<PAGE> 1
EXHIBIT INDEX ON PAGE 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- -
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to _____________________
Commission File Number: 1-11954
VORNADO REALTY TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 22-1657560
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY 07663
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 587-1000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
As of October 23, 1998 there were 84,222,096 common shares
outstanding.
Page 1
<PAGE> 2
VORNADO REALTY TRUST
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997............................................... 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1998 and September 30, 1997................. 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and September 30, 1997................. 5
Notes to Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risks..... 21
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................................... 22
Item 6. Exhibits and Reports on Form 8-K................................ 23
Signatures................................................................... 24
Exhibit Index................................................................ 25
</TABLE>
Page 2
<PAGE> 3
Page 3
PART I. FINANCIAL INFORMATION
VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS:
Real estate, at cost:
Land $ 686,049 $ 436,274
Buildings and improvements 2,316,218 1,118,334
Leasehold improvements and
equipment 10,471 9,485
----------- -----------
Total 3,012,738 1,564,093
Less accumulated depreciation and
amortization (208,943) (173,434)
----------- -----------
Real estate, net 2,803,795 1,390,659
Cash and cash equivalents, including U.S.
government obligations under repurchase
agreements of $17,275 and $8,775 140,853 355,954
Restricted cash 37,412 27,079
Marketable securities 91,687 34,469
Investment in and advances to partially-owned
entities, including investments in and
advance to Alexander's of $103,456 and
$108,752 840,986 482,787
Due from officers 15,414 8,625
Accounts receivable, net of allowance for
doubtful accounts of $2,457 and $658 32,785 16,663
Mortgage loans receivable 10,625 88,663
Deposits in connection with real estate
acquisitions 19,996 47,275
Receivable arising from the straight-
lining of rents 41,847 24,127
Other assets 92,320 47,788
----------- -----------
TOTAL ASSETS $ 4,127,720 $ 2,524,089
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes and mortgages payable $ 1,234,314 $ 586,654
Revolving credit facility 683,250 370,000
Accounts payable and accrued expenses 76,213 36,538
Officer's deferred compensation payable 34,664 25,000
Deferred leasing fee income 9,868 9,927
Other liabilities 2,735 3,641
----------- -----------
2,041,044 1,031,760
----------- -----------
Minority interest 302,549 178,567
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest:
no par value per share; authorized,
20,000,000 shares; liquidation
preference $50.00 per share; issued
5,789,239 and 5,789,315 shares 282,039 279,884
Common shares of beneficial interest:
$.04 par value per share; authorized,
100,000,000 shares; issued 84,222,096
and 72,164,654 shares 3,369 2,887
Additional capital 1,623,877 1,146,385
Accumulated deficit (107,375) (109,561)
----------- -----------
1,801,910 1,319,595
Unrealized loss on securities
available for sale (2,429) (840)
Appreciation of securities held
in officer's deferred compensation trust (10,464) --
Due from officers for purchase of common
shares of beneficial interest (4,890) (4,993)
----------- -----------
Total shareholders' equity 1,784,127 1,313,762
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,127,720 $ 2,524,089
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 4
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
--------------------------- ---------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Property rentals $ 118,197 $ 49,882 $ 299,924 $ 113,353
Expense reimbursements 20,210 10,763 53,000 25,924
Other income (including fee income
from related parties of $450 and $592
and $1,635 and $1,236) 2,265 1,223 6,482 2,550
--------- --------- --------- ---------
Total revenues 140,672 61,868 359,406 141,827
--------- --------- --------- ---------
Expenses:
Operating 58,607 21,899 144,214 48,557
Depreciation and amortization 16,210 6,611 41,605 15,040
General and administrative 6,775 3,460 18,792 8,208
Amortization of officer's deferred
compensation expense -- 6,249 -- 18,747
--------- --------- --------- ---------
Total expenses 81,592 38,219 204,611 90,552
--------- --------- --------- ---------
Operating income 59,080 23,649 154,795 51,275
Income (loss) applicable to Alexander's (2,340) 1,344 806 4,186
Income from partially owned entities 11,195 669 20,871 1,471
Interest and other investment income 5,230 6,086 18,067 17,744
Interest and debt expense (34,034) (13,622) (80,536) (30,972)
Net gain from insurance settlement
and condemnation proceeding 9,649 -- 9,649 --
Minority interest (3,698) (2,500) (10,767) (4,600)
--------- --------- --------- ---------
Net Income 45,082 15,626 112,885 39,104
Preferred stock dividends (including accretion
of issuance expenses of $719 and $719
and $2,157 and $1,198) (5,423) (5,241) (16,268) (10,096)
--------- --------- --------- ---------
Net Income applicable to common shares $ 39,659 $ 10,385 $ 96,617 $ 29,008
========= ========= ========= =========
Net Income per common share - basic $ .47 $ .20 $ 1.22 $ .56
========= ========= ========= =========
Net income per common share - diluted $ .46 $ .19 $ 1.19 $ .54
========= ========= ========= =========
Dividends per common share $ .40 $ .32 $ 1.20 $ .96
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 112,885 $ 39,104
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization (including debt issuance costs) 41,605 16,012
Amortization of officer's deferred compensation expense -- 18,747
Straight-lining of rental income (14,977) (4,947)
Minority interest 10,767 4,600
Equity in (income) loss of Alexander's,
including depreciation of $675 in each period (806) 497
Equity in net income of partially-owned entities (14,593) (553)
Gain on marketable securities (1,530) (911)
Net gain from insurance settlement and
condemnation proceeding (9,649) --
Changes in operating assets and liabilities (23,817) (8,532)
----------- -----------
Net cash provided by operating activities 99,885 64,017
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of real estate and other (855,800) (548,790)
Investments in partially-owned entities (308,800) (19,215)
Investment in mortgage loans receivable (6,562) (67,663)
Repayment of mortgage loans receivable 67,663 --
Cash restricted for tenant improvements (6,133) (27,571)
Additions to real estate (67,392) (4,080)
Purchases of securities available for sale (73,773) (3,436)
Proceeds from sale or maturity of securities available for sale 14,903 --
Real estate deposits and other 51,135 --
----------- -----------
Net cash used in investing activities (1,184,759) (670,755)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,423,953 523,000
Repayments of borrowings (883,043) (151,177)
Debt issuance costs (6,533) (3,038)
Proceeds from issuance of common shares 445,282 --
Proceeds from issuance of preferred stock -- 276,000
Repayment of borrowings on U.S. Treasury obligations -- (9,636)
Dividends paid on common shares (94,430) (50,091)
Dividends paid on preferred shares (16,268) (10,096)
Exercise of stock options 812 447
----------- -----------
Net cash provided by financing activities 869,773 575,409
----------- -----------
Net decrease in cash and cash equivalents (215,101) (31,329)
Cash and cash equivalents at beginning of period 355,954 89,696
----------- -----------
Cash and cash equivalents at end of period $ 140,853 $ 58,367
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest $ 75,305 $ 29,983
=========== ===========
NON-CASH TRANSACTIONS:
Financing assumed in acquisitions $ 497,300 $ 215,000
Minority interest in connection with acquisitions 140,000 177,000
Unrealized (loss) gain on securities available for sale (1,589) 2,019
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 6
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Vornado Realty Trust ("Vornado") is a fully-integrated real estate
investment trust ("REIT"). In April 1997, Vornado transferred substantially all
of its assets to Vornado Realty L.P., a Delaware limited partnership (the
"Operating Partnership"). As a result, Vornado now conducts its business
through, and substantially all of its interests in properties are held by, the
Operating Partnership. Vornado is the sole general partner of the Operating
Partnership and owns a 91.5% limited partnership interest in the Operating
Partnership at September 30, 1998. All references to "Vornado" in these
financial statements refer to Vornado Realty Trust; all references to the
"Operating Partnership" refer to Vornado Realty L.P. and all references to the
"Company" refer to Vornado and its consolidated subsidiaries, including the
Operating Partnership.
2. BASIS OF PRESENTATION
The consolidated balance sheet as of September 30, 1998, the consolidated
statements of income for the three and nine months ended September 30, 1998 and
September 30, 1997 and the consolidated statements of changes in cash flows for
the nine months ended September 30, 1998 and September 30, 1997 are unaudited.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in Vornado's 1997 Annual Report to Shareholders. The results of operations for
the three and nine month periods ended September 30, 1998 are not necessarily
indicative of the operating results for the full year.
The accompanying unaudited consolidated condensed financial statements
include the accounts of Vornado Realty Trust and its majority-owned subsidiary,
Vornado Realty L.P. All significant intercompany amounts have been eliminated.
