial................. 111.9 2,025,920 -- 18 3.19
------- ---------- ------------ --- ------
OTHER PROPERTIES
Paramus(4)....................................... 1987 3.4 118,225 -- 25 17.29
Montclair........................................ 1972 1.6 16,928 -- 1 17.00
Rahway(4)........................................ 1972 -- 32,000 -- 1 4.88
Manhattan, NY(8)................................. 1966 0.5 149,000 -- 1 7.65
------- ---------- ------------ --- ------
Total Other Properties..................... 5.5 316,153 -- 28 10.61
------- ---------- ------------ --- ------
Grand Total................................ 1,299.5 11,127,155 1,233,637 457 $ 8.13
======= ========= ============= ======== =============

------------------
(1) Average annualized base rent per square foot does not include ground
leases (which leases are included in percent leased) or rent for leases
which had not commenced as of December 31, 1996.

(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) Bradlees received Bankruptcy Court approval in January 1997 to close this
store.

(7) Square footage excludes Albertson's which owns its land and building.

(8) The Company owns a 50% interest in this property.

9
<PAGE> 11

ITEM 2.

ALEXANDER'S PROPERTIES

The following table shows the location, approximate size and leasing status
as of December 31, 1996 of each of Alexander's properties.

<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
LAND SQUARE BUILDING SQUARE AVERAGE LEASE
FOOTAGE FOOTAGE/ ANNUALIZED EXPIRATION/
("SF") NUMBER BASE RENT PERCENT OPTION
LOCATION OWNERSHIP OR ACREAGE OF FLOORS PER SQ. FOOT(1) LEASED TENANTS EXPIRATION
- ---------------- --------- ------------- --------------- --------------- ------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING
PROPERTIES
NEW YORK:
Rego
Park -- Queens... Owned 4.8 acres 351,000/3(2) $ 27.79 96% Bed Bath & (3)
Beyond
Circuit City (3)
Marshalls 2008/2021
Sears 2021
Kings Plaza
Shopping
Center &
Marina (Kings
Plaza Mall)
Brooklyn..... 50% 24.3 acres 427,000/2(2)(4) 31.19 84% 120 Tenants Various
Owned
Fordham
Road -- Bronx... Owned 92,211 SF 303,000/5 11.54 100% Caldor(5) 2013/2028
Flushing -- Queens... Leased 44,975 SF 177,000/4(2) 16.35 100% Caldor 2027
Third
Avenue -- Bronx... Owned 60,451 SF 173,000/4 4.33 100% An affiliate of 2023
1,431,000 Conway
REDEVELOPMENT
PROPERTIES
Lexington
Avenue -- Manhattan... 92% 84,420 SF 591,000/6(6)
Owned
Kings Plaza
Store -- Brooklyn... Owned Included in 339,000/4 Sears (3)
Shopping
Center above
Rego Park
II -- Queens... Owned 6.6 acres --
NEW JERSEY:
Paramus, New
Jersey....... Owned 39.3 acres(7) 340,000/3(6)
</TABLE>

- ---------------
(1) Average annualized base rent per square foot does not include rent for
leases which had not commenced as of December 31, 1996.

(2) Excludes parking garages operated for the benefit of Alexander's.

(3) The Circuit City and Bed Bath & Beyond leases are expected to commence in
the first half of 1997. 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) On February 11, 1997, Caldor announced that, subject to Bankruptcy Court
approval, it expects to close this store in May 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.

INSURANCE

The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to its properties with policy
specifications and insured limits customarily carried for similar properties.
Management of the Company believes that the Company's insurance coverage
conforms to industry norms.

INDEBTEDNESS

The Company has historically maintained a relatively low level of debt to
market capitalization. At December 31, 1996, the ratio of debt to market
capitalization was 17% based on debt of $232,287,000 and market equity of
$1,394,000,000. 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.

10
<PAGE> 12

ITEM 3. LEGAL PROCEEDINGS

The Company is from time to time involved in legal actions arising in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the outcome of such matters will not have a
material effect on the Company's financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the names, ages, principal occupations and
positions with Vornado of the executive officers of Vornado and the positions
held by such officers during the past five years. All executive officers of
Vornado have terms of office which run until the next succeeding meeting of the
Board of Trustees of Vornado following the Annual Meeting of Shareholders unless
they are removed sooner by the Board.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, POSITION AND OFFICE (CURRENT AND
NAME AGE DURING PAST FIVE YEARS WITH VORNADO UNLESS OTHERWISE STATED)
- ----------------------- --- --------------------------------------------------------------
<S> <C> <C>
Steven Roth............ 55 Chairman of the Board, Chief Executive Officer and Chairman of
the Executive Committee of the Board; the Managing General
Partner of Interstate Properties, a developer and operator of
shopping centers and an investor in securities and
partnerships; Chief Executive Officer of Alexander's, Inc.
since March 2, 1995 and a Director since 1989; Director of
Insituform Technologies, Inc.
Michael D. 40 President and a Trustee since December 2, 1996; Director of
Fascitelli........... Alexander's, Inc. since December 2, 1996; Partner at Goldman,
Sachs & Co. in charge of its real estate practice from
December 1992 to December 1996; and Vice President at Goldman,
Sachs & Co., prior to December 1992.
Richard T. Rowan....... 50 Vice President -- Real Estate
Joseph Macnow.......... 51 Vice President -- Chief Financial Officer; Vice
President -- Chief Financial Officer of Alexander's, Inc.
since August 1995
</TABLE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Vornado's common shares are traded on the New York Stock Exchange.

Quarterly price ranges of the common shares and dividends per share paid
for the years ended December 31, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- ---------------------------
QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------------------------------ ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1st........................... $38.38 $35.63 $ .61 $36.25 $33.88 $ .56
2nd........................... 41.50 37.13 .61 36.00 32.63 .56
3rd........................... 42.13 40.50 .61 39.00 34.75 .56
4th........................... 52.88 40.50 .61 37.88 34.38 .56
</TABLE>

The approximate number of record holders of common shares of Vornado at
December 31, 1996, was 2,000.

11
<PAGE> 13

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues:
Property rentals................... $ 87,424 $ 80,429 $ 70,755 $ 67,213 $ 63,186
Expense reimbursements............. 26,644 24,091 21,784 19,839 17,898
Other income....................... 2,819 4,198 1,459 1,738 913
----------- ----------- ----------- ----------- -----------
Total Revenues........................ 116,887 108,718 93,998 88,790 81,997
----------- ----------- ----------- ----------- -----------
Expenses:
Operating.......................... 36,412 32,282 30,223 27,994 27,587
Depreciation and amortization...... 11,589 10,790 9,963 9,392 9,309
General and administrative......... 5,167 6,687 6,495 5,890 4,612
Amortization of officer's deferred
compensation expense............. 2,083 -- -- -- --
Costs incurred in connection with
the merger Vornado, Inc. into
Vornado Realty Trust............. -- -- -- 856 --
Cost incurred upon exercise of a
stock option by an officer and
subsequent repurchase of a
portion of the shares............ -- -- -- -- 15,650
----------- ----------- ----------- ----------- -----------
Total Expenses........................ 55,251 49,759 46,681 44,132 57,158
----------- ----------- ----------- ----------- -----------
Operating income...................... 61,636 58,959 47,317 44,658 24,839
Income (loss) applicable to
Alexander's:
Equity in income (loss)............ 1,679 (1,972) -- -- --
Depreciation....................... (571) (417) -- -- --
Interest income on loan............ 6,848 6,343 -- -- --
Income from investment in and advances
to Vornado Management Corp......... 1,855 788 -- -- --
Interest income on mortgage note
receivable......................... 2,579 -- -- -- --
Interest and dividend income.......... 3,151 5,439 7,489 11,620 8,555
Interest and debt expense............. (16,726) (16,426) (14,209) (31,155) (33,910)
Net gain on marketable securities..... 913 294 643 263 2,779
----------- ----------- ----------- ----------- -----------
Income from continuing operations
before income taxes................ 61,364 53,008 41,240 25,386 2,263
Provision (benefit) for income
taxes.............................. -- -- -- (6,369) 1,080
----------- ----------- ----------- ----------- -----------
Income from continuing operations..... $ 61,364 $ 53,008 $ 41,240 $ 31,755 $ 1,183
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding........................ 24,603,442 23,579,669 21,853,720 19,790,448 16,559,330
Income per share from continuing
operations....................... $ 2.49 $ 2.25 $ 1.89 $ 1.60 $ .07
Cash dividends declared............ 2.44 2.24 2.00 1.50* 1.15
</TABLE>

- ---------------
* Does not include special dividend of $3.36 per share of accumulated earnings
and profits paid in June 1993.

12
<PAGE> 14

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
As at:
Total assets................................ $565,204 $ 491,496 $393,538 $385,830 $420,616
Real estate, at cost........................ 397,298 382,476 365,832 340,415 314,651
Accumulated depreciation.................... 151,049 139,495 128,705 118,742 111,142
Debt........................................ 232,387 233,353 234,160 235,037 341,701
Shareholders' equity (deficit).............. 276,257 194,274 116,688 115,737 (3,242)
OTHER DATA
Funds from operations(1):
Income from continuing operations before
income taxes............................. $ 61,364 $ 53,008 $ 41,240 $ 25,386 $ 2,263
Depreciation and amortization of real
property............................... 10,583 10,019 9,192 8,842 8,778
Straight-lining of rental income......... (2,676) (2,569) (2,181) (2,200) (2,200)
Leasing fees received in excess of income
recognized............................. 1,805 1,052 -- -- --
Losses/(gains) on sale of securities
available for sale..................... -- 360 (51) (263) (846)
Proportionate share of adjustments to
Alexander's income (loss) to arrive at
Alexander's funds from operations...... (1,760) 539 -- -- --
Costs incurred in connection with the
merger/upon exercise of a stock
option................................. -- -- -- 856 15,650
-------- --------- -------- -------- --------
Funds from operations....................... $ 69,316 $ 62,409 $ 48,200 $ 32,621 $ 23,645
======== ========= ======== ======== ========
Cash flow provided by (used in):
Operating activities..................... $ 70,703 $ 62,882 $ 46,948 $ 27,725 $ 17,607
Investing activities..................... $ 14,912 $(103,891) $(15,434) $ 1,350 $ 14,800
Financing activities..................... $(15,046) $ 36,577 $(32,074) $(56,433) $ 4,384
</TABLE>

- ---------------
(1) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use
of funds from operations. Funds from operations should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
Management considers funds from operations a relevant supplemental measure
of operating performance because it provides a basis for comparison among
REITs; however, funds from operations may not be comparable to similarly
titled measures reported by other REITs since the Company's method of
calculating funds from operations is different from that used by NAREIT.
Funds from operations, as defined by NAREIT, represents net income
applicable to common shares before depreciation and amortization,
extraordinary items and gains or losses on sales of real estate. Funds from
operations as disclosed above has been modified to adjust for the effect of
straight-lining of property rentals for rent escalations and leasing fee
income.

13
<PAGE> 15

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following general economic and business conditions, which will, among other
things, affect demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies and technology; risks of
real estate development and acquisition; governmental actions and initiatives;
and environmental/safety requirements.

