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================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-K/A
AMENDMENT NO. 1
[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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-11954
VORNADO REALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 22-1657560
(STATE OR OTHER JURISDICTION OF (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 7, 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 to be held May
28, 1997.
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THIS FORM 10-K/A AMENDS THE FOLLOWING ITEMS OF THE COMPANY'S ANNUAL REPORT
ON FORM 10-K PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
MARCH 13, 1997
TABLE OF CONTENTS
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ITEM PAGE
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PART I 1. Business............................................................. 3
2. Properties........................................................... 7
PART II 6. Selected Consolidated Financial Data................................. 12
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 14
</TABLE>
2
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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
Operating Partnership 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 assets or interests in the retail, office building,
hotel and residential sectors.
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 Company believes that this tenant mix mitigates the effects on its
properties of adverse changes in general
3
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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.) In addition, the Company lent
Alexander's $45,000,000.
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;
(iv) the Flushing property located in Flushing, New York; and
4
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(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 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 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
5
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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.
6
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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
<CAPTION>
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>
Tolowa......................................... 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
<CAPTION>
LEASE
EXPIRATION/
PERCENT OPTION
LOCATION LEASED PRINCIPAL TENANTS EXPIRATION
- --------------------------------------------------- ------- ------------------------ -----------
<S> <C> <C> <C>
Tolowa......................................... 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
<CAPTION>
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
======= ========= ============= ======== =============
<CAPTION>
LEASE
EXPIRATION/
PERCENT OPTION
LOCATION LEASED PRINCIPAL TENANTS EXPIRATION
- --------------------------------------------------- ------- ------------------------ -----------
<S> <C> <C> <C>
TEXAS
Lewisville..................................... 88% Albertson's(7) 2055
Mesquite....................................... 95%
Dallas......................................... 80% Albertson's(7) 2055
-------
Total Shopping Centers..................... 90%
-------
WAREHOUSE/INDUSTRIAL
E. Brunswick..................................... 97% Popsicle Playwear 2000/2005
IFB Apparel 2001/2006
E. Hanover....................................... 94% Various Tenants
Edison........................................... 100% White Cons. Ind. 1998/2001
Garfield......................................... 38% Popular Services of
Various Tenants 2007
-------
Total Warehouse' Industrial................ 81%
-------
OTHER PROPERTIES
Paramus(4)....................................... 65%
Montclair........................................ 100%
Rahway(4)........................................ 100%
Manhattan, NY(8)................................. 100% American Broadcasting
Companies 1999
-------
Total Other Properties..................... 87%
-------
Grand Total................................ 89%
=======
</TABLE>
------------------
(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.
10
<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.
11
<PAGE> 12
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> 13
<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. 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. 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. Funds from operations is a
supplemental measure adopted primarily by the real estate industry to
provide a comparable measure of operating performance in the industry;
however, funds from operations may not be comparable to similarly titled
measures reported by other companies.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 tenant's 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.
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
14
<PAGE> 15
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.
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,
15
<PAGE> 16
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).
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.
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
16
<PAGE> 17
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.
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. 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. 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
17
<PAGE> 18
escalations and leasing fee income. Funds from operations is a supplemental
measure adopted primarily by the real estate industry to provide a comparable
measure of operating performance in the industry; however, funds from operations
may not be comparable to similarly titled measures reported by other companies.
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 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. 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.
18
<PAGE> 19
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 this tenant mix mitigates the effects on its
properties of adverse changes in general economic conditions as indicated by
occupancy rates at its shopping centers of over 90% in the past five years and
the growth of its revenues. 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.
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<PAGE> 20
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: July 18, 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 July 18, 1997
--------------------------------------------- Trustees (Principal
(Steven Roth) Executive Officer)
By: /s/ MICHAEL D. FASCITELLI President and Trustee July 18, 1997
---------------------------------------------
(Michael D. Fascitelli)
By: /s/ JOSEPH MACNOW Vice President -- Chief July 18, 1997
--------------------------------------------- Financial Officer and
(Joseph Macnow) Controller (Principal
Financial and Accounting
Officer)
By: /s/ DAVID MANDELBAUM Trustee July 18, 1997
---------------------------------------------
(David Mandelbaum)
By: /s/ STANLEY SIMON Trustee July 18, 1997
---------------------------------------------
(Stanley Simon)
By: /s/ RONALD G. TARGAN Trustee July 18, 1997
---------------------------------------------
(Ronald G. Targan)
By: /s/ RUSSELL B. WIGHT, JR. Trustee July 18, 1997
---------------------------------------------
(Russell B. Wight, Jr.)
By: /s/ RICHARD R. WEST Trustee July 18, 1997
---------------------------------------------
(Richard R. West)
</TABLE>
20