Equity interests in partially-owned entities include partnerships, joint
ventures and preferred stock affiliates (corporations in which the Company owns
all of the preferred stock and none of the common equity) and are accounted for
under the equity method of accounting as the Company exercises significant
influence over such entities. These investments are recorded initially at cost
and subsequently adjusted for equity in net income (loss) and cash contributions
and distributions. Ownership of the preferred stock entitles the Company to
substantially all of the economic benefits in the preferred stock affiliates.
The common stock of the preferred stock affiliates are owned by officers and
trustees of Vornado.
Certain prior period amounts have been reclassified to conform to the
September 30, 1998 financial statement presentation.
3. ACQUISITIONS AND FINANCINGS:
ACQUISITIONS:
Westport
On January 29, 1998, the Company acquired the Westport Corporate Office Park
from a limited partnership that included members of the Mendik Group, a related
party. The purchase price was approximately $14 million consisting of $6 million
of cash and an $8 million mortgage loan.
One Penn Plaza
On February 9, 1998, the Company acquired a long-term leasehold interest in
One Penn Plaza, a Manhattan office building. The purchase price was
approximately $410 million consisting of $317 million of cash and a $93 million
bridge mortgage loan.
Page 6
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VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
150 East 58th Street
On March 9, 1998, the Company acquired 150 East 58th Street (the "Architects
and Design Center"), a Manhattan office building, for a cash purchase price of
approximately $118 million.
The Merchandise Mart Properties
On April 1, 1998, the Company acquired a real estate portfolio from the
Kennedy Family for approximately $630 million, consisting of $187 million in
cash, $116 million in Operating Partnership Units, $77 million in existing debt
and $250 million of newly issued debt.
The acquired real estate assets consist of a portfolio of properties used
for office, retail and trade showroom space which aggregate approximately 5.4
million square feet and include the Merchandise Mart in Chicago. The transaction
also includes the acquisition of Merchandise Mart Properties, Inc. which manages
the properties and trade shows.
Following is a summary of the notes and mortgages payable, collateralized by
the Merchandise Mart Properties (amounts in thousands):
<TABLE>
<S> <C>
Merchandise Mart mortgage payable, due in 1999, non-amortizing with interest
at LIBOR plus 1.35% (7.00% at September 30, 1998) (prepayable without
penalty) $250,000
Washington Office Center mortgage payable, due in 2004, amortization based
on a 25 year term, with interest at 6.80% (prepayable with yield
maintenance) 51,537
Washington Design Center mortgage payable, due in 2000, amortization based
on a 25 year term, with interest at LIBOR plus 3.00% (8.59% at September
30, 1998) (prepayable without penalty) 24,335
--------
$325,872
========
</TABLE>
888 Seventh Avenue and 40 Fulton Street
On June 2, 1998, the Company entered into an agreement to acquire the
leasehold interest in 888 Seventh Avenue, a 46 story office building containing
approximately 847,000 square feet located in midtown Manhattan, and
simultaneously acquired 40 Fulton Street, a 29 story office building containing
approximately 234,000 square feet located in downtown Manhattan. The aggregate
consideration for both buildings is approximately $154.5 million. The
acquisition of 888 Seventh Avenue is expected to be completed in the first
quarter of 1999 and is subject to customary closing conditions.
770 Broadway
On July 24, 1998, the Company acquired 770 Broadway, a 1,000,000 square foot
Manhattan office building, for approximately $149 million, including $18 million
of Operating Partnership Units.
Page 7
<PAGE> 8
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital Trust
On July 28, 1998, the Company purchased $50 million of Capital Trust's 8.25%
Step Up Convertible Trust Preferred Securities. The preferred securities are
convertible at any time by the holder into common shares of Capital Trust at a
price of $11.70 per share. The preferred shares have a 20-year maturity and are
non-callable for five years. Capital Trust is a fully integrated, self-managed
specialty finance company focused on the commercial real estate industry. Steven
Roth, Chairman and Chief Executive Officer of Vornado joined Capital Trust's
Board of Trustees.
689 Fifth Avenue
On August 12, 1998, the Company acquired 689 Fifth Avenue, a 84,000 square
foot Manhattan specialty building for approximately $33 million.
OTHER FINANCINGS:
Sale of Common Shares
On April 15, 1998, the Company completed the sale of 10,000,000 common
shares pursuant to an effective registration statement with net proceeds to the
Company of approximately $401,000,000. On April 29, 1998, the Company sold
1,132,420 common shares to a unit investment trust, which were valued for the
purpose of the trust at $41.06 per share, resulting in net proceeds of
approximately $44,000,000.
One Penn Plaza
On June 15, 1998, the Company completed a $275,000,000 refinancing of its
One Penn Plaza office building and borrowed $170,000,000 pursuant thereto. In
the third quarter of 1998, the Company borrowed the remaining $105,000,000. The
debt matures in June 2002, is prepayable at anytime, and bears interest at LIBOR
+ 1.25% (currently 6.91%). This debt replaced the $93,000,000 bridge-mortgage
loan financing put in place when the property was acquired.
See "Investments in and Advances to Partially Owned Entities" for other
acquisitions and financing activities of partially owned entities.
PRO FORMA INFORMATION
The unaudited pro forma condensed consolidated statements of income for Vornado
for the nine months ended September 30, 1998 and 1997 are presented as if the
acquisitions described above and those included in Investments in and Advances
to Partially Owned Entities and the financings attributable thereto had occurred
on January 1, 1997.
Condensed Consolidated Pro Forma Income Statements
<TABLE>
<CAPTION>
Pro Forma
------------------------------------------
Nine Months Ended
------------------------------------------
September 30, 1998 September 30, 1997
------------------ ------------------
(amounts in thousands, except per share amounts)
<S> <C> <C>
Revenues $ 479,700 $ 449,500
========= =========
Net income $ 126,100 $ 93,700
Preferred stock dividends (16,300) (15,200)
--------- ---------
Net income applicable to common shares $ 109,800 $ 78,500
========= =========
Net income per common share - basic $ 1.30 $ .93
========= =========
Net income per common share - diluted $ 1.27 $ .91
========= =========
</TABLE>
Page 8
<PAGE> 9
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENTS IN AND ADVANCES TO PARTIALLY-OWNED ENTITIES:
The Company's investments in and advances to partially-owned entities and
income recognized from such investments is as follows:
INVESTMENTS AND ADVANCES:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(amounts in thousands)
<S> <C> <C>
Cold Storage Companies $445,901 $243,846
Alexander's 103,456 108,752
Charles E. Smith Commercial Realty L.P. 61,554 60,437
Hotel Pennsylvania 46,789 20,152
Newkirk Joint Ventures 55,913 --
Mendik Partially-Owned Office Buildings 79,391 37,209
Vornado Management Corp., Mendik
Management Company, Merchandise
Mart Properties, Inc. and other 47,982 12,391
-------- --------
$840,986 $482,787
======== ========
</TABLE>
INCOME:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- -----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Income Applicable to Alexander's $ (2,340) $ 1,344 $ 806 $ 4,186
======== ======== ======== ========
Other Partially-Owned Entities:
Cold Storage Companies $ 5,008 $ -- $ 8,172 $ --
Charles E. Smith Commercial
Realty L.P. 1,054 -- 3,405 --
Hotel Pennsylvania 1,361 -- 2,750 --
Newkirk Joint Ventures 1,006 -- 1,006 --
Mendik Partially-Owned Office
Buildings 959 271 2,181 553
Vornado Management Corp.,
Mendik Management Company,
Merchandise Mart Properties
Inc. and other 1,807 398 3,357 918
-------- -------- -------- --------
$ 11,195 $ 669 $ 20,871 $ 1,471
======== ======== ======== ========
</TABLE>
Alexander's
Alexander's is managed by and its properties are leased by the Company
pursuant to agreements with a one-year term which are automatically renewable.
Subject to the payments of rents by Alexander's tenants, the Company is due
$3,221,000 under its leasing agreement with Alexander's which amount is included
in Investments in and Advances to Alexander's. Included in Income from Vornado
Management Corp. is management fee income from Alexander's of $1,563,000 and
$4,688,000 in each of the three and nine months ended September 30, 1998 and
1997, respectively.
On June 18, 1998, Alexander's increased its interest in the Kings Plaza
Mall to 100% by acquiring Federated Department Store's ("Federated") 50%
interest. The purchase price was approximately $28,000,000, which was paid in
cash. In addition, Alexander's has agreed to pay Federated $15,000,000 to
renovate its Macy's store in the mall in exchange for certain modifications to
the Kings Plaza Operating Agreement. In connection with the acquisition,
Alexander's has completed a $90 million three-year mortgage loan with Union Bank
of Switzerland.