RESULTS OF OPERATIONS

Years Ended December 31, 1996 and December 31, 1995

The Company's revenues, which consist of property rentals, tenant expense
reimbursements and other income, were $116,887,000 in 1996, compared to
$108,718,000 in 1995, an increase of $8,169,000 or 7.5%.

Property rentals from shopping centers were $80,001,000 in 1996, compared
to $74,255,000 in 1995, an increase of $5,746,000 or 7.7%. Of this increase, (i)
$3,800,000 resulted from rental step-ups in existing tenant leases which are not
subject to the straight-line method of revenue recognition and (ii) $2,000,000
resulted from expansions and an acquisition. Property rentals received from new
tenants were approximately the same as property rentals lost from vacating
tenants. Percentage rent included in property rentals was $936,000 in 1996,
compared to $959,000 in 1995.

Property rentals from the remainder of the portfolio were $7,423,000 in
1996, compared to $6,174,000 in 1995, an increase of $1,249,000 or 20.2%. Of
this increase, $650,000 resulted from the purchase of an office building in June
1996.

Tenant expense reimbursements, which consist of the tenants' pro-rata share
of common area maintenance expenses (such as snow removal costs, landscaping and
parking lot repairs), real estate taxes and insurance, were $26,644,000 in 1996,
compared to $24,091,000 in 1995, an increase of $2,553,000. This increase
reflects a corresponding increase in operating expenses passed through to
tenants.

Other income was $2,819,000 in 1996, compared to $4,198,000 in 1995, a
decrease of $1,379,000. This decrease resulted primarily from (i) including
management and development fee income from Alexander's in "Income from
investment in and advances to Vornado Management Corp." ("VMC") rather than in
"Other income" for a full year in 1996, compared to six months in 1995 and (ii)
the recognition of leasing fee income in the first quarter of 1995 from
Alexander's of $915,000 applicable to 1993 and 1994 (no leasing fee income was
recognized prior to 1995 because required conditions had not been met),
partially offset by (iii) the increase in management, development and leasing
fees from Interstate Properties.

Operating expenses were $36,412,000 in 1996, compared to $32,282,000 in
1995, an increase of $4,130,000. Of this increase, (i) $3,100,000 were passed
through to tenants and consisted of higher snow removal costs of $1,500,000,
increased real estate taxes of $1,000,000 and other common area maintenance
expense increases of $600,000 and (ii) $500,000 resulted from increases in rent
expense and other property expenses. In addition, in 1995 operating expenses
were partially offset by real estate tax refunds and other miscellaneous income
of approximately $500,000.

Depreciation and amortization expense increased by $799,000 in 1996,
compared to 1995, as a result of expansions and an acquisition.

General and administrative expenses were $5,167,000 in 1996, compared to
$6,687,000 in 1995, a decrease of $1,520,000. This decrease resulted primarily
from a reduction in corporate office expenses caused by the third quarter 1995
assignment of the Company's Management and Development Agreement with
Alexander's to VMC.

14
<PAGE> 16

In December 1996, the Company recognized an expense of $2,083,000,
representing one month's amortization of the $25,000,000 deferred payment due to
the Company's President. The balance of the deferred payment will be amortized
in 1997.

Income applicable to Alexander's (loan interest income, equity in income
(loss) and depreciation) was $7,956,000 for the year ended December 31, 1996,
compared to $3,954,000 in the prior year, an increase of $4,002,000. This
increase resulted from (i) lower operating losses at Alexander's caused by the
commencement of rent at the Rego Park I property in March 1996, (ii) the
recognition of $2,053,000 of non-recurring income as a result of the reversal of
a liability which is no longer required and (iii) interest income on the loan to
Alexander's for a full year in 1996, compared to a ten month period in 1995. The
Company believes that its share of Alexander's losses (which are non-cash),
combined with its fee income and interest income, will not have a negative
effect on its results of operations, liquidity and financial condition.

In July 1995, the Company assigned its Management Agreement with
Alexander's to VMC. In exchange, the Company received 100% of the non-voting
preferred stock of VMC which entitles it to 95% of the economic benefits of VMC
through distributions. In addition, the Company lent $5,000,000 to VMC for
working capital purposes under a three-year term loan bearing interest at the
prime rate plus 2%. VMC is responsible for its pro-rata share of compensation
and fringe benefits of employees and 30% of other expenses which are common to
both Vornado and VMC. Income from investment in and advances to VMC was
$1,855,000 for the year ended December 31, 1996, compared to $788,000 for the
period from July 6th to December 31, in 1995. Income from investment in and
advances to VMC for the year ended December 31, 1996 reflects additional fee
income earned by VMC in the first quarter of 1996 relating to the substantial
completion of the redevelopment of Alexander's Rego Park I property.

Investment income (interest income on mortgage note receivable, interest
and dividend income and net gains/(losses) on marketable securities) was
$6,643,000 for 1996, compared to $5,733,000 in 1995, an increase of $910,000 or
15.9%. This increase resulted from higher net gains on marketable securities and
the yield earned on the mortgage note receivable exceeding the yield earned on
the investment of such funds in 1995.

The Company operates in a manner intended to enable it to continue to
qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986 as
amended. Under those sections, a REIT which distributes at least 95% of its REIT
taxable income as a dividend to its shareholders each year and which meets
certain other conditions will not be taxed on that portion of its taxable income
which is distributed to its shareholders. The Company has distributed to its
shareholders an amount greater than its taxable income. Therefore, no provision
for Federal income taxes is required.

RESULTS OF OPERATIONS

Years Ended December 31, 1995 and December 31, 1994

The Company's revenues, which consist of property rentals, tenant expense
reimbursements and other income were $108,718,000 in 1995, compared to
$93,998,000 in 1994, an increase of $14,720,000 or 15.7%.

Property rentals from shopping centers were $74,255,000 in 1995, compared
to $64,665,000 in 1994, an increase of $9,590,000 or 14.8%. Of this increase,
(i) $6,067,000 resulted from expansions of shopping centers and acquisitions of
retail properties, (ii) $2,823,000 resulted from rental step-ups in existing
tenant leases which are not subject to the straight-line method of revenue
recognition and (iii) $628,000 resulted from property rentals received from new
tenants exceeding property rentals lost from vacating tenants. Percentage rent
included in property rentals was $959,000 in 1995, compared to $887,000 in 1994.

Property rentals from the remainder of the portfolio were $6,174,000 in
1995, compared to $6,090,000 in 1994, an increase of $84,000 or 1.4%.

Tenant expense reimbursements were $24,091,000 in 1995, compared to
$21,784,000 in 1994, an increase of $2,307,000. This increase reflects a
corresponding increase in operating expenses passed through to tenants.

15
<PAGE> 17

Other income was $4,198,000 in 1995, compared to $1,459,000 in 1994, an
increase of $2,739,000. This increase resulted primarily from the fee income
recognized in connection with the Management Agreement and Leasing Agreement
with Alexander's including $915,000 applicable to 1993 and 1994 recognized in
the first quarter of 1995 (no leasing fee income was recognized prior to 1995
because required conditions had not been met). In addition to the Management
Agreement fee income included in other income in 1995, $2,250,000 of such fees
was earned in 1995 by VMC and is included in the caption "Income from investment
in and advances to Vornado Management Corp." in the Consolidated Statements of
Income.

Operating expenses were $32,282,000 in 1995, compared to $30,223,000 in
1994, an increase of $2,059,000. Of this increase (i) $1,484,000 resulted from
real estate taxes from expansions and acquisitions, which were passed through to
tenants, and (ii) $258,000 resulted from bad debt expenses primarily due to
tenant bankruptcies.

Depreciation and amortization expense increased by $827,000 in 1995,
compared to 1994, primarily as a result of property expansions.

General and administrative expenses were $6,687,000 in 1995, compared to
$6,495,000 in 1994, an increase of $192,000. This increase is the net of
increases from (i) payroll expenses of $1,017,000, (due to additions to staff
and bonuses), and (ii) professional fees and other corporate office expenses of
$305,000, offset by (iii) the reduction in expense of $1,130,000 resulting from
the assignment of the Company's Management Agreement with Alexander's to VMC in
the third quarter of 1995.

For the period from March 2, 1995 through December 31, 1995, Vornado's
equity in Alexander's losses amounted to $1,972,000. In addition, during the
same period the Company recognized interest income on its loan to Alexander's of
$6,343,000 and fee income from its Management Agreement and Leasing Agreement
with Alexander's of $2,973,000 (excluding $2,250,000 earned by VMC).

Income from investment in and advances to VMC consists of dividend income
of $565,000 and interest income of $223,000.

Investment income was $5,733,000 for 1995, compared to $8,132,000 in 1994,
a decrease of $2,399,000 or 29.5%. This decrease was caused by (i) lower
interest income resulting from the use of cash for the Alexander's investment
and (ii) net gains on marketable securities being $349,000 less than in the
prior year.

Interest and debt expense was $16,426,000 in 1995, compared to $14,209,000
in 1994, an increase of $2,217,000 or 15.6%. Of this increase, $1,046,000
resulted from borrowings under the revolving credit facility to temporarily fund
the investment in Alexander's and $1,134,000 resulted from a decrease in
interest capitalized during construction.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows for the Years Ended December 31, 1996, 1995 and 1994

Year Ended December 31, 1996

Cash flows provided by operating activities of $70,703,000 was comprised of
(i) net income of $61,364,000 and (ii) adjustments for non-cash items of
$9,972,000, less (iii) the net change in operating assets and liabilities of
$633,000. The adjustments for non-cash items are primarily comprised of
depreciation and amortization of $12,586,000 and amortization of deferred
officers compensation expense of $2,083,000, partially offset by the effect of
straight-lining of rental income of $2,676,000 and equity in income from
Alexander's of $1,108,000. The net change in "Leasing fees receivable" and
"Deferred leasing fee income" included in item (iii) above reflects a decrease
of $1,717,000 resulting from the rejection of a lease by an Alexander's tenant
in March 1996 and an increase of $1,738,000 resulting from the releasing of a
portion of this space. "Leasing fees receivable" of $2,500,000 were collected
during this period.

Net cash provided by investing activities of $14,912,000 was comprised of
(i) proceeds from sale or maturity of securities available for sale of
$46,734,000, partially offset by (ii) the Company's investment in a mortgage
note receivable of $17,000,000 and (iii) capital expenditures of $14,822,000
(including $8,923,000 for the purchase of an office building).

16
<PAGE> 18

Net cash used in financing activities of $15,046,000 was primarily
comprised of (i) dividends paid of $59,558,000, (ii) the net repayment of
borrowings on U.S. Treasury obligations of $34,239,000, (iii) the net repayment
on mortgages of $966,000, partially offset by (iv) net proceeds from the
issuance of common shares of $73,060,000 and (v) the proceeds from the exercise
of stock options of $6,657,000.

Cash increased during the period from December 31, 1995 to December 31,
1996 from $19,127,000 to $89,696,000 primarily as the result of the issuance of
common shares in the fourth quarter of 1996 as noted above.