Page 9
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VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cold Storage Companies
On April 23, 1998, the Cold Storage Companies completed a $550,000,000
non-recourse ten-year loan secured by 58 of its warehouses. The loan bears
interest at 6.89%. The net proceeds from the loan together with working capital
were used to repay $607,000,000 of bridge financing, which replaced high yield
debt assumed at the date of acquisition.
On June 15, 1998, a partnership in which Vornado owns a 60% interest
through a preferred stock affiliate acquired the assets of Freezer Services,
Inc., consisting of nine cold storage warehouses in the central United States
for approximately $133 million, including $107 million in cash and $26 million
in indebtedness. On July 1, 1998, the Carmar Group cold storage warehouse
business was similarly acquired for approximately $158 million, including $144
million in cash and $14 million in indebtedness. Carmar owns and operates five
cold storage distribution warehouses in the midwest and southeast United States.
Hotel Pennsylvania
On May 1, 1998, the Company acquired an additional 40% interest in the
Hotel Pennsylvania increasing its ownership to 80%. The Company purchased the
additional 40% interest from Hotel Properties Limited (one of its joint venture
partners) for approximately $70 million, including $48 million of existing debt.
Newkirk Joint Ventures
On July 8, 1998, the Company invested $47 million for a 30% share in joint
ventures with affiliates of Apollo Real Estate Investment Fund III, L.P.,
collectively Newkirk Joint Ventures ("Newkirk"). Newkirk owns various equity and
debt interests relating to 120 limited partnerships which own real estate
primarily net leased to credit rated tenants. An additional $9 million was
invested prior to September 30, 1998 and the Company has issued a $15.6 million
letter of credit in connection with these joint ventures.
Mendik Partially-Owned Office Buildings
On April 20, 1998, the Company increased its interest from 5.6% to
approximately 50% in 570 Lexington Avenue, a 49 story office building located in
midtown Manhattan containing approximately 435,000 square feet. The Company
purchased the additional interest for approximately $37.2 million, including
$4.9 million of existing debt.
On August 4, 1998, the Company sold a 40% interest in a $27,000,000 mortgage
on 20 Broad Street to one of the owners of the property for $10,800,000. On
August 5, 1998, as part of a related transaction, the Company acquired the
Mendik Group's 60% interest in the property for approximately $600,000 of
Vornado Operating Partnership Units.
5. OTHER RELATED PARTY TRANSACTIONS
The Company lent Mr. Fascitelli, the President of the Company, $3,500,000 on
March 2, 1998 and $2,600,000 on April 30, 1998, in accordance with the terms of
his employment agreement. The loans have a five-year term and bear interest,
payable quarterly, at a rate of 5.47% and 5.58%, respectively (based on the
mid-term applicable federal rate provided under the Internal Revenue Code).
The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement. Management fees earned
by the Company pursuant to the management agreement were $184,000 and $470,000
for the three months ended September 30, 1998 and 1997 and $956,000 and $847,000
for the nine months ended September 30, 1998 and 1997.
Page 10
<PAGE> 11
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Mendik Group owns an entity which provides cleaning and related services
and security services to office properties including the Company's Manhattan
office properties acquired subsequent to September 30, 1997. The Company was
charged fees for these services of $7,356,000 and $18,580,253 for the three and
nine months ended September 30, 1998 and $3,292,000 for the three months ended
September 30, 1997 and $5,899,000 for the period from April 15, 1997 to
September 30, 1997. A portion of these fees is expected to be reimbursed to the
Company by its tenants.
6. NET GAIN FROM INSURANCE SETTLEMENT AND CONDEMNATION PROCEEDINGS
In April 1997, the Company's Lodi shopping center was destroyed by a fire.
In the third quarter of 1998, the Company and its insurer agreed that the
estimated cost to reconstruct the shopping center is approximately $9,012,000
and the Company recorded a gain of $7,955,000 (the agreed upon amount, net of
the carrying value of the shopping center of $1,057,000). The insurance carrier
had previously advanced $5,550,000 to the Company. The reconstruction of the
shopping center is expected to be completed in 1999.
On September 1, 1998, Atlantic City condemned the Company's vacant property.
In the third quarter of 1998, the Company recorded a gain of $1,694,000, (which
reflects the condemnation award of $3,100,000, net of the carrying value of the
building of $1,406,000). The Company is contesting the amount of the award.
7. COMMITMENTS AND CONTINGENCIES
At September 30, 1998, in addition to the $683,250,000 balance outstanding
under the Company's revolving credit facility, the Company had utilized
approximately $100,218,000 of availability under the facility for letters of
credit and guarantees primarily related to pending acquisitions.
In January 1997, two individual investors in Mendik Real Estate Limited
Partnership ("RELP"), the publicly held limited partnership that indirectly owns
a 60% interest in the Two Park Avenue Property, filed a purported class action
against NY Real Estate Services 1, Inc. ("NY Real Estate"), Mendik RELP Corp.,
B&B Park Avenue, L.P. (an indirect subsidiary of the Company which acquired the
remaining 40% interest in Two Park Avenue) and Bernard H. Mendik in the Supreme
Court of the State of New York, County of New York, on behalf of all persons
holding limited partnership interests in RELP. The complaint alleges that, for
reasons which include purported conflicts of interest, the defendants breached
their fiduciary duty to the limited partners, that the then proposed transfer of
the 40% interest in Two Park Avenue would result in a burden on the operation
and management of Two Park Avenue and that the transfer of the 40% interest
violates RELP's right of first refusal to purchase the interest being
transferred and fails to provide limited partners in RELP with a comparable
transfer opportunity. Shortly after the filing of the complaint, another limited
partner represented by the same attorneys filed an essentially identical
complaint in the same court. Both complaints seek unspecified damages, an
accounting and a judgment requiring either the liquidation of RELP and the
appointment of a receiver or an auction of Two Park Avenue. In August 1997, a
fourth limited partner, represented by separate counsel, commenced another
purported class action in the same court by serving a complaint essentially
identical to the complaints in the two previously commenced actions. These
lawsuits have since been consolidated. On June 2, 1998, the parties entered into
a Stipulation and Agreement of Compromise, Settlement and Release (the
"Settlement"). The Settlement provides, among other things: (i) for Vornado to
purchase the Partnership's interest in Two Park Avenue for approximately $34.6
million, which will be paid in cash, or at Vornado's election, in any
combination of cash or shares of Vornado stock, plus the assumption of $39
million in existing debt; and (ii) for Vornado to purchase the Partnership's
interest in 550-600 Mamaroneck Avenue, Harrison, New York and 330 West 34th
Street, New York, NY for an aggregate price of $30 million in cash. On October
14, 1998, the Supreme Court of the State of New York for New York County
approved the proposed settlement. On November 6, 1998, the Court's judgment
became final. It is expected that the transaction will close within the next
30 days.
Page 11
<PAGE> 12
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- ----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
(amounts in thousands except per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Net income $ 45,082 $ 15,626 $ 112,885 $ 39,104
Preferred stock dividends (5,423) (5,241) (16,268) (10,096)
--------- --------- --------- ---------
Numerator for basic and
diluted earnings per share -
income applicable to
common shares $ 39,659 $ 10,385 $ 96,617 $ 29,008
========= ========= ========= =========
Denominator:
Denominator for basic
earnings per share
-- weighted average
shares 83,755 52,195 79,407 52,194
Effect of dilutive securities:
Employee stock options 1,673 1,768 2,075 1,454
--------- --------- --------- ---------
Denominator for diluted
earnings per share -
adjusted weighted
average shares and
assumed conversions 85,428 53,963 81,482 53,648
========= ========= ========= =========
Net income per common
share - basic $ .47 $ .20 $ 1 .22 $ .56
========= ========= ========= =========
Net income per common
share - diluted $ .46 $ .19 $ 1.19 $ .54
========= ========= ========= =========
</TABLE>
9. COMPREHENSIVE INCOME AND ACCOUNTING FOR DEFERRED COMPENSATION ARRANGEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards
for reporting and display of comprehensive income and its components. The
statement, which requires disclosure of net income including unrealized gains
and losses recognized in the equity section of the balance sheet, was adopted by
the Company in the first quarter of 1998.
Page 12
<PAGE> 13
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, at September 30, 1998, the Company adopted Emerging Issues Task
Force (EITF) Issue No. 97-14, "Accounting for Deferred Compensation Arrangements
Where Amounts Earned are Held in a Rabbi Trust and Invested". This EITF provides
the framework for the accounting for changes in the value of investments held in
a Rabbi Trust and the effects of such changes on compensation expense.
The Company's comprehensive income was $34,766,000 and $11,408,000 for the
three months ended September 30, 1998 and 1997 and $95,028,000 and $31,027,000
for the nine months ended September 30, 1998 and 1997.
10. SUBSEQUENT EVENTS
Vornado Operating Company
On October 16, 1998, the Company completed its spin-off of Vornado Operating
Company. Holders of Vornado Realty Trust common shares and the Operating
Partnership's Class A, Class C and Class D units ("Units") received one share of
common stock, par value $.01 per share of Vornado Operating Company ("Common
Stock") for every 20 common shares or units held of record on October 9, 1998.
The conversion price of the Company's $3.25 Series A Convertible Preferred
Shares was adjusted from $36.38 to $36.10 to reflect the distribution.
The Company has capitalized Vornado Operating Company with an equity
contribution of $25 million. In addition, the Company has agreed to enter into a
$75 million revolving credit agreement with Vornado Operating Company.
Las Catalinas Mall
On October 29, 1998, Vornado completed its acquisition of K Mart's 50%
interest in the Las Catalinas Mall located in Caguas, Puerto Rico (adjacent to
San Juan). In addition, Vornado acquired 75% and Vornado's partner in the Mall
acquired 25% of K Mart's anchor store. Vornado's purchase price of $38 million
was fully financed with 15 year non-recourse debt. The Las Catalinas Mall, which
opened in 1997 contains 485,000 square feet, including a 123,000 square foot K
Mart and a 146,000 square foot Sears.
Page 13
<PAGE> 14
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained herein constitute forward-looking statements as
such term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Certain factors could cause actual
results to differ materially from those in the forward-looking statements.
Factors that might cause such a material difference include, but are not limited
to, (a) changes in the general economic climate, (b) local conditions such as an
oversupply of space or a reduction in demand for real estate in the area, (c)
conditions of tenants, (d) competition from other available space, (e) increased
operating costs and interest expense, (f) the timing of and costs associated
with property improvements, (g) changes in taxation or zoning laws, (h)
government regulations, (i) failure of Vornado to continue to qualify as a REIT,
(j) availability of financing on acceptable terms, (k) potential liability under
environmental or other laws or regulations, (l) general competitive factors and
(m) the impact of the Year 2000 issue, including the effect of third parties'
failure to address the Year 2000 issue as well as the Company's own readiness.
RESULTS OF OPERATIONS
The Company's revenues, which consist of property rentals, tenant expense
reimbursements and other income were $140,672,000 in the quarter ended September
30, 1998, compared to $61,868,000 in the prior year's quarter, an increase of
$78,804,000. Revenues were $359,406,000 for the nine months ended September 30,
1998, compared to $141,827,000 in the prior year's nine months, an increase of
$217,579,000. These increases included $70,522,000 and $201,586,000 of revenues
from properties acquired which are not reflected in operations for all or a
portion of the prior year's periods presented.
Property rentals were $118,197,000 in the quarter ended September 30, 1998,
compared to $49,882,000 in the prior year's quarter, an increase of $68,315,000.
Property rentals were $299,924,000 for the nine months ended September 30, 1998,
compared to $113,353,000 in the prior year's nine months, an increase of
$186,571,000. These increases resulted from:
<TABLE>
<CAPTION>
Three Months Nine Months
Date of Ended Ended
Acquisitions: Acquisition September 30, 1998 September 30, 1998
------------- ----------- ------------------ ------------------
<S> <C> <C> <C>
20 Broad Street August 1998 $1,800,000 $1,800,000
689 Fifth Avenue August 1998 472,000 472,000
770 Broadway July 1998 2,935,000 2,935,000
40 Fulton Street June 1998 1,504,000 1,993,000
Merchandise Mart Properties April 1998 27,477,000 54,364,000
150 E. 58th Street March 1998 3,978,000 9,128,000
One Penn Plaza February 1998 14,859,000 39,468,000
Westport January 1998 661,000 1,778,000
Green Acres Mall December 1997 5,404,000 16,367,000
640 Fifth Avenue December 1997 1,796,000 4,407,000
Riese June 1997 -- 486,000
90 Park Avenue May 1997 -- 13,889,000
Mendik April 1997 -- 24,949,000
Montehiedra Shopping Center April 1997 -- 2,203,000
----------- ------------
60,886,000 174,239,000
Leasing Activity and Step-Ups in Leases:
Shopping centers 1,656,000 4,736,000
Office buildings 5,773,000 7,596,000
----------- ------------
$68,315,000 $186,571,000
=========== ============
</TABLE>
Page 14
<PAGE> 15
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Tenant expense reimbursements were $20,210,000 in the quarter ended September
30, 1998, compared to $10,763,000 in the prior year's quarter, an increase of
$9,447,000. Tenant expense reimbursements were $53,000,000 for the nine months
ended September 30, 1998, compared to $25,924,000 in the prior year's nine
months, an increase of $27,076,000. These increases included $9,450,000 and
$27,590,000 from tenants at properties acquired which are not reflected in
operations for all or a portion of the prior year's periods presented.
Operating expenses were $58,607,000 in the quarter ended September 30, 1998,
as compared to $21,899,000 in the prior year's quarter, an increase of
$36,708,000. Operating expenses were $144,214,000 for the nine months ended
September 30, 1998, compared to $48,557,000 in the prior year's nine months, an
increase of $95,657,000. These increases included (i) $35,393,000 and
$93,078,000 from properties acquired which are not reflected in operations for
all or a portion of the prior year's periods presented and (ii) $1,315,000 and
$2,579,000 primarily for building maintenance at the Company's other properties.
Depreciation and amortization was $16,210,000 in the quarter ended September
30, 1998, as compared to $6,611,000 in the prior year's quarter, an increase of
$9,599,000. Depreciation and amortization was $41,605,000 for the nine months
ended September 30, 1998, compared to $15,040,000 in the prior year's nine
months, an increase of $26,565,000. These increases were primarily a result of
acquisitions.
General and administrative expenses were $6,775,000 in the quarter ended
September 30, 1998 compared to $3,460,000 in the prior year's quarter, an
increase of $3,315,000. General and administrative expenses were $18,792,000 for
the nine months ended September 30, 1998, compared to $8,208,000 in the prior
year's nine months, an increase of $10,584,000. Of these increases: (i) $921,000
and $4,237,000 is attributable to acquisitions, (ii) $1,660,000 and $3,703,000
resulted from payroll, primarily for additional employees, and corporate office
expenses and (iii) $734,000 and $2,644,000 resulted from professional fees.
The Company recognized an expense of $6,249,000 and $18,747,000 in the prior
year's quarter and nine months representing the amortization of the deferred
payment due to the Company's President, which was fully amortized at December
31, 1997.
Income (loss) applicable to Alexander's (loan interest income, equity in
income (loss) and depreciation) was $(2,340,000) in the quarter ended September
30, 1998, compared to $1,344,000 in the prior year's quarter, a decrease of
$3,684,000. Income applicable to Alexander's was $806,000 for the nine months
ended September 30, 1998, compared to $4,186,000 in the prior year's nine
months, a decrease of $3,380,000. These decreases resulted primarily from (i)
the Company's equity in Alexander's loss of $4,423,000 from the write-off of the
carrying value of Alexander's Lexington Avenue building and predevelopment
costs, partially offset by (ii) income from the commencement of leases at
Alexander's Rego Park and Kings Plaza store properties and (iii) income from
Alexander's acquisition of the remaining 50% interest in the Kings Plaza Mall.
Income from partially-owned entities was $11,195,000 in the quarter ended
September 30, 1998, compared to $669,000 in the prior year's quarter, an
increase of $10,526,000. Income from partially-owned entities was $20,871,000
for the nine months ended September 30, 1998, compared to $1,471,000 in the
prior year's nine months, an increase of $19,400,000. These increases resulted
from:
<TABLE>
<CAPTION>
Three Months Nine Months
Date of Ended Ended
Acquisitions: Acquisition September 30, 1998 September 30, 1998
------------- ----------- ------------------ ------------------
<S> <C> <C> <C>
Cold Storage Companies October 1997 $ 5,008,000 $ 8,172,000
Charles E. Smith
Commercial Realty L.P. October 1997 1,054,000 3,405,000
Hotel Pennsylvania September 1997 1,361,000 2,750,000
Newkirk Joint Ventures July 1998 1,006,000 1,006,000
Mendik partially-owned office buildings April 1997 688,000 1,728,000
Merchandise Mart Management
Company April 1998 324,000 1,272,000
----------- -----------
9,441,000 18,333,000
Other 1,085,000 1,067,000
----------- -----------
$10,526,000 $19,400,000
=========== ===========
</TABLE>
Page 15
<PAGE> 16
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest and other investment income (interest income on mortgage loans
receivable, other interest income, dividend income and net gains on marketable
securities) was $5,230,000 for the quarter ended September 30, 1998, compared to
$6,086,000 in the prior year's quarter, a decrease of $856,000. This decrease
resulted primarily from lower average investments this year. Interest and other
investment income was $18,067,000 for the nine months ended September 30, 1998,
compared to $17,744,000 in the prior year's nine months, an increase of
$323,000.