Year Ended December 31, 1995

Cash flows provided by operating activities of $62,882,000 was comprised
of: (i) net income of $53,008,000 and (ii) adjustments for non-cash items of
$11,305,000 less (iii) the net change in operating assets and liabilities of
$1,431,000. The adjustments for non-cash items are primarily comprised of
depreciation and amortization of $11,779,000, plus equity in loss of Alexander's
of $2,389,000, partially offset by the effect of straight-lining of rental
income of $2,569,000. Further, during this period in connection with the
Alexander's transaction, "Leasing fees and other receivables" increased by
$7,656,000 and "Deferred leasing fee income" correspondingly increased by
$8,888,000. These amounts have been included in "Changes in assets and
liabilities: other" in the Consolidated Statements of Cash Flows and are part of
the net change in operating assets and liabilities shown in item (iii) above.

Net cash used in investing activities of $103,891,000 was comprised of (i)
the Company's investment in and advances to Alexander's of $100,482,000, (ii)
capital expenditures of $16,644,000, (iii) a loan to VMC of $5,074,000 and (iv)
purchases of securities available for sale of $4,027,000, partially offset by
(v) the net proceeds from the sale of securities available for sale of
$22,336,000.

Net cash provided by financing activities of $36,577,000 was primarily
comprised of (i) net proceeds from issuance of common shares of $79,831,000, and
(ii) net borrowings on U.S. Treasury obligations of $9,600,000, partially offset
by (iii) dividends paid of $52,875,000.

Year Ended December 31, 1994

Cash flows provided by operating activities of $46,948,000 was comprised
of: (i) net income of $41,240,000, and (ii) adjustments for non-cash items of
$8,015,000, less (iii) the net change in operating assets and liabilities of
$2,307,000. The adjustments for non-cash items are primarily comprised of
depreciation and amortization of $10,839,000, partially offset by the effect of
straight-lining of rental income of $2,181,000.

Net cash used in investing activities of $15,434,000 was comprised of
capital expenditures of $25,417,000, partially offset by proceeds from the sale
of securities available for sale of $9,983,000.

Net cash used in financing activities of $32,074,000 was primarily
comprised of dividends paid of $43,236,000, partially offset by borrowings on
U.S. Treasury obligations of $11,428,000.

17
<PAGE> 19

Funds from Operations for the Years Ended December 31, 1996 and 1995

Management considers funds from operations an appropriate supplemental
measure of the Company's operating performance. Funds from operations were
$69,316,000 in 1996, compared to $62,409,000 in 1995, an increase of $6,907,000
or 11.1%. The following table reconciles funds from operations and net income:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net income................................................ $61,364,000 $53,008,000
Depreciation and amortization of real property............ 10,583,000 10,019,000
Straight-lining of property rentals....................... (2,676,000) (2,569,000)
Leasing fees received in excess of income recognized...... 1,805,000 1,052,000
Loss on sale of securities available for sale............. -- 360,000
Proportionate share of adjustments to Alexander's
income (loss) to arrive at Alexander's funds
from operations......................................... (1,760,000) 539,000
----------- -----------
Funds from operations..................................... $69,316,000 $62,409,000
=========== ===========
</TABLE>

Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use of
funds from operations. Funds from operations should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or as an alternative to cash flows as a measure of liquidity. Management
considers funds from operations a relevant supplemental measure of operating
performance because it provides a basis for comparison among REITs, however,
funds from operations may not be comparable to similarly titled measures
reported by other REITs since the Company's method of calculating funds from
operations is different from that used by NAREIT. Funds from operations, as
defined by NAREIT, represents net income applicable to common shares before
depreciation and amortization, extraordinary items and gains or losses on sales
of real estate. Funds from operations as disclosed above has been modified to
adjust for the effect of straight-lining of property rentals for rent
escalations and leasing fee income. Below are the cash flows provided by (used
in) operating, investing and financing activities:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Operating activities........................... $ 70,703,000 $ 62,882,000
============ =============
Investing activities........................... $ 14,912,000 $(103,891,000)
============ =============
Financing activities........................... $(15,046,000) $ 36,577,000
============ =============
</TABLE>

Bradlees accounted for 22% of property rentals for the year ended December
31, 1996. 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
whose leases are not guaranteed by Stop & Shop. Montgomery Ward & Co., Inc.
remains liable with respect to the rent it was obligated to pay as a previous
lessor on eight of the leases guaranteed by Stop & Shop -- approximately 70% of
current rent.

In January 1996, the Company provided $17 million of debtor-in-possession
financing to Rickel which is operating under Chapter 11 of the Bankruptcy Code.
The loan is secured by 27 of Rickel's leasehold properties and has a remaining
term through January 1998, plus a one year extension, but is due not later than
the date on which Rickel's plan of reorganization is confirmed. The loan bears
interest at 13% per annum and at a fixed

18
<PAGE> 20

rate of LIBOR plus 7.50% for the extension period. In addition, the Company
receives a loan origination fee of 2% for each year the loan is outstanding.

In June 1996, the Company entered into a joint venture (50% interest) to
purchase the 149,000 square foot office portion of a multi-use building in
midtown Manhattan, New York City. The space is 100% leased to a single tenant
whose lease expires in 1999. The Company advanced the $8,923,000 purchase price
and is entitled to an annual preferred return on its funds invested and the
return of its funds invested prior to the other joint venture partner receiving
any distributions. Vornado's consolidated financial statements include the
accounts of the joint venture since Vornado currently exercises control over its
operating and financial affairs.

Alexander's has disclosed in its annual report on Form 10-K for the year
ended December 31, 1996, that its current operating properties (five of its nine
properties) do not generate sufficient cash flow to pay all of its expenses, and
that its four non-operating properties (Lexington Avenue, Paramus, the Kings
Plaza Store and Rego Park II) are in various stages of redevelopment. As rents
commence from a portion of the redevelopment properties, Alexander's expects
that cash flow will become positive.

Alexander's estimates that the fair market values of its assets are
substantially in excess of their historical cost and that there is additional
borrowing capacity. Alexander's continues to evaluate its needs for capital,
which may be raised through (a) property specific or corporate borrowing, (b)
the sale of securities and (c) asset sales. Further, Alexander's may receive
proceeds from condemnation proceedings of a portion of its Paramus property.
Although there can be no assurance, Alexander's believes that these cash sources
will be adequate to fund cash requirements until its operations generate
adequate cash flow. Alexander's borrowing capacity is demonstrated by the
additional $16,700,000 it borrowed in March 1997 under its Rego Park
construction loan. Although Vornado may provide a portion of the financing
required for Alexander's redevelopment projects, no specific financing
requirements have been determined or committed. None of the redevelopment plans
for the non-operating properties have been finalized.

At December 31, 1996, the Company had no borrowings outstanding under its
unsecured revolving credit facility which provides for borrowings of up to
$75,000,000. Average borrowings were $8,740,000 during 1996 and $12,500,000
during 1995. Borrowings bear annual interest, at the Company's election, at
LIBOR plus 1.35% or the higher of the federal funds rate plus .50% or the prime
rate.

On December 2, 1996, Michael D. Fascitelli became the President of the
Company and was elected to the Company's Board. Mr. Fascitelli signed a five
year employment contract under which, in addition to his annual salary, he
received a deferred payment consisting of $5,000,000 in cash and a $20,000,000
convertible obligation payable at the Company's option in 459,770 of its Common
Shares or the cash equivalent of their appreciated value. Accordingly, cash of
$5,000,000 and 459,770 Common Shares are being held in an irrevocable trust. The
deferred payment obligation to Mr. Fascitelli vests as of December 2, 1997.
Further, Mr. Fascitelli was granted options for 1,750,000 Common Shares of the
Company.

On December 23, 1996, the Company completed the sale of 1,500,000 common
shares in a public offering, which net of expenses generated approximately
$73,100,000. $10,000,000 of the proceeds was used to repay debt under the
Company's revolving credit facility. The remaining proceeds will be used for
general corporate purposes.

The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends on an ongoing
basis for more than the next twelve months; however, capital outlays for
significant acquisitions may require funding from borrowings or equity
offerings.

ECONOMIC CONDITIONS

At December 31, 1996, approximately 80% of the square footage of the
Company's shopping centers was leased to large stores (over 20,000 square feet).
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 such basic consumer necessities, demand typically continues even during
economic declines, which therefore may mitigate the effects on its properties of
adverse changes in

19
<PAGE> 21

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 leases contain step-ups in rent. Such
rental increases are not designed to, and in many instances do not, approximate
the cost of inflation, but do have the effect of mitigating the adverse impact
of inflation. In addition, substantially all of the Company's leases contain
provisions that require the tenant to reimburse the Company for the tenant's
share of common area charges (including roof and structure, unless it is the
tenant's direct responsibility) and real estate taxes thus passing through to
the tenants the effects of inflation on such expenses.

Inflation did not have a material effect on the Company's results for the
periods presented.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Independent Auditors' Report.......................................................... 21
Consolidated Balance Sheets as at December 31, 1996 and 1995.......................... 22
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and
1994................................................................................ 23
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996,
1995 and 1994....................................................................... 24
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994................................................................................ 25
Notes to Consolidated Financial Statements............................................ 26
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Not applicable.

20
<PAGE> 22

INDEPENDENT AUDITORS' REPORT

Shareholders and Board of Trustees
Vornado Realty Trust
Saddle Brook, New Jersey

We have audited the accompanying consolidated balance sheets of Vornado
Realty Trust and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedules listed in the Index at Item 14. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Vornado Realty Trust and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 12, 1997

21
<PAGE> 23

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(AMOUNTS IN THOUSANDS EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Real estate, at cost:
Land............................................................. $ 61,278 $ 61,278
Buildings and improvements....................................... 327,485 314,265
Leasehold improvements and equipment............................. 8,535 6,933
-------- --------
Total.................................................... 397,298 382,476
-------- --------
Less accumulated depreciation and amortization................... 151,049 139,495
-------- --------
Real estate, net......................................... 246,249 242,981
-------- --------
Cash and cash equivalents, including U.S. government obligations
under repurchase agreements of $17,036 and $12,575............... 89,696 19,127
Marketable securities.............................................. 27,549 70,997
Investment in and advances to Alexander's, Inc..................... 107,628 109,686
Investment in and advances to Vornado Management Corp.............. 5,193 5,074
Due from officer................................................... 8,418 8,418
Accounts receivable, net of allowance for doubtful accounts
of $575 and $578................................................. 9,786 7,086
Officer's deferred compensation expense............................ 22,917 --
Mortgage note receivable........................................... 17,000 --
Receivable arising from the straight-lining of rents............... 17,052 14,376
Other assets....................................................... 13,716 13,751
-------- --------
$565,204 $491,496
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and mortgages payable........................................ $232,387 $233,353
Due for U.S. Treasury Obligations.................................. 9,636 43,875
Accounts payable and accrued expenses.............................. 9,905 6,545
Deferred leasing fee income........................................ 8,373 8,888
Officer's deferred compensation payable............................ 25,000 --
Other liabilities.................................................. 3,646 4,561
-------- --------
Total liabilities........................................ 288,947 297,222
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest: no par value per share;
authorized, 1,000,000 shares; issued, none
Common shares of beneficial interest: $.04 par value per share;
authorized, 50,000,000 shares; issued, 26,547,680 and
24,246,913 shares............................................. 1,044 970
Additional capital............................................... 358,874 279,231
Deficit.......................................................... (77,574) (79,380)
-------- --------
282,344 200,821
Unrealized (loss) on securities available for sale............... (998) (1,362)
Due from officers for purchase of common shares of beneficial
interest...................................................... (5,089) (5,185)
-------- --------
Total shareholders' equity............................... 276,257 194,274
-------- --------
$565,204 $491,496
======== ========
</TABLE>

See notes to consolidated financial statements.