Interest and debt expense was $34,034,000 for the quarter ended September 30,
1998, compared to $13,622,000 in the prior year's quarter, an increase of
$20,412,000. Interest and debt expense was $80,536,000 for the nine months ended
September 30, 1998, compared to $30,972,000 in the prior year's nine months, an
increase of $49,564,000. These increases resulted primarily from debt in
connection with acquisitions.
In the third quarter of 1998, the Company recorded a net gain of $9,649,000,
in connection with an insurance settlement and condemnation proceeding (see Note
6 to the Consolidated Financial Statements).
The minority interest is comprised of:
<TABLE>
<CAPTION>
For The Three Months Ended For the Nine Months Ended
-------------------------------------------- ----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Preferential distributions to unit
holders in the Operating
Partnership $ 3,423,000 $ 2,500,000 $10,492,000 $ 4,600,000*
40% interest in 20 Broad Street 275,000 -- 275,000 --
----------- ----------- ----------- -----------
$ 3,698,000 $ 2,500,000 $10,767,000 $ 4,600,000
=========== =========== =========== ===========
</TABLE>
* For the period from April 15, 1997 to September 30, 1997
The preferred stock dividends of $5,423,000 and $16,268,000 for the three and
nine months ended September 30, 1998 and $5,241,000 for the three months ended
September 30, 1997 and $10,096,000 for the period from April 15, 1997 to
September 30, 1997 apply to the Company's $3.25 Series A Convertible Preferred
Shares issued in April and December 1997 and include accretion of expenses of
issuing them.
Page 16
<PAGE> 17
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Nine Months Ended September 30, 1998
Cash flows provided by operating activities of $99,885,000 was primarily
comprised of (i) income of $103,236,000 (net income of $112,885,000 less net
gain from insurance settlement and condemnation proceeding of $9,649,000) and
(ii) adjustments for non-cash items of $21,996,000, offset by (iii) the net
change in operating assets and liabilities of $23,817,000. The adjustments for
non-cash items are primarily comprised of (i) depreciation and amortization of
$41,605,000 and (ii) minority interest of $10,767,000, partially offset by (iii)
the effect of straight-lining of rental income of $14,977,000 and (iv) equity in
net income of partially-owned entities of $14,593,000. The net change in
operating assets and liabilities reflects an increase in prepaid real estate
taxes of $15,792,000.
Net cash used in investing activities of $1,184,759,000 was primarily
comprised of (i) acquisitions of real estate of $855,800,000 (see detail below),
(ii) investments in partially-owned entities of $308,000,000 (see detail below),
(iii) capital expenditures of $67,392,000 and investments in securities of
$73,773,000 (including $48,500,000 purchase of Capital Trust Preferred Stock),
partially offset by (v) proceeds from the repayment of mortgage loans receivable
of $67,663,000. Acquisitions of real estate and investments in partially-owned
entities are comprised of (amounts in thousands):
<TABLE>
<CAPTION>
Debt Value of Total
Cash Assumed Units Issued Consideration
---- ------- ------------ -------------
<S> <C> <C> <C> <C>
Real Estate:
Merchandise Mart Properties $ 187,000 $ 327,000 $ 116,000 $ 630,000
One Penn Plaza Office Building 317,000 93,000 -- 410,000
770 Broadway Office Building 131,000 -- 18,000 149,000
150 East 58th Street Office Building 118,000 -- -- 118,000
40 Fulton Street Office Building 54,000 -- -- 54,000
689 Fifth Avenue Office Building 33,000 -- -- 33,000
Other 15,800 -- -- 15,800
---------- ---------- ---------- ----------
$ 855,800 $ 420,000 $ 134,000 $1,409,800
========== ========== ========== ==========
Investments in Partially Owned Entities:
Hotel Pennsylvania (acquisition of additional
40% interest increasing ownership to 80%) $ 22,000 $ 48,000 $ -- $ 70,000
570 Lexington Avenue Office Building
(increased interest from 5.6% to
approximately 50%) 32,300 4,900 -- 37,200
Acquisition of Freezer Services, Inc. (60%
interest) 58,000 16,000 6,000 80,000
Reduction in Cold Storage Companies
debt (60% interest) 44,000 -- -- 44,000
Acquisition of Carmar Group (60% interest) 86,400 8,400 -- 94,800
Investment in Newkirk Joint Ventures 56,000 -- -- 56,000
Other 9,300 -- -- 9,300
---------- ---------- ---------- ----------
$ 308,000 $ 77,300 $ 6,000 $ 391,300
========== ========== ========== ==========
</TABLE>
Net cash provided by financing activities of $869,773,000 was primarily
comprised of (i) proceeds from borrowings of $1,423,953,000, and (ii) proceeds
from the issuance of common shares of $445,282,000, partially offset by (iii)
repayment of borrowings of $883,043,000, (iv) dividends paid on common shares of
$94,430,000 and (v) dividend paid on preferred shares of $16,268,000.
Page 17
<PAGE> 18
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997
Cash flows provided by operating activities of $64,017,000 was comprised of
(i) net income of $39,104,000 and (ii) adjustments for non-cash items of
$33,445,000, partially offset by (iii) the net change in operating assets and
liabilities of $8,532,000. The adjustments for non-cash items are primarily
comprised of (i) amortization of deferred officer's compensation expense of
$18,747,000, (ii) depreciation and amortization of $16,012,000, (iii) equity in
loss of Alexander's of $497,000, and (iv) minority interest of $4,600,000,
partially offset by (v) the effect of straight-lining of rental income of
$4,947,000 and (vi) equity in net income of investees of $553,000.
Net cash used in investing activities of $670,755,000 was primarily comprised
of (i) expenditures of $263,790,000 in connection with the Mendik Transaction,
(ii) investments in mortgage loans receivable of $67,663,000, (iii) capital
expenditures and investments in partnerships and joint ventures of $308,295,000
and (iv) restricted cash for tenant improvements of $27,571,000. Investments in
mortgage loans receivable are comprised of (a) a loan of $41,000,000 to
affiliates of the Riese Organization cross collateralized by ten Manhattan
properties and (b) a mortgage on a 460,000 square foot office building at 20
Broad Street in Manhattan, New York, purchased at a discount from a bank for
$27,000,000.
Net cash provided by financing activities of $575,409,000 was primarily
comprised of proceeds from (i) borrowings of $523,000,000, and (ii) issuance of
preferred shares of $276,000,000, partially offset by (iii) repayment of
borrowings of $151,177,000, (iv) dividends paid of $60,187,000 and (v) the
repayment of borrowings on U.S. Treasury obligations of $9,636,000.
Funds from Operations for the Three and Nine Months Ended September 30, 1998
and 1997
Funds from operations were $58,608,000 in the quarter ended September 30,
1998, compared to $17,056,000 in the prior year's quarter, an increase of
$41,552,000. Funds from operations were $157,789,000 in the nine months ended
September 30, 1998, compared to $43,789,000 in the prior year's nine months, an
increase of $114,000,000. Funds from operations for the prior year's quarter and
nine months reflect amortization of the deferred payment due to the Company's
President of $6,249,000 and $18,747,000. The following table reconciles funds
from operations and net income:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
----------------------------------------- ----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net income applicable to common
shares $ 39,659,000 $ 10,385,000 $ 96,617,000 $ 29,008,000
Depreciation and amortization of
real property 15,969,000 6,466,000 41,002,000 14,623,000
Straight-lining of property rentals
for rent escalations (3,804,000) (830,000) (10,218,000) (2,317,000)
Leasing fees received in excess
of income recognized 310,000 480,000 1,047,000 1,333,000
Proportionate share of adjustments
to equity in net income of partially
owned entities to arrive
at funds from operations 17,315,000 555,000 41,691,000 1,142,000
Net gain from insurance settlement
and condemnation proceeding (9,649,000) -- (9,649,000) --
Minority interest in excess of
preferential distributions (1,192,000) -- (2,701,000) --
------------- ------------- ------------- -------------
$ 58,608,000 $ 17,056,000 $ 157,789,000 $ 43,789,000
============= ============= ============= =============
</TABLE>
The number of shares that should be used for determining funds from
operations per share is the number used for diluted earnings per share.