22
<PAGE> 24

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Property rentals.................................... $ 87,424 $ 80,429 $ 70,755
Expense reimbursements.............................. 26,644 24,091 21,784
Other income (including fee income from related
parties of $2,569, $4,123 and $1,144)............ 2,819 4,198 1,459
--------- --------- --------
Total revenues........................................ 116,887 108,718 93,998
--------- --------- --------
Expenses:
Operating........................................... 36,412 32,282 30,223
Depreciation and amortization....................... 11,589 10,790 9,963
General and administrative.......................... 5,167 6,687 6,495
Amortization of officer's deferred compensation
expense.......................................... 2,083 -- --
--------- --------- --------
Total expenses........................................ 55,251 49,759 46,681
--------- --------- --------
Operating income...................................... 61,636 58,959 47,317
--------- --------- --------
Income/(loss) applicable to Alexander's:
Equity in income (loss)............................. 1,679 (1,972) --
Depreciation........................................ (571) (417) --
Interest income on loan............................. 6,848 6,343 --
Income from investment in and advances to Vornado
Management Corp..................................... 1,855 788 --
Interest income on mortgage note receivable........... 2,579 -- --
Interest and dividend income.......................... 3,151 5,439 7,489
Interest and debt expense............................. (16,726) (16,426) (14,209)
Net gain on marketable securities..................... 913 294 643
--------- --------- --------
NET INCOME.......................................... $ 61,364 $ 53,008 $ 41,240
--------- --------- --------
NET INCOME PER SHARE based on 24,603,442, 23,579,669,
and 21,853,720 shares outstanding................... $ 2.49 $ 2.25 $ 1.89
========= ========= ========
</TABLE>

See notes to consolidated financial statements.

23
<PAGE> 25

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
GAIN(LOSS)
ON SECURITIES DUE TOTAL
COMMON ADDITIONAL AVAILABLE FROM SHAREHOLDERS'
SHARES CAPITAL DEFICIT FOR SALE OFFICERS EQUITY
------ ---------- -------- ------------- -------- -------------
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993........ $ 864 $ 197,575 $(77,517) $ -- $ (5,185) $ 115,737
Unrealized gains on securities
available for sale at January 1,
1994............................ -- -- -- 8,565 -- 8,565
Net income........................ -- -- 41,240 -- -- 41,240
Dividends paid ($2.00 per
share).......................... -- -- (43,236) -- -- (43,236)
Common shares issued under
employees' share plans.......... 2 609 -- -- -- 611
Change in unrealized gains
(losses) on securities available
for sale........................ -- -- -- (6,229) -- (6,229)
------ -------- -------- ------- ------- -------
BALANCE, DECEMBER 31, 1994........ 866 198,184 (79,513) 2,336 (5,185) 116,688
Net income........................ -- -- 53,008 -- -- 53,008
Net proceeds from issuance of
common shares................... 100 79,731 -- -- -- 79,831
Dividends paid ($2.24 per
share).......................... -- -- (52,875) -- -- (52,875)
Common shares issued under
employees' share plans.......... 4 1,316 -- -- -- 1,320
Change in unrealized gains
(losses) on securities available
for sale........................ -- -- -- (3,698)* -- (3,698)
------ -------- -------- ------- ------- -------
BALANCE, DECEMBER 31, 1995........ 970 279,231 (79,380) (1,362) (5,185) 194,274
Net income........................ -- -- 61,364 -- -- 61,364
Net proceeds from issuance of
common shares................... 60 73,000 -- -- -- 73,060
Dividends paid ($2.44 per
share).......................... -- -- (59,558) -- -- (59,558)
Common shares issued under
employee's share plans.......... 14 6,643 -- -- -- 6,657
Change in unrealized gains
(losses) on securities available
for sale........................ -- -- -- 364 -- 364
Forgiveness of amount due from
officers........................ -- -- -- -- 96 96
------ -------- -------- ------- ------- -------
BALANCE, DECEMBER 31, 1996........ $1,044 $ 358,874 $(77,574) $ (998) $ (5,089) $ 276,257
====== ======== ======== ======= ======= =======
</TABLE>

- ---------------
* Includes $3,435 in unrealized gains attributable to the Company's investment
in the common stock of Alexander's, Inc. (see Note 3).

See notes to consolidated financial statements.

24
<PAGE> 26

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 61,364 $ 53,008 $ 41,240
Adjustments to reconcile income to net cash provided
by continuing operations:
Depreciation and amortization (including debt
issuance costs)................................ 12,586 11,779 10,839
Amortization of officer's deferred compensation
expense........................................ 2,083 -- --
Straight-lining of rental income................. (2,676) (2,569) (2,181)
Equity in (income) loss of Alexander's including
depreciation of $571 and $417.................. (1,108) 2,389 --
Net gain on marketable securities................ (913) (294) (643)
Changes in assets and liabilities:
Trading securities............................... (2,009) (2,069) 1,485
Accounts receivable.............................. (2,700) (2,188) (699)
Accounts payable and accrued expenses............ 3,360 2,270 (3,920)
Other............................................ 716 556 827
-------- --------- --------
Net cash provided by operating activities............. 70,703 62,882 46,948
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mortgage note receivable.............. (17,000) -- --
Additions to real estate............................ (14,822) (16,644) (25,417)
Investment in and advances to Alexander's........... -- (100,482) --
Investment in and advances to Vornado Management
Corp............................................. -- (5,074) --
Purchases of securities available for sale.......... -- (4,027) --
Proceeds from sale or maturity of securities
available for sale............................... 46,734 22,336 9,983
-------- --------- --------
Net cash provided by (used by) investing activities... 14,912 (103,891) (15,434)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common shares......... 73,060 79,831 --
Proceeds from borrowings on U.S. Treasury
obligations...................................... 10,000 40,000 11,428
Repayment of borrowings on U.S. Treasury
obligations...................................... (44,239) (30,400) --
Proceeds from borrowings on revolving credit
facility......................................... 10,000 60,000 --
Repayments on mortgages and revolving credit
facility......................................... (10,966) (60,807) (877)
Costs of refinancing debt........................... -- (492) --
Dividends paid...................................... (59,558) (52,875) (43,236)
Exercise of share options........................... 6,657 1,320 611
-------- --------- --------
Net cash (used in) provided by financing activities... (15,046) 36,577 (32,074)
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 70,569 (4,432) (560)
Cash and cash equivalents at beginning of year........ 19,127 23,559 24,119
-------- --------- --------
Cash and cash equivalents at end of year.............. $ 89,696 $ 19,127 $ 23,559
-------- --------- --------
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest.......................... $ 15,695 $ 15,881 $ 14,915
-------- --------- --------
NON-CASH TRANSACTIONS:
Deferred officer's compensation expense and related
liability........................................ $ 25,000 -- --
Unrealized (loss)gain on securities available for
sale............................................. $ 364 $ (3,698)* $ 2,336
======== ========= ========
</TABLE>

- ---------------
* Reflects a reduction of $3,435 to the Company's investment in Alexander's as a
result of the change from fair value to the equity method of accounting.

See notes to consolidated financial statements.

25
<PAGE> 27

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS

On May 6, 1993, Vornado, Inc. merged into Vornado Realty Trust, a Maryland
real estate investment trust ("REIT"). Vornado Realty Trust was formed on March
29, 1993, as a wholly-owned subsidiary of Vornado, Inc., specifically for the
purpose of the merger.

The Company is a fully-integrated REIT which owns, leases, develops,
redevelops and manages retail and industrial properties primarily located in the
Midatlantic and Northeast regions of the United States. In addition, the Company
owns 29.3% of the common stock of Alexander's, Inc. which has nine properties in
the New York City region.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the accounts of Vornado Realty Trust and its subsidiaries, all of which
are wholly-owned. All significant intercompany balances and transactions have
been eliminated.

The consolidated financial statements are prepared in conformity with
generally accepted accounting principles. Management has made estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.

REAL ESTATE: Real estate is carried at cost, net of accumulated
depreciation and amortization. Betterments, major renewals and certain costs
directly related to the acquisition, improvement and leasing of real estate are
capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation is provided on a straight-line basis over the assets, estimated
useful lives. Additions to real estate include interest expense capitalized
during construction of $442,000 and $1,582,000 for the years ended December 31,
1995 and 1994.

The Company's policy is to assess any impairment in value by making a
comparison of the current and projected operating cash flows of each of its
properties into the foreseeable future on an undiscounted basis, to the carrying
amount of such property. Such carrying amount would be adjusted, if necessary,
to reflect an impairment in the value of the asset.

CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of highly
liquid investments purchased with original maturities of three months or less.

MARKETABLE SECURITIES: Marketable securities are carried at fair market
value. The Company has classified debt and equity securities which it intends to
hold for an indefinite period of time as securities available for sale and
equity securities it intends to buy and sell on a short term basis as trading
securities. Unrealized gains and losses are included in earnings for trading
securities and as a component of shareholder's equity for securities available
for sale. Realized gains or losses on the sale of securities are recorded based
on average cost.

REVENUE RECOGNITION: Base rents, additional rents based on tenants' sales
volume and reimbursement of the tenants' share of certain operating expenses are
generally recognized when due from tenants. The straight-line basis is used to
recognize base rents under leases entered into after November 14, 1985 which
provide for varying rents over the lease terms.

INCOME TAXES: The Company operates in a manner intended to enable it to
continue to qualify as a REIT under Sections 856-860 of the Internal Revenue
Code of 1986 as amended. Under those sections, a REIT which distributes at least
95% of its REIT taxable income as a dividend to its shareholders each year and
which meets certain other conditions will not be taxed on that portion of its
taxable income which is distributed to its shareholders. The Company has
distributed to shareholders an amount greater than its taxable income.
Therefore, no provision for Federal income taxes is required.

26
<PAGE> 28

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The net basis of the Company's assets and liabilities for both financial
reporting purposes and tax purposes is approximately the same.

AMOUNTS PER SHARE: Amounts per share are computed based upon the weighted
average number of shares outstanding during the year and the dilutive effect of
stock options.

3. INVESTMENT IN AND ADVANCES TO ALEXANDER'S

In March 1995, the Company purchased all of the 1,353,468 shares of common
stock of Alexander's then owned by Citibank, N.A. ("Citibank"), representing
27.1% of the outstanding shares of common stock of Alexander's for $40.50 per
share in cash or $56,615,000 (including $1,800,000 of costs incurred in the
purchase). As a result of the acquisition, the Company owns 29.3% of the common
stock of Alexander's and has changed its accounting for its investment in
Alexander's to the equity method. This required a reduction of its investment by
the unrealized gain recorded in shareholders' equity at December 31, 1994, of
$3,435,000. Prior years' financial statements were not restated as a result of
the change in accounting for the Company's investment in Alexander's due to it
not being material. In accordance with purchase accounting, Vornado's investment
in Alexander's in excess of carrying amounts has been allocated two-thirds to
land and one-third to building. The building allocation in excess of Alexander's
carrying amount is being depreciated over a 35 year period.

Also, in March 1995, the Company lent Alexander's $45 million, the
subordinated tranche of a $75 million secured financing, the balance of which
was funded by a bank. The Company's loan has a three-year term and bears
interest at 16.43% per annum for the first two years and at a fixed rate for the
third year of 992 basis points over the one-year Treasury bill rate. In
addition, the Company received a loan origination fee of $1,500,000 from
Alexander's to be amortized over the term of the loan.

Investment in and advances to Alexander's consists of:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Common stock, net of $989,000 and $417,000 of
accumulated
depreciation of buildings (at fair value)............. $ 56,952,000 $ 58,693,000
Loan receivable......................................... 45,000,000 45,000,000
Deferred loan origination income........................ (583,000) (1,083,000)
Leasing fees and other receivables...................... 5,901,000 8,182,000
Equity in loss since March 2, 1995...................... (293,000) (1,972,000)
Deferred expenses....................................... 651,000 866,000
------------ ------------
$107,628,000 $109,686,000
============ ============
</TABLE>

27
<PAGE> 29

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Below are summarized Balance Sheets and Statements of Operations of
Alexander's:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Balance Sheets:
Assets:
Real estate, net........................................... $181,005,000 $150,435,000
Cash....................................................... 5,480,000 8,471,000
Other assets............................................... 25,100,000 39,635,000
------------ ------------
$211,585,000 $198,541,000
============ ============
Liabilities and Stockholders' Equity:
Debt....................................................... $192,347,000 $182,883,000
Other liabilities.......................................... 13,674,000 34,794,000
Stockholders' equity....................................... 5,564,000 (19,136,000)
------------ ------------
$211,585,000 $198,541,000
============ ============
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER MARCH 2, 1995 TO
31, 1996 DECEMBER 31, 1995
----------- -----------------
<S> <C> <C>
Statements of Operations:
Revenues..................................................... $21,833,000 $11,734,000
Expenses..................................................... 12,092,000 9,255,000
----------- -----------
Operating income............................................. 9,741,000 2,479,000
Interest and debt expense.................................... (13,934,000) (11,330,000)
Interest and other income.................................... 2,918,000 1,651,000
Gain on reversal of liability for post-retirement healthcare
benefits.................................................. 14,372,000 --
----------- -----------
Income (loss) from continuing operations before income tax
benefit................................................... 13,097,000 (7,200,000)
Reversal of deferred taxes................................... -- 469,000
----------- -----------
Income (loss) from continuing operations..................... $13,097,000 $(6,731,000)
=========== ===========
Vornado's 29.3% equity in income (loss) before adjustment.... $ 3,837,000 $(1,972,000)
Adjustment for the portion of the reversal of a liability
previously considered in its purchase price allocation.... (2,158,000) --
----------- -----------
Vornado's 29.3% equity in income (loss)...................... $ 1,679,000 $(1,972,000)
=========== ===========
</TABLE>

In March 1995, the Company and Alexander's entered into a three-year
management and development agreement (the "Management Agreement"). The annual
management fee payable to the Company by Alexander's is $3,000,000, plus 6% of
development costs with a minimum guaranteed fee for the development portion of
$1,650,000 in the first year and $750,000 in each of the second and third years.
On July 6, 1995, the Company assigned this Management Agreement to Vornado
Management Corp.

The fee pursuant to the Management Agreement is in addition to the leasing
fee the Company receives from Alexander's under the leasing agreement (the
"Leasing Agreement") which has been in effect since 1992 and was extended to be
coterminous with the term of the Management Agreement. The Company recognized
leasing fee income of $695,000 and $1,448,000 in 1996 and 1995. The Leasing
Agreement provides for the Company to generally receive a fee of (i) 3% of sales
proceeds and (ii) 3% of lease rent for the first ten years of a lease term, 2%
of lease rent for the eleventh through the twentieth years of a lease term and
1% of lease rent for the twenty-first through thirtieth year of a lease term.
Subject to the payment of rents by

28
<PAGE> 30

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Alexander's tenants, the Company is due $5,565,000 at December 31, 1996. Such
amount is receivable annually in an amount not to exceed $2,500,000 until the
present value of such installments (calculated at a discount rate of 9% per
annum) equals the amount that would have been paid had it been paid on September
21, 1993, or at the time the transactions which gave rise to the commissions
occurred, if later.

During 1996, leasing fees receivable and deferred leasing fee income were
adjusted to reflect (i) a decrease of $1,717,000 resulting from the rejection of
a lease by an Alexander's tenant in March 1996 and (ii) an increase of
$1,738,000 resulting from the releasing of a portion of this space.

As of December 31, 1996, Interstate Properties owned 24.4% of the common
shares of the Company and 27.1% of Alexander's common stock. Steven Roth is the
Chairman of the Board and Chief Executive Officer of the Company, the Managing
General Partner of Interstate Properties and the Chief Executive Officer and a
director of Alexander's. Effective March 2, 1995, for a three-year period, the
Company and Interstate agreed not to own in excess of two-thirds of Alexander's
common stock or to enter into certain other transactions with Alexander's, other
than the transactions described above, without the consent of Alexander's
independent directors.

4. MARKETABLE SECURITIES

The aggregate cost and market value of securities held at December 31, 1996
and 1995 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------- ----------------------------
COST MARKET COST MARKET
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. treasury obligations........... $ 10,228,000 $ 10,247,000 $ 56,065,000 $ 56,621,000
Other equity and debt securities.... 10,811,000 9,794,000 10,802,000 8,884,000
----------- ----------- ----------- -----------
21,039,000 20,041,000 66,867,000 65,505,000
Trading securities -- equity.......... 7,260,000 7,508,000 5,384,000 5,492,000
----------- ----------- ----------- -----------
Total................................. $ 28,299,000 $ 27,549,000 $ 72,251,000 $ 70,997,000
=========== =========== =========== ===========
</TABLE>

Gross unrealized gains and losses at December 31, 1996 and 1995 were as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ------------------------
GAINS (LOSSES) GAINS (LOSSES)
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. treasury obligations.............. $ 19,000 -- $556,000 --
Other equity and debt securities....... 339,000 $(1,356,000) 90,000 $(2,008,000)
-------- ----------- -------- -----------
358,000 (1,356,000) 646,000 (2,008,000)
Trading securities -- equity............. 248,000 -- 108,000 --
-------- ----------- -------- -----------
Total.................................... $606,000 $(1,356,000) $754,000 $(2,008,000)
======== =========== ======== ===========
</TABLE>

The U.S. treasury obligations at December 31, 1996, $10,228,000 (market
value $10,247,000) mature in the fourth quarter of 1997.

U.S. treasury obligations with a fair market value of $10,247,000 and
$56,621,000 were held as collateral for amounts due for U.S. treasury
obligations at December 31, 1996 and 1995. Amounts due for U.S. treasury
obligations bear variable interest rates which averaged 5.79% and 6.08% for the
years ended December 31, 1996 and 1995.

29
<PAGE> 31

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. MORTGAGE NOTE RECEIVABLE

In January 1996, the Company provided $17 million of debtor-in-possession
financing to Rickel Home Centers, Inc. ("Rickel"), which is operating under
Chapter 11 of the Bankruptcy Code. The loan is secured by 27 of Rickel's
leasehold properties and has a remaining term through January 1998, plus a one
year extension, but is due not later than the date on which Rickel's plan of
reorganization is confirmed. The loan bears interest at 13.2% per annum and at a
fixed rate of LIBOR plus 7.50% for the extension period. In addition, the
Company receives a loan origination fee of 2% for each year the loan is
outstanding.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimated the fair value of its financial instruments using the
following methods and assumptions: (1) quoted market prices are used to estimate
the fair value of marketable securities; (2) discounted cash flows at the
current rate at which similar loans would be made to borrowers with similar
credit ratings for the remaining term are used to estimate the fair value of the
loans receivable from Alexander's, the mortgage note receivable and mortgages
payable and (3) carrying amounts in the balance sheet approximate fair value for
cash and cash equivalents, marketable securities, due from officer and amounts
due for U.S. Treasury obligations.

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------ ------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Loan receivable from
Alexander's..................... $ 45,000,000 $ 45,100,000 $ 45,000,000 $ 46,100,000
Mortgage note receivable.......... 17,000,000 17,000,000 -- --
Notes and mortgages payable....... 232,387,000 227,100,000 233,353,000 233,900,000
</TABLE>

7. NOTES AND MORTGAGES PAYABLE

Notes and mortgages payable at December 31, 1996 are comprised of
$227,000,000 of secured notes due December 1, 2000, with interest at a fixed
rate of 6.36% per annum and three other mortgages aggregating $5,387,000.

Notes and mortgages by range of interest rates are as follows:

<TABLE>
<CAPTION>
INTEREST RATE PRINCIPAL AMOUNT
---------------------------------------------- ----------------
<S> <C>
5.25%......................................... $ 3,635,000
6.36%......................................... 227,000,000
8.00%......................................... 826,000
8.25%......................................... 926,000
</TABLE>

The net carrying value of properties securing the notes and mortgages
amounted to $166,833,000 at December 31, 1996. As at December 31, 1996, the
maturities for the next five years are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: AMOUNT
----------------------------------------------- ------------
<S> <C>
1997........................................... $ 1,046,000
1998........................................... 870,000
1999........................................... 535,000
2000........................................... 227,295,000
2001........................................... 310,000
</TABLE>

On February 27, 1995, the Company entered into a three-year unsecured
revolving credit facility with a bank providing for borrowings of up to
$75,000,000. Borrowings bear annual interest, at the Company's

30
<PAGE> 32

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

election, at LIBOR plus 1.35% or the higher of the federal funds rate plus .50%
or the prime rate. At December 31, 1996 the Company had no borrowings
outstanding under the facility.

8. EMPLOYEES' SHARE OPTION PLAN

Under the Omnibus Share Plan (the "Plan"), various officers and key
employees have been granted incentive share options and non-qualified options to
purchase common shares. Options granted are at prices equal to 100% of the
market price of the Company's shares at the date of grant, vest on a graduated
basis, becoming fully vested 27 months after grant (with the exception of
1,750,000 shares granted in connection with Mr. Fascitelli's employment
agreement which becomes fully vested after 60 months), and expire ten years
after grant.

The Plan also provides for the award of Stock Appreciation Rights,
Performance Shares and Restricted Stock, as defined, none of which have been
awarded as of December 31, 1996.

In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 requires
expanded disclosures of stock-based compensation arrangements with employees,
and encourages, but does not require compensation cost to be measured based on
the fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply Accounting Principles Board Opinion No. 25 ("APB
25"), which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB 25 to its
stock-based compensation awards to employees.