Page 18
<PAGE> 19
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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>
For the Three Month Ended For the Nine Months ended
---------------------------------------- -------------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Operating activities $ 17,674,000 $ 13,028,000 $ 99,885,000 $ 64,017,000
============= ============= =================== =============
Investing activities $(205,078,000) $ (40,942,000) $ (1,184,759,000) $(670,755,000)
============= ============= =================== =============
Financing activities $ 70,673,000 $(113,545,000) $ 869,773,000 $ 575,409,000
============= ============= =================== =============
</TABLE>
Certain Cash Requirements Affecting the Company's Liquidity at September 30,
1998:
Pending Acquisitions and Investments
On June 2, 1998, the Company entered into an agreement to acquire the
leasehold interest in 888 Seventh Avenue, a 46 story office building containing
approximately 847,000 square feet located in midtown Manhattan, for
approximately $100 million. The acquisition of 888 Seventh Avenue is expected to
be completed not later than the third quarter of 1999 in conjunction with other
unrelated transactions to be effected by the seller, and is subject to customary
closing conditions.
On June 2, 1998, the Company entered into an agreement to settle existing
litigation - see Legal Proceedings. The Settlement provides, among other
things: (i) for Vornado to purchase the remaining 60% interest in Two Park
Avenue for approximately $34.6 million, which will be paid in cash, or at the
Company's election, in any combination of cash or shares of Vornado stock, plus
the assumption of $39 million in existing debt; and (ii) for Vornado to
purchase the Partnership's interest in 550-600 Mamaroneck Avenue, Harrison, New
York and 330 West 34th Street, New York, New York for an aggregate price of $30
million in cash. On October 14, 1998, the Supreme Court of the State of New
York for New York County approved the proposed settlement. On November 6, 1998,
the Court's judgment became final. It is expected that the transaction will
close within the next 30 days.
On October 29, 1998, Vornado completed its acquisition of K Mart's 50%
interest in the Las Catalinas Mall located in Caguas, Puerto Rico (adjacent to
San Juan). In addition, Vornado acquired 75% and Vornado's partner in the Mall
acquired 25% of K Mart's anchor store. Vornado's purchase price of $38 million
was fully financed with 15 year non-recourse debt.
Page 19
<PAGE> 20
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company entered into an agreement to acquire the 1,050,000 square foot
Market Square Complex of showrooms in High Point, NC, for approximately $95
million consisting of $6 million of cash, $44 million of debt and $45 million of
Operating Partnership Units and Convertible Preferred Operating Partnership
Units. This transaction is currently expected to close in the fourth quarter;
however there can be no assurance it will ultimately be consummated.
Financings:
On April 15, 1998, the Company completed the sale of 10,000,000 common
shares pursuant to an effective registration statement with net proceeds to the
Company of approximately $401,000,000. On April 29, 1998, the Company sold
1,132,420 common shares to a unit investment trust, which were valued for
purposes of the trust at $41.06 per share, resulting in net proceeds of
approximately $44,000,000.
On September 30, 1998, the Company had $683,250,000 outstanding under its
$1,000,000,000 revolving credit facility at a blended interest rate of 6.49%.
Also, in February 1998, the Company completed a $160,000,000 refinancing of
the Green Acres Mall and prepaid the then existing $118,000,000 debt on the
property. The new 10-year debt matures in March 2008 and bears interest at
6.75%.
On April 23, 1998, the Cold Storage Companies completed a $550,000,000
non-recourse ten-year loan secured by 58 of its warehouses. The loan bears
interest at 6.89%. The net proceeds from the loan together with working capital
were used to repay $607,000,000 of bridge financing, which replaced high yield
debt assumed at the date of acquisition.
On June 15, 1998, the Company completed a $275,000,000 refinancing of its
One Penn Plaza office building and borrowed $170,000,000 pursuant thereto. In
the third quarter, the Company borrowed the remaining $105,000,000. The debt
matures in June 2002, is prepayable at anytime, and bears interest at LIBOR +
1.25%; (currently 6.91%). This debt replaced the $93,000,000 bridge-mortgage
loan financing put in place when the property was acquired.
On October 16, 1998, the Company completed its spin-off of Vornado Operating
Company, which the Company capitalized with an equity contribution of $25
million of cash. In addition, Vornado has agreed to enter into a $75 million
revolving credit agreement with Vornado Operating Company.
The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an ongoing basis for more than the next twelve months; however,
capital outlays for significant acquisitions may require funding from borrowings
or equity offerings.
Page 20
<PAGE> 21
VORNADO REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year 2000 Issues
Year 2000 compliance programs and information systems modifications were
initiated by Vornado in early 1998 in an attempt to ensure that these systems
and key processes will remain functional. This objective is expected to be
achieved either by modifying present systems using existing internal and
external programming resources or by installing new systems, and by monitoring
supplier and other third-party interfaces. In many cases, Vornado will be
relying on statements from outside vendors as to the Year 2000 readiness of
their systems, and will not, in many circumstances, attempt any independent
verification. Review of the systems affecting Vornado and its properties is
progressing. The costs of Vornado's Year 2000 program to date have not been
material, and Vornado does not anticipate that the costs of any required
modifications to its information technology or embedded technology systems will
have a material adverse effect on its financial position, results of operations
or liquidity. Vornado has contingency plans for its own day-to-day operational
systems and management is in the process of updating these plans for possible
Year 2000 specific operational requirements.
Recently Issued Accounting Standards
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Because the
Company does not currently utilize derivatives or engage in significant hedging
activities, management does not anticipate that implementation of this statement
will have a material effect on the Company's financial statements.
Quantitative and Qualitative Disclosures About Market Risks
The Company has no material exposure to market risk sensitive investments.
Page 21
<PAGE> 22
VORNADO REALTY TRUST
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1997, two individual investors in Mendik Real
Estate Limited Partnership ("RELP"), the publicly held limited
partnership that indirectly owns a 60% interest in the Two Park
Avenue Property, filed a purported class action against NY Real
Estate Services 1, Inc. ("NY Real Estate"), Mendik RELP Corp., B&B
Park Avenue, L.P. (an indirect subsidiary of the Company which
acquired the remaining 40% interest in Two Park Avenue) and Bernard
H. Mendik in the Supreme Court of the State of New York, County of
New York, on behalf of all persons holding limited partnership
interests in RELP. The complaint alleges that, for reasons which
include purported conflicts of interest, the defendants breached
their fiduciary duty to the limited partners, that the then proposed
transfer of the 40% interest in Two Park Avenue would result in a
burden on the operation and management of Two Park Avenue and that
the transfer of the 40% interest violates RELP's right of first
refusal to purchase the interest being transferred and fails to
provide limited partners in RELP with a comparable transfer
opportunity. Shortly after the filing of the complaint, another
limited partner represented by the same attorneys filed an
essentially identical complaint in the same court. Both complaints
seek unspecified damages, an accounting and a judgment requiring
either the liquidation of RELP and the appointment of a receiver or
an auction of Two Park Avenue. In August 1997, a fourth limited
partner, represented by separate counsel, commenced another purported
class action in the same court by serving a complaint essentially
identical to the complaints in the two previously commenced actions.
These lawsuits have since been consolidated. On June 2, 1998, the
parties entered into a Stipulation and Agreement of Compromise,
Settlement and Release (the "Settlement"). By Order dated July 9,
1998, the Court granted preliminary approval of the Settlement and
certified a class pursuant to CPLR 902, for settlement purposes. The
Settlement provides, among other things: (i) for Vornado to purchase
the Partnership's interest in Two Park Avenue for approximately $34.6
million, which will be paid in cash, or at Vornado's election, in any
combination of cash or shares of Vornado stock (which will be freely
tradable pursuant to a Section 3(a)(10) exemption under the
Securities Act of 1933), plus the assumption of $39 million in
existing debt; and (ii) for Vornado Realty to purchase the
Partnership's interest in 550-600 Mamaroneck Avenue, Harrison, New
York and 330 West 34th Street, New York, NY for an aggregate price of
$30 million in cash. On October 14, 1998, the Supreme Court of New
York for New York County approved the proposed settlement. On
November 6, 1998, the Court's judgment became final. It is expected
that the transaction will close within the next 30 days.