If compensation cost for Plan awards had been determined based on fair
value at the grant dates, net income and income per share would have been
reduced to the pro-forma amounts below, for the years ended December 31, 1996
and 1995:

<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 31,
1996 1995
----------- -----------
<S> <C> <C>
Net income:
As reported............................................. $61,364,000 $53,008,000
Pro-forma............................................... 60,613,000 52,875,000
Net income per share:
As reported............................................. $ 2.49 $ 2.25
Pro-forma............................................... 2.46 2.24
</TABLE>

The pro-forma effect of applying SFAS 123 is not necessarily indicative of
the effect on reported net income for future years.

The fair value of each option grant is estimated on the date of grant using
the Binomial option-pricing model with the following weighted-average
assumptions used for grants in the periods ending December 31, 1996 and 1995.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Expected volatility........................................ 26% 26%
Expected life.............................................. 5 years 5 years
Risk-free interest rate.................................... 5.6% 7.1%
Expected dividend yield.................................... 5.1% 6.0%
</TABLE>

31
<PAGE> 33

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the Plan's status, and changes during the years then ended, is
presented below:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------- -----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Outstanding at January 1.............. 539,940 $24.53 557,568 $21.35
Granted............................... 1,870,750 46.27 75,000 35.50
Exercised............................. (340,997) 19.51 (92,628) 14.30
--------- ------ -------- ------
Outstanding at December 31............ 2,069,693 $45.01 539,940 $24.53
========= ====== ======== ======
Options exercisable at December 31.... 210,385 442,506
========= ========
Weighted-average fair value of options
granted during the year ended
December 31 (per option)............ $9.50 $7.24
</TABLE>

The following table summarizes information about options outstanding under
the Plan at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- --------------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1996 EXERCISE PRICE
- --------------- ----------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 12 to $23 26,434 6.0 Years $ 22 26,434 $ 22
34 to 38 293,259 8.1 Years 36 183,951 35
47 1,750,000 10.0 Years 47 -- --
---------- ----------- ---- ------ ------- ---- ---
$ 12 to $47 2,069,693 8.0 Years $ 45 210,385 $ 34
========== =========== ========== ======= =======
</TABLE>

Shares available for future grant at December 31, 1996 were 882,066.

9. RETIREMENT PLAN

The Company's qualified retirement plan covers all full-time employees. The
Plan provides annual pension benefits that are equal to 1% of the employee's
annual compensation for each year of participation.

The funding policy is in accordance with the minimum funding requirements
of ERISA.

Pension expense includes the following components:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost -- benefits earned during the $ 108,000 $ 70,000 $ 81,000
period......................................
Interest cost on projected benefit 544,000 573,000 558,000
obligation..................................
Actual return on assets....................... (179,000) (307,000) 130,000
Net amortization and deferral................. (59,000) 66,000 (359,000)
--------- --------- ---------
Net pension expense...................... $ 414,000 $ 402,000 $ 410,000
--------- --------- ---------
Assumptions used in determining the net
pension expense were:
Discount rate................................. 7 1/2% 7 1/4% 8 1/2%
Rate of increase in compensation levels....... 5 1/2% 6 1/2% 6 1/2%
Expected rate of return on assets............. 8% 8% 8%
</TABLE>

32
<PAGE> 34

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the Plan's funded status and the amount
recognized in the Company's balance sheet:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $ 7,590,000 $ 7,652,000
---------- ----------
Accumulated benefit obligation........................ $ 7,657,000 $ 7,717,000
---------- ----------
Projected benefit obligation.......................... $ 8,028,000 $ 8,066,000
Plan assets at fair value............................. 3,915,000 3,494,000
---------- ----------
Projected benefit obligation in excess of plan assets... 4,113,000 4,572,000
Unrecognized net obligations............................ (2,135,000) (2,122,000)
Adjustment required to recognize minimum liability...... 1,764,000 1,773,000
---------- ----------
Accrued pension costs................................... $ 3,742,000 $ 4,223,000
========== ==========
</TABLE>

Plan assets are invested in U.S. government obligations and securities
backed by U.S. government guaranteed mortgages.

10. LEASES

As lessor:

The Company leases properties to tenants. The lease terms range from less
than five years for smaller tenant spaces to as much as thirty years for major
tenants. Most of the leases provide for the payment of fixed base rentals
payable monthly in advance, and for the payment by the lessee of additional
rents based on a percentage of the tenants' sales as well as reimbursements of
real estate taxes, insurance and maintenance. As of December 31, 1996, future
base rental revenue under noncancellable operating leases, excluding rents for
leases with an original term of less than one year and rents resulting from the
exercise of renewal options, is as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: AMOUNT
----------------------------------------------- ------------
<S> <C>
1997........................................... $ 85,477,000
1998........................................... 84,678,000
1999........................................... 80,532,000
2000........................................... 75,029,000
2001........................................... 70,697,000
Thereafter..................................... 522,152,000
</TABLE>

These amounts do not include rentals based on tenants' sales. These
percentage rents approximated $936,000, $959,000 and $887,000 for the years
ended December 31, 1996, 1995 and 1994. Bradlees accounted for 22% of property
rentals for the year ended December 31, 1996. 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 whose leases are not guaranteed by Stop & Shop. Montgomery
Ward & Co., Inc. remains liable with respect to the rent it was obligated to pay
as a previous lessor on eight of the leases guaranteed by Stop &
Shop -- approximately 70% of current rent.

33
<PAGE> 35

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As lessee:

The Company is a tenant under leases for certain properties. These leases
will expire principally during the next twenty years. Future minimum lease
payments under operating leases at December 31, 1996, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: AMOUNT
------------------------------------------------ -----------
<S> <C>
1997............................................ $ 1,808,000
1998............................................ 1,819,000
1999............................................ 1,743,000
2000............................................ 1,578,000
2001............................................ 1,567,000
Thereafter...................................... 28,261,000
</TABLE>

Rent expense was $1,465,000, $1,395,000 and $1,313,000 for the years ended
December 31, 1996, 1995 and 1994.

11. CONTINGENCIES

In order to comply with environmental laws and with relevant health-based
standards, the Company has an active monitoring and maintenance program for
asbestos-containing materials ("ACMs") on its properties. The Company's program
to remove friable ACMs has been completed, except for one location. Pursuant to
the lease for this location, it is the tenant's responsibility to remove such
ACMs. The Company has received an estimate of $500,000 to remove such ACMs; if
the Company has to make such expenditure, it will not have a material adverse
effect on the Company's financial condition or results of operations.

The Company also has certain other existing and potential environmental
liabilities with respect to compliance costs relating to underground storage
tanks and cleanup costs relating to tanks at three Company sites at which
preexisting contamination was found.

The Company believes that known and potential environmental liabilities
will not have a material adverse effect on the Company's business, assets or
results of operation. 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.

At December 31, 1996, the Company had outstanding $600,000 of real estate
related standby letters of credit which were drawn under a $5,000,000 unsecured
line of credit with a bank bearing interest at prime.

From time-to-time, the Company has disposed of substantial amounts of real
estate to third parties for which, as to certain properties, it remains
contingently liable for rent payments or mortgage indebtedness.

There are various legal actions against the Company in the ordinary course
of business. In the opinion of management, after consultation with legal
counsel, the outcome of such matters will not have a material effect on the
Company's financial condition or results of operations.

12. REPURCHASE AGREEMENTS

The Company enters into agreements for the purchase and resale of U.S.
government obligations for periods of up to one week. The obligations purchased
under these agreements are held in safekeeping in the name of the Company by
various money center banks. The Company has the right to demand additional
collateral or return of these invested funds at any time the collateral value is
less than 102% of the invested funds plus any accrued earnings thereon.

34
<PAGE> 36

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. VORNADO MANAGEMENT CORP.

In July 1995, the Company assigned its Management Agreement with
Alexander's (see Note 3) to Vornado Management Corp. ("VMC"). In exchange, the
Company received 100% of the non-voting preferred stock of VMC which entitles it
to 95% of the distributions by VMC to its shareholders. Steven Roth and Richard
West, Trustees of the Company, own the common stock of VMC. In addition, the
Company lent $5,000,000 to VMC for working capital purposes under a three-year
term loan bearing interest at the prime rate plus 2%. VMC is responsible for its
pro-rata share of compensation and fringe benefits of employees and 30% of other
expenses which are common to both Vornado and VMC. This entity is not
consolidated and accordingly, the Company accounts for its investment in VMC on
the equity method. Below is a summarized Statement of Operations of VMC:

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JULY 6, 1995 TO
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Revenues:
Management fees from Alexander's................... $ 5,343,000 $ 2,250,000
Expenses:
General and administrative......................... (2,691,000) (1,130,000)
Interest, net...................................... (282,000) (115,000)
----------- -----------
Income before income taxes........................... 2,370,000 1,005,000
Income taxes......................................... (968,000) (411,000)
----------- -----------
Net income......................................... 1,402,000 594,000
Preferred dividends.................................. (1,332,000) (565,000)
----------- -----------
Net income available to common shareholders.......... $ 70,000 $ 29,000
=========== ===========
Vornado's 95% equity in income....................... $ 1,332,000 $ 565,000
=========== ===========
</TABLE>

14. RELATED PARTY TRANSACTIONS

On December 2, 1996, Michael D. Fascitelli became the President of the
Company and was elected to the Company's Board. Mr. Fascitelli signed a
five-year employment contract under which, in addition to his annual salary, he
received a deferred payment consisting of $5,000,000 in cash and a $20,000,000
convertible obligation payable at the Company's option in 459,770 of its Common
Shares or the cash equivalent of their appreciated value. Accordingly, cash of
$5,000,000 and 459,770 Common Shares (which are not considered outstanding for
accounting purposes) are being held in an irrevocable trust. The deferred
payment obligation to Mr. Fascitelli vests as of December 2, 1997. Further, Mr.
Fascitelli was granted options for 1,750,000 Common Shares of the Company.

At December 31, 1996, the loans due from Mr. Roth ($13,122,500), Mr. Rowan
($299,000) and Mr. Macnow ($268,000) in connection with their stock option
exercises aggregated $13,599,000 ($5,089,000 of which is shown as a reduction in
shareholders' equity). The loans bear interest at a rate equal to the broker
call rate (7.0% at December 31, 1996) but not less than the minimum applicable
federal rate provided under the Internal Revenue Code. Interest on the loan to
Mr. Roth is payable quarterly. Mr. Roth's loan is due on December 29, 1997. The
Company has agreed that on each January 1st (commencing January 1, 1997) to
forgive one-fifth of the amounts due from Mr. Rowan and Mr. Macnow, provided
that they remain employees of the Company.

The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a Management Agreement for which the Company
receives a quarterly fee equal to 4% of base rent and percentage rent and
certain other commissions. The Management Agreement has a term of one year and
is

35
<PAGE> 37

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

automatically renewable unless terminated by either of the parties on sixty
days' notice at the end of the term. Although the Management Agreement was not
negotiated at arms length, the Company believes based upon comparable fees
charged by other real estate companies, that its terms are fair to the Company.
For the years ended December 31, 1996, 1995 and 1994, $2,074,000, $1,150,000 and
$894,000 of management fees were earned by the Company pursuant to the
Management Agreement.

See Notes 3 and 13 for details on the Company's investment in and advances
to Alexander's and VMC.

15. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

The following summary represents the results of operations for each quarter
in 1996 and 1995:

<TABLE>
<CAPTION>
NET
NET INCOME
REVENUE INCOME PER SHARE
----------- ----------- ---------
<S> <C> <C> <C>
1996*
March 31..................................... $28,610,000 $15,922,000 $ .65
June 30...................................... 29,245,000 15,120,000 .62
September 30................................. 29,063,000 14,939,000 .61
December 31.................................. 29,969,000 15,383,000** .62**
1995
March 31..................................... $26,216,000 $11,837,000 $ .54
June 30...................................... 27,056,000 13,185,000 .56
September 30................................. 26,630,000 13,567,000 .56
December 31.................................. 28,816,000 14,419,000 .59
</TABLE>

- ---------------
* The total for the year differs from the sum of the quarters as a result of
weighting.

** In December 1996, the Company recognized an expense of $2,083,000,
representing one month's amortization of the $25,000,000 deferred payment due
to the Company's President. Also, the Company recognized $2,053,000 of
non-recurring income as a result of the reversal of a liability which is no
longer required by Alexander's (which Vornado accounts for on the equity
method).

16. DIVIDEND DISTRIBUTIONS

Dividends are characterized for Federal income tax purposes as follows:

<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Ordinary income............................................. 100.0% 100.0% 96.0%
Return of capital (generally non-taxable)................... -- -- 4.0
----- ----- -----
Total....................................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

17. SUBSEQUENT EVENT

On March 12, 1997, the Company entered into a definitive agreement (the
"Agreement") to acquire interests in all or a portion of seven Manhattan office
buildings and certain management and leasing assets held by the Mendik Company
and certain of its affiliates. In conjunction with this transaction, the Company
will convert to an Umbrella Partnership REIT (UPREIT).

The estimated consideration for the transaction is approximately
$654,000,000, including $269,000,000 in cash, $168,000,000 in UPREIT limited
partnership units and $217,000,000 in indebtedness. Pro forma

36
<PAGE> 38

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

revenue of the Mendik Company and affiliates' interests being acquired was
approximately $109,000,000 for the year ended December 31, 1996.

The Agreement is subject to the consent of third parties and other
customary conditions. It is currently expected that the proposed transaction
would be consummated in the second quarter, but there can be no assurance that
the proposed transaction will be completed.

37
<PAGE> 39

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to trustees of the Registrant are contained in a
definitive Proxy Statement involving the election of trustees which the
Registrant filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934 not later than 120 days
after December 31, 1996, and such information is incorporated herein by
reference. Information relating to Executive Officers of the Registrant appears
at page 11 of this Annual Report on Form 10-K/A.

ITEM 11. EXECUTIVE COMPENSATION

Information relating to executive compensation will be contained in the
Proxy Statement referred to above in Item 10, "Directors and Executive Officers
of the Registrant", and such information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information relating to security ownership of certain beneficial owners and
management will be contained in the Proxy Statement referred to in Item 10,
"Directors and Executive Officers of the Registrant", and such information is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information relating to certain relationships and related transactions will
be contained in the Proxy Statement referred to in Item 10, "Directors and
Executive Officers of the Registrant", and such information is incorporated
herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. The consolidated financial statements are set forth in Item 8 of
this Annual Report on Form 10-K/A.

2. Financial Statement Schedules.

The following financial statement schedules should be read in conjunction
with the financial statements included in Item 8 of this Annual Report on Form
10-K/A.

<TABLE>
<CAPTION>
PAGES IN THIS
ANNUAL REPORT
ON FORM 10-K/A
---------------
<S> <C>
Independent Auditors' Report
II -- Valuation and Qualifying Accounts -- years ended December 31,
1996, 1995 and 1994.......................................... 41
III -- Real Estate and Accumulated Depreciation as of December 31,
1996......................................................... 42
</TABLE>

Schedules other than those listed above are omitted because they are not
applicable or the information required is included in the consolidated financial
statements or the notes thereto.

The consolidated financial statements of Alexander's, Inc. for the year
ended December 31, 1996 are hereby incorporated by reference to Item 14(a)1 of
the Annual Report on Form 10-K of Alexander's, Inc.

3. The following exhibits listed on the Exhibit Index are filed with
this Annual Report on Form 10-K/A.

38
<PAGE> 40

<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
11 Statement Re Computation of Per Share Earnings.
12 Consolidated Ratios of Earnings to Fixed Charges and Combined Fixed Charges and
Preferred Share Dividend Requirements
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors to Incorporation by Reference.
27 Financial Data Schedule.
</TABLE>

(b) Reports on Form 8-K

During the last quarter of the period covered by this Annual Report on Form
10-K/A described below.

<TABLE>
<CAPTION>
PERIOD COVERED:
(DATE OF EARLIEST EVENT)
REPORT ITEMS REPORTED DATE OF REPORT
----------------------------------- ----------------------------- ------------------
<S> <C> <C>
December 2, 1996................... Other events -- December 10, 1996
re: new President of Company
December 18, 1996.................. Other events -- December 18, 1996
re: sale of Common Shares
</TABLE>

39
<PAGE> 41

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

VORNADO REALTY TRUST

By: /s/ JOSEPH MACNOW
------------------------------------
Joseph Macnow, Vice President,
Chief Financial Officer

Date: August 8, 1997

--------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------- ---------------------------- ---------------
<S> <C> <C> <C>

By: /s/ STEVEN ROTH Chairman of the Board of August 8, 1997
--------------------------------------------- Trustees (Principal
(Steven Roth) Executive Officer)

By: /s/ MICHAEL D. FASCITELLI President and Trustee August 8, 1997
---------------------------------------------
(Michael D. Fascitelli)

By: /s/ JOSEPH MACNOW Vice President -- Chief August 8, 1997
--------------------------------------------- Financial Officer and
(Joseph Macnow) Controller (Principal
Financial and Accounting
Officer)

By: /s/ DAVID MANDELBAUM Trustee August 8, 1997
---------------------------------------------
(David Mandelbaum)

By: /s/ STANLEY SIMON Trustee August 8, 1997
---------------------------------------------
(Stanley Simon)

By: /s/ RONALD G. TARGAN Trustee August 8, 1997
---------------------------------------------
(Ronald G. Targan)

By: /s/ RUSSELL B. WIGHT, JR. Trustee August 8, 1997
---------------------------------------------
(Russell B. Wight, Jr.)

By: /s/ RICHARD R. WEST Trustee August 8, 1997
---------------------------------------------
(Richard R. West)
</TABLE>

40
<PAGE> 42

VORNADO REALTY TRUST
AND SUBSIDIARIES

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN B COLUMN D
------------ COLUMN C ------------------------------ COLUMN E
--------------- --------
COLUMN A BALANCE ADDITIONS DEDUCTIONS BALANCE
- ---------------------------------- AT BEGINNING CHARGED AGAINST ------------------------------ AT END
DESCRIPTION OF YEAR OPERATIONS DESCRIPTION AMOUNT OF YEAR
- ---------------------------------- ------------ --------------- ---------------------- ------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Deducted from accounts
receivable allowance for Uncollectible accounts
doubtful accounts............ $578 $ 211 written-off $214 $575
==== ==== ==== ====

YEAR ENDED DECEMBER 31, 1995:
Deducted from accounts
receivable, allowance for Uncollectible accounts
doubtful accounts............ $457 $ 613 written-off $492 $578
==== ==== ==== ====

YEAR ENDED DECEMBER 31, 1994:
Deducted from accounts
receivable, allowance for Uncollectible accounts
doubtful accounts............ $402 $ 385 written-off $330 $457
==== ==== ==== ====
</TABLE>

41
<PAGE> 43

VORNADO REALTY TRUST
AND SUBSIDIARIES

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C COLUMN E
----------------------- ----------------------------------
COLUMN D
INITIAL COST TO -------------- GROSS AMOUNT AT WHICH
COMPANY(1) COSTS CARRIED AT CLOSE OF PERIOD
COLUMN A COLUMN B ----------------------- CAPITALIZED ----------------------------------
- ---------------------------------- ------------ BUILDINGS AND SUBSEQUENT BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(2)
- ---------------------------------- ------------ ------- ------------- -------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
NEW JERSEY
Atlantic City................. $ 2,135* $ 358 $ 2,143 $ 594 $ 358 $ 2,737 $ 3,095
Bordentown.................... 3,276* 498 3,176 1,134 713 4,095 4,808
Bricktown..................... 9,919* 929 2,175 9,179 929 11,354 12,283
Cherry Hill................... 9,706* 915 3,926 3,322 915 7,248 8,163
Delran........................ 2,848* 756 3,184 2,037 756 5,221 5,977
Dover......................... 3,635* 224 2,330 2,354 205 4,703 4,908
East Brunswick................ 8,205* 319 3,236 3,746 319 6,982 7,301
East Hanover.................. 11,066* 376 3,063 3,439 477 6,401 6,878
Hackensack.................... -- 536 3,293 7,177 536 10,470 11,006
Jersey City................... 10,381* 652 2,962 1,798 652 4,760 5,412
Kearny(4)..................... -- 279 4,429 (1,295) 290 3,123 3,413
Lawnside...................... 5,708* 851 2,222 1,313 851 3,535 4,386
Lodi.......................... 2,420* 245 2,315 957 245 3,272 3,517
Manalapan..................... 6,397* 725 2,447 4,959 725 7,406 8,131
Marlton....................... 5,398* 1,514 4,671 694 1,611 5,268 6,879
Middletown.................... 7,761* 283 1,508 3,950 283 5,458 5,741
Morris Plains................. 6,600* 1,254 3,140 3,277 1,104 6,567 7,671
North Bergen(4)............... -- 510 3,390 (955) 2,309 636 2,945
North Plainfield.............. 3,879 500 13,340 329 500 13,669 14,169
Totowa........................ 15,646* 1,097 5,359 11,796 1,097 17,155 18,252
Turnersville.................. 2,116* 900 2,132 75 900 2,207 3,107
Union......................... 15,975* 1,014 4,527 1,888 1,014 6,415 7,429
Vineland...................... 2,358* 290 1,594 1,253 290 2,847 3,137
Watchung(4)................... -- 451 2,347 6,733 4,200 5,331 9,531
Woodbridge.................... 8,792* 190 3,047 709 220 3,726 3,946
-------- ------- ------- ------- ------- -------- --------
Total New Jersey.......... 144,221 15,666 85,956 70,463 21,499 150,586 172,085
-------- ------- ------- ------- ------- -------- --------
NEW YORK
14th Street and Union Square,
Manhattan..................... -- 12,566 4,044 3,457 12,581 7,486 20,067
Albany (Menands).............. -- 460 1,677 2,908 460 4,585 5,045
Buffalo (Amherst)............. 4,863* 402 2,019 2,185 636 3,970 4,606
Freeport...................... 8,021* 1,231 3,273 2,852 1,231 6,125 7,356
New Hyde Park................. 2,043* -- -- 122 -- 122 122
North Syracuse................ -- -- -- 23 -- 23 23
Rochester (Henrietta)......... 2,203* -- 2,124 1,173 -- 3,297 3,297
Rochester..................... 2,832* 443 2,870 635 443 3,505 3,948
-------- ------- ------- ------- ------- -------- --------
Total New York............ 19,962 15,102 16,007 13,355 15,351 29,113 44,464
-------- ------- ------- ------- ------- -------- --------