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VORNADO REALTY TRUST
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The following exhibits are filed with this Quarterly
Report on Form 10-Q.
10.7 Employment Agreement between Vornado Realty Trust and Joseph
Macnow, dated January 1, 1998.
10.8 Employment Agreement between Vornado Realty Trust and Richard
Rowan, dated January 1, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, Vornado Realty
Trust filed the reports on Form 8-K described below:
<TABLE>
<CAPTION>
Date of Report
(Date of Earliest
Event Reported) Item Reported Date Filed
--------------- ------------- ----------
<S> <C> <C>
April 26,1998 Financial Statements and pro forma July 15, 1998
in connection with the acquisition of
additional interest in 570 Lexington
Avenue, the acquisition of 40 Fulton
Street and 770 Broadway and the
pending acquisition of 888 Seventh
Avenue
June 2, 1998 Proposed settlement agreement to August 12, 1998
purchase the properties of the Mendik
Real Estate Limited Partnership with the
financial statements and pro forma in
connection therewith
January 29, 1998 Proposed spin-off of Vornado Operating September 28, 1998
Company
</TABLE>
Page 23
<PAGE> 24
VORNADO REALTY TRUST
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VORNADO REALTY TRUST
--------------------
(Registrant)
Date: November 6, 1998 /s/ Irwin Goldberg
-------------------------------------
IRWIN GOLDBERG
Vice President - Chief Financial
Officer and Chief Accounting Officer
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<PAGE> 25
VORNADO REALTY TRUST
EXHIBIT INDEX
EXHIBIT NO.
10.7 Employment Agreement between Vornado Realty Trust and Joseph Macnow,
dated January 1, 1998.
10.8 Employment Agreement between Vornado Realty Trust and Richard Rowan,
dated January 1, 1998.
27 Financial Data Schedule.
<PAGE> 1
Exhibit 10.7
AGREEMENT
AGREEMENT, dated as of January 1, 1998, by and between VORNADO
REALTY TRUST, a Maryland unincorporated business trust and Vornado Realty LP, a
Delaware Operating Partnership (hereinafter referred to as "Employer") and
JOSEPH MACNOW, an individual (hereinafter referred to as "Employee").
IN CONSIDERATION of the mutual covenants herein contained, and other
good and valuable consideration, the parties hereto agree as follows:
1. Employment.
Employer hereby agrees to employ Employee, and Employee agrees to
serve as Executive Vice President-Finance and Administration of Employer during
the Period of employment, as defined in Section 2.
2. Period of Employment.
The "Period of Employment" shall be the period commencing on January
1, 1998 and, subject to the provisions of this Agreement, ending three years
thereafter on December 31, 2000.
3. Duties During the Period of Employment.
Employee shall devote his full business time, attention and best
efforts to the affairs of Employer and its subsidiaries during the Period of
Employment; provided, however, that Employee may engage in other activities,
such as activities involving charitable, educational, religious and similar
types of organizations (all of which are deemed to benefit Employer), speaking
engagements, membership on the board of directors of non-profit organizations,
and similar type activities to the extent that such other activities do not
materially impair the
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<PAGE> 2
performance of his duties under this Agreement, or inhibit or conflict in any
material way with the business of Employer and its subsidiaries, and to the
extent Employer does not object to such other activities.
4. Cash Compensation.
Employer shall pay to Employee during the first year of the Period
of Employment a salary ("Base Compensation") at an annual rate of $425,000.00,
to be paid in equal biweekly installments. Employer shall pay to Employee during
the second year of the Period of Employment a salary at an annual rate equal to
the salary paid Employee during the first year of the Period of Employment,
increased by a factor which is equal to 125% of the percentage increase in the
Consumer Price Index (as hereafter defined) during the period from January 1998
through December 1998, to be paid in equal biweekly installments. Employer shall
pay to Employee during the third year of the Period of Employment a salary at an
annual rate equal to the salary paid Employee during the second year of the
Period of Employment increased by a factor which is equal to 125% of the
percentage increase in the Consumer Price Index during the period from January
1999 through December 1999, to be paid in equal biweekly installments. For
purposes of this Agreement, the "Consumer Price Index" shall mean the Revised
Consumer Price Index for Urban Wage Earners and Clerical Workers - All Items
(CPI-W), Northeast Region, Class A, on the base 1982-84=100, published by the
Bureau of Labor Statistics of the U.S. Department of Labor. Increases in Base
Compensation resulting from the above, if any, shall then constitute the Base
Compensation for all purposes of this Agreement. Employee's Base Compensation
shall not be reduced during the term of this Agreement.
2
<PAGE> 3
5. Stock Options.
During each year in the Period of Employment, the Employer shall
grant Employee share options to purchase 75,000 shares of Employer's Common
Shares of Beneficial Interest ("Stock") pursuant to the terms of the Employer's
1993 Omnibus Share Plan at a purchase price per share equal to the fair market
value of the Stock on the date the options are granted. Such options shall be
granted at the discretion of the Compensation Committee of the Board of Trustees
of the Employer, at the first meeting of the Committee in which options are
ordinarily granted. Employer shall take all necessary actions to ensure that
such options qualify, to the extent permitted, as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and successor provisions.
6. Other Employee Benefits.
(a) Vacation and Sick Leave.
Employee shall be entitled to paid annual vacation periods and to
sick leave in accordance with Employer's policy.
(b) Automobile.
Employer shall provide Employee with the use of an automobile of the
same quality as that provided to other corporate officers of equal or similar
position and pay all expenses incurred by Employee in connection with the use of
the automobile.
(c) Regular Reimbursed Business Expenses.
Employer shall reimburse Employee for all expenses and disbursements
reasonably incurred by Employee in the performance of his duties during the
Period of Employment, and
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<PAGE> 4
such other facilities or services as Employer and Employee may, from time to
time, agree are reimbursable.
(d) Employee Benefit Plans or Arrangements.
In addition to the cash compensation provided for in Section 4
hereof and the stock options provided in Section 5 hereof, Employee, subject to
meeting eligibility provisions and to the provisions of this Agreement, shall be
entitled to participate in all employee benefits plans of Employer, as presently
in effect or as they may be modified or added to by Employer from time to time,
including, without limitation, plans providing retirement benefits, medical
insurance, life insurance, disability insurance, and accidental death or
dismemberment insurance. Without limiting the foregoing, Employee shall be
entitled to tax preparation and financial planning assistance of $15,000 per
calendar year and upon approval by an insurance carrier, a $3 million five-year
renewal term life insurance policy or at Employee's election other life
insurance with a comparable cost to Employer.
7. Termination and Termination Benefits.
The termination of Employee's employment during the Period of
Employment by Employee or Employer shall not be treated as a breach of this
agreement.
(a) Termination by the Employer Without Cause.
The Employer may terminate the Period of Employment and Employee's
employment hereunder without "Cause" upon written notice to Employee. For
purposes of this Section 7(a), a termination of the Period of Employment by the
Employer without Cause shall include any termination or nonextension by the
Employer (other than a termination for Cause as defined in Section 7(b) below).
4
<PAGE> 5
(b) Termination by the Employer for Cause.
Subject to the following paragraph, the Employer may terminate the
Period of Employment and Employee's employment hereunder for "Cause" upon
written notice to Employee. For purposes of this Section 7(b), a termination for
Cause shall only mean a termination as a result of (i) Employee's willful
misconduct with regard to Employer or to any entity in control of, controlled by
or under common control with the Employer (an "Affiliate"), including, but not
limited to, any preferred stock subsidiary of the Employer that is materially
economically injurious to Employer, (ii) Employee's conviction of, or plea of
guilty or nolo contendere to, a felony (other than a traffic violation) or (iii)
Employee's willful and continued failure to use reasonable business efforts to
attempt to substantially perform his duties hereunder (other than such failure
resulting from Employee's incapacity due to a physical or mental illness or
subsequent to the issuance of a notice of termination by Employee for Good
Reason) after demand for substantial performance is delivered by Employer in
writing that specifically identifies the manner in which Employer believes
Employee has not used reasonable business efforts to attempt to substantially
perform his duties.