COLUMN I
COLUMN F ----------------------
---------------- COLUMN G COLUMN H LIFE ON WHICH
COLUMN A ACCUMULATED --------------- -------- DEPRECIATION IN LATEST
- ---------------------------------- DEPRECIATION AND DATE OF DATE INCOME STATEMENT
DESCRIPTION AMORTIZATION CONSTRUCTION(3) ACQUIRED IS COMPUTED
- ---------------------------------- ---------------- --------------- -------- ----------------------
<S> <C> <C> <C> <C>
SHOPPING CENTERS
NEW JERSEY
Atlantic City................. $ 1,820 1965 1965 14-40 Years
Bordentown.................... 3,511 1958 1958 10-40 Years
Bricktown..................... 3,946 1968 1968 27-40 Years
Cherry Hill................... 4,549 1964 1964 15-40 Years
Delran........................ 2,575 1972 1972 20-40 Years
Dover......................... 2,537 1964 1964 16-40 Years
East Brunswick................ 4,592 1957 1957 13-33 Years
East Hanover.................. 3,873 1962 1962 16-40 Years
Hackensack.................... 3,828 1963 1963 17-40 Years
Jersey City................... 3,283 1965 1965 19-40 Years
Kearny(4)..................... 909 1938 1959 28-40 Years
Lawnside...................... 1,892 1969 1969 19-40 Years
Lodi.......................... 2,156 1935 1955 11-27 Years
Manalapan..................... 3,185 1971 1971 18-40 Years
Marlton....................... 3,534 1973 1973 21-40 Years
Middletown.................... 2,376 1963 1963 27-40 Years
Morris Plains................. 3,738 1961 1985 14-19 Years
North Bergen(4)............... 58 1993 1959 30 Years
North Plainfield.............. 3,464 1955 1989 26-30 Years
Totowa........................ 5,068 1957 1957 22-40 Years
Turnersville.................. 1,599 1974 1974 23-40 Years
Union......................... 4,571 1962 1962 10-40 Years
Vineland...................... 1,603 1966 1966 22-40 Years
Watchung(4)................... 377 1994 1959 30 Years
Woodbridge.................... 2,689 1959 1959 11-40 Years
-------
Total New Jersey.......... 71,733
-------
NEW YORK
14th Street and Union Square,
Manhattan..................... 413 1965 1993 40 Years
Albany (Menands).............. 1,739 1965 1965 27-40 Years
Buffalo (Amherst)............. 2,268 1968 1968 14-40 Years
Freeport...................... 2,412 1981 1981 19-40 Years
New Hyde Park................. 122 1970 1976 6-7 Years
North Syracuse................ 23 1967 1976 11-12 Years
Rochester (Henrietta)......... 1,890 1971 1971 22-40 Years
Rochester..................... 2,236 1966 1966 15-40 Years
-------
Total New York............ 11,103
-------
</TABLE>

(Continued)

42
<PAGE> 44

VORNADO REALTY TRUST
AND SUBSIDIARIES

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C COLUMN E
----------------------- ----------------------------------
COLUMN D
INITIAL COST TO -------------- GROSS AMOUNT AT WHICH
COMPANY(1) COSTS CARRIED AT CLOSE OF PERIOD
COLUMN A COLUMN B ----------------------- CAPITALIZED ----------------------------------
- ---------------------------------- ------------ BUILDINGS AND SUBSEQUENT BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(2)
- ---------------------------------- ------------ ------- ------------- -------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PENNSYLVANIA
Allentown..................... 7,696* 70 3,446 9,555 334 12,737 13,071
Bensalem...................... 3,967* 1,198 3,717 1,582 1,198 5,299 6,497
Bethlehem..................... -- 278 1,806 3,634 278 5,440 5,718
Broomall...................... 3,260* 734 1,675 1,606 850 3,165 4,015
Glenolden..................... 4,245* 850 1,295 695 850 1,990 2,840
Lancaster..................... 2,312* 606 2,312 2,475 606 4,787 5,393
Levittown..................... 2,283* 193 1,231 105 193 1,336 1,529
10th and Market Streets,
Philadelphia................ -- 933 3,230 4,148 933 7,378 8,311
Upper Moreland................ 3,517* 683 2,497 112 683 2,609 3,292
York.......................... 1,463* 421 1,700 1,233 421 2,933 3,354
-------- ------- -------- -------- -------- -------- --------
Total Pennsylvania........ 28,743 5,966 22,909 25,145 6,346 47,674 54,020
-------- ------- -------- -------- -------- -------- --------
MARYLAND
Baltimore (Belait Rd)......... -- 785 1,333 2,978 785 4,311 5,096
Baltimore (Towson)............ 5,779* 581 2,756 484 581 3,240 3,821
Baltimore (Dundalk)........... 4,084* 667 1,710 2,952 667 4,662 5,329
Glen Burnie................... 2,299* 462 1,741 522 462 2,263 2,725
Hagerstown.................... -- 168 1,453 894 168 2,347 2,515
-------- ------- -------- -------- -------- -------- --------
Total Maryland............ 12,162 2,663 8,993 7,830 2,663 16,823 19,486
-------- ------- -------- -------- -------- -------- --------
CONNECTICUT
Newington..................... 3,042* 502 1,581 525 502 2,106 2,608
Waterbury..................... 3,889* -- 2,103 1,341 667 2,777 3,444
-------- ------- -------- -------- -------- -------- --------
Total Connecticut......... 6,931 502 3,684 1,866 1,169 4,883 6,052
-------- ------- -------- -------- -------- -------- --------
MASSACHUSETTS
Chicopee...................... 1,999* 510 2,031 358 510 2,389 2,899
Springfield(4)................ -- 505 1,657 857 2,586 433 3,019
-------- ------- -------- -------- -------- -------- --------
Total Massachusetts....... 1,999 1,015 3,688 1,215 3,096 2,822 5,918
-------- ------- -------- -------- -------- -------- --------
TEXAS
Dallas Lewisville............. 764* 2,433 2,271 676 2,469 2,911 5,380
Mesquite...................... 3,445* 3,414 4,704 1,134 3,414 5,838 9,252
Skillman...................... 1,987* 3,714 6,891 1,030 3,714 7,921 11,635
-------- ------- -------- -------- -------- -------- --------
Total Texas............... 6,196 9,561 13,866 2,840 9,597 16,670 26,267
-------- ------- -------- -------- -------- -------- --------
TOTAL SHOPPING CENTERS............ 220,214 50,475 155,103 122,714 59,721 268,571 328,292
-------- ------- -------- -------- -------- -------- --------

COLUMN I
COLUMN F ----------------------
---------------- COLUMN G COLUMN H LIFE ON WHICH
COLUMN A ACCUMULATED --------------- -------- DEPRECIATION IN LATEST
- ---------------------------------- DEPRECIATION AND DATE OF DATE INCOME STATEMENT
DESCRIPTION AMORTIZATION CONSTRUCTION(3) ACQUIRED IS COMPUTED
- ---------------------------------- ---------------- --------------- -------- ----------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA
Allentown..................... 4,059 1957 1957 24-42 Years
Bensalem...................... 3,260 1972 1972 20-40 Years
Bethlehem..................... 2,717 1966 1966 13-40 Years
Broomall...................... 1,792 1966 1966 13-40 Years
Glenolden..................... 946 1975 1975 23-40 Years
Lancaster..................... 2,632 1966 1966 14-40 Years
Levittown..................... 1,059 1964 1964 14-40 Years
10th and Market Streets,
Philadelphia................ 296 1977 1994
Upper Moreland................ 1,833 1974 1974 22-40 Years
York.......................... 1,555 1970 1970 19-40 Years
--------
Total Pennsylvania........ 20,149
--------
MARYLAND
Baltimore (Belait Rd)......... 2,743 1962 1962 26-33 Years
Baltimore (Towson)............ 1,931 1968 1968 19-40 Years
Baltimore (Dundalk)........... 2,301 1966 1966 16-40 Years
Glen Burnie................... 1,717 1958 1958 22-33 Years
Hagerstown.................... 1,239 1966 1966 13-40 Years
--------
Total Maryland............ 9,931
--------
CONNECTICUT
Newington..................... 1,427 1965 1965 15-40 Years
Waterbury..................... 1,669 1969 1969 23-40 Years
--------
Total Connecticut......... 3,096
--------
MASSACHUSETTS
Chicopee...................... 1,694 1969 1969 20-40 Years
Springfield(4)................ 48 1993 1966 30 Years
--------
Total Massachusetts....... 1,742
--------
TEXAS
Dallas Lewisville............. 624 1989 1990 28-30 Years
Mesquite...................... 1,249 1988 1990 28-30 Years
Skillman...................... 1,633 1988 1990 27-30 Years
--------
Total Texas............... 3,506
--------
TOTAL SHOPPING CENTERS............ 121,260
--------
</TABLE>

(Continued)

43
<PAGE> 45

VORNADO REALTY TRUST
AND SUBSIDIARIES

- ---------------

* These encumbrances are cross collateralized under a blanket mortgage in the
amount of $227,000,000 at December 31, 1996.

Notes
(1) Initial cost is cost as of January 30, 1982 (the date on which Vornado
commenced real estate operations) unless acquired subsequent to the
date -- See Column H.

(2) Aggregate cost is approximately the same for Federal income tax purposes.

(3) Date of original construction -- many properties have had substantial
renovation or additional construction -- see Column D.

(4) Building on these properties were demolished in 1993. As a result, the cost
of the buildings and improvements, net of accumulated depreciation, were
transferred to land. In addition, the cost of the land in Kearny is net of a
$1,615,000 insurance recovery.

44
<PAGE> 46

VORNADO REALTY TRUST
AND SUBSIDIARIES

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(AMOUNTS IN THOUSANDS)

The following is a reconciliation of real estate assets and accumulated
depreciation:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
REAL ESTATE
Balance at beginning of period........................ $ 382,476 $ 365,832 $ 340,415
Additions during the period:
Land............................................... -- 161 989
Buildings & improvements........................... 14,822 16,635 24,428
-------- -------- --------
397,298 382,628 365,832
Less: Cost of assets written-off...................... -- 152 --
-------- -------- --------
Balance at end of period.............................. $ 397,298 $ 382,476 $ 365,832
======== ======== ========
ACCUMULATED DEPRECIATION
Balance at beginning of period........................ $ 139,495 $ 128,705 $ 118,742
Additions charged to operating expenses............... 11,589 10,790 9,963
-------- -------- --------
151,084 139,495 128,705
Less: Accumulated depreciation on assets
written-off........................................ 35 -- --
-------- -------- --------
Balance at end of period.............................. $ 151,049 $ 139,495 $ 128,705
======== ======== ========
</TABLE>