For purposes of this Section 7(b), in addition to the other legal
requirements to be "willful", no act, or failure to act, by Employee shall be
considered "willful" unless committed in bad faith and without a reasonable
belief that the act or omission was in the best interests of Employer. In
addition, no action or inaction shall give rise to a right of Employer to
terminate this Agreement and Employee's employment hereunder for Cause pursuant
to the preceding paragraph unless and until Employer has delivered to Employee a
copy of a resolution duly adopted by a majority of the Board of Trustees
("Board") at a meeting of the Board called and held for such purpose after
reasonable (but in no event less than thirty (30) days notice to
5
<PAGE> 6
Employee and an opportunity for Employee, together with his counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Employee was guilty of any conduct set forth in the preceding paragraph and
specifying the particulars thereof in detail. This Section 7(b) shall not
prevent Employee from challenging in any court of competent jurisdiction the
Board's determination that Cause exists or that Employee has failed to cure any
act (or failure to act) that purportedly formed the basis for the Board's
determination.
(c) Termination by Employer Due to Disability.
If, due to illness, physical or mental disability, or other
incapacity, Employee is substantially unable, for one hundred and eighty (180)
consecutive days, to perform his duties hereunder, Employer may terminate the
Period of Employment and his Employment hereunder upon at least thirty (30)
days' prior written notice to Employee given after one hundred eighty (180)
days, and provided Employee does not return to the substantial performance of
his duties on a full-time basis within such thirty (30) day period.
(d) Termination by Employee With Good Reason.
Subject to the following paragraph, Employee may terminate the
Period of Employment and his employment hereunder for "Good Reason" upon written
notice to Employer. For purposes of this Section 7(d), a termination for Good
Reason shall mean a termination as a result of (unless otherwise consented to in
writing by Employee) (i) the failure to appoint Employee to the positions set
forth in Section 1, the alteration of the duties, responsibilities and authority
of Employee as set forth in Section 1 in a manner that is materially and
adversely inconsistent with such duties, and responsibilities or authority or a
change to Employee's position or title; (ii) a failure by Employer to pay when
due any compensation to Employee or to substantially provide any benefit to
Employee; (iii) the relocation of Employer's
6
<PAGE> 7
principal executive offices to a location other than the New York Metropolitan
area or relocation of Employee's own office location from that of the principal
offices; (iv) any purported termination of Employee's employment for Cause which
is not effected pursuant to the procedures of Section 7(b) (and for purposes of
this Agreement, no such purported termination shall be effective); (v)
Employer's material breach of any material term contained in this Agreement;
(vi) a Change in Control (as defined below), or (vii) any requirement that
Employee report to anyone other than the Board, the President of Employer or the
Chief Executive Officer of Employer. Employee's right to terminate his
employment hereunder for Good Reason shall not be affected by his incapacity due
to physical or mental illness.
For purposes of this Section 7(d), no action or inaction shall give
rise to the right of Employee to terminate the Period of Employment and
Employee's employment hereunder for Good Reason unless a written notice is given
by Employee to the Employer within one hundred twenty (120) days after Employee
has actual knowledge of the occurrence of the event giving rise to Employee's
right to terminate pursuant to this Section 7(d), and such event has not been
cured within thirty (30) days after such notice. Employee's continued employment
during the one hundred and twenty (120) day period referred to above in this
Section 7(d), shall not constitute consent to, or a waiver of rights with
respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of this Section 7(d), "Change in Control" shall mean
the occurrence of any one of the following:
(i) individuals who, as of January 1, 1998, constitute the
Board (the "Incumbent Trustees") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a trustee subsequent to
January 1, 1998 whose election or
7
<PAGE> 8
nomination for election was approved by a vote of at least two-thirds of the
Incumbent Trustees then on the Board (either by a specific vote or by approval
of the proxy statement of Employer in which such person is named as a nominee
for trustee, without objection to such nomination) shall be an Incumbent
Trustee, provided, however, that no individual initially elected or nominated as
a trustee of Employer as a result of an actual or threatened election contest
with respect to trustees or as a result of any other actual or threatened
solicitation of proxies by or on behalf of any person other than the Board shall
be an Incumbent Trustee.
(ii) any "person" (as such term is defined in Section 3(a)(9)
of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after January
1, 1998, a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Employer representing 30% or more of
the combined voting power of Employer's then outstanding securities eligible to
vote for the election of the Board (the "Employer's Voting Securities"),
provided, however, that an event described in this paragraph (ii) shall not be
deemed to be Change in Control if any of the following becomes such a beneficial
owner: (A) Employer or any majority-owned subsidiary (provided, that this
exclusion applies solely to the ownership levels of Employer or the
majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit
plan sponsored or maintained by Employer or any majority-owned subsidiary, (C)
any underwriter temporarily holding securities pursuant to an offering of such
securities, (D) any person pursuant to a Non-Qualifying Transaction (as defined
in paragraph (iii)), (E) Employee or any group of persons including Employee (or
any entity controlled by Employee or any group of persons including Employee) or
(F) (i) any of the partners (as of January 1, 1998) in Interstate Properties
("Interstate") including immediate family members and family trusts or
family-only partnerships
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<PAGE> 9
and any charitable foundations of such partners (the "Interstate Partners"),
(ii) any entities the majority of the voting interests of which are beneficially
owned by the Interstate Partners, or (iii) any "group" (as described in Rule
13d-5(b) (i) under the Exchange Act) including the Interstate Partners,
provided, that the Interstate Partners beneficially own a majority of Employer's
Voting Securities beneficially owned by such group (the persons in (i), (ii) and
(iii) shall be individually and collectively referred to herein as, "Interstate
Holders");
(iii) the consummation of a merger, consolidation, share
exchange or similar form of transaction involving Employer or any of its
Subsidiaries, or the sale or other disposition of all or substantially all of
Employer's assets (a "Business Transaction"), unless immediately following such
Business Transaction (y) more than fifty percent (50%) of the total voting power
of the entity resulting from such Business Transaction or the entity acquiring
Employer's assets of the Operating Partnership in such Business Transaction (the
"Surviving Corporation") is beneficially owned, directly or indirectly, by the
Interstate Holders or Employer's shareholders immediately prior to any such
Business Transaction, and (z) no person (other than the persons set forth in
clauses (A), (B), (C), or (F) of paragraph (ii) above or any tax-qualified,
broad-based employee benefit plan of the Surviving Corporation or its
Affiliates) beneficially owns, directly or indirectly, 30% or more of the total
voting power of the Surviving Corporation (a "Non-Qualifying Transaction"); or
(iv) Board approval of a liquidation or dissolution of
Employer, unless the voting common equity interests of an ongoing entity (other
than a liquidating trust) are beneficially owned, directly or indirectly, by
Employer's shareholders in substantially the same proportions as such
shareholders owned Employer's outstanding voting common equity interests
immediately prior to such liquidation and such ongoing entity assumes all
existing obligations of
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<PAGE> 10
Employer under this Agreement and any equity grant.
(e) Termination by Employee Other Than Pursuant to Section 7(d).
Employee may terminate this Agreement and Employee's employment hereunder at any
time, for any reason upon ninety (90) days' prior written notice to Employer.
(f) Death Benefit. Notwithstanding any other provision of this
Agreement, the Period of Employment shall terminate on the on the date of
Employee's death. In such event, (i) Employee's estate shall be paid the amount
specified in Section 7(g)(i) below and one (1) times Employee's annual rate of
Base Salary and (ii) Employer shall provide Employee's spouse and dependents
with welfare benefits as provided in Section 7(g)(ii) for one (1) year from the
date of death.
(g) Termination Compensation. Upon the termination of the Period of
Employment and Employee's employment hereunder (including any nonextension of
the Period of Employment), Employer shall provide Employee with the payments and
benefits set forth below. Employee acknowledges and agrees that the payments and
benefits set forth in this Section and elsewhere herein and in other written
grants and agreements constitute liquidated damages for termination of his
employment hereunder (including any nonextension of the Period of Employment).
(i) Upon a termination of the Period of Employment and
Employee's employment hereunder, Employee shall be entitled to promptly receive
(A) his Base Compensation through the effective date of termination, (B) if such
termination is other than pursuant to Section 7(b) hereof, any annual earned
bonus for any completed fiscal year, (C) if such termination is pursuant to
Sections 7(a), 7(c) or 7(d) hereof, a pro rata share of Employee's annual target
bonus for the fiscal year of termination, (D) the benefits, fringes and
perquisites,
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<PAGE> 11
including without limitation accrued vacation (provided that if the termination
is pursuant to Section 7(b) or 7(e) hereof, only such payment of accrued
vacation as is required by law or Employer's vacation policy), provided pursuant
to Section 6 hereof up to the effective date of such termination and (E) any
other amount due to Employee under any other program or plan of Employer.
(ii) In the event of a termination of the Period of Employment
and Employee's employment pursuant to Section 7(a) (such reference shall
include, without limitation, a nonextension by Employer of this Agreement) or
7(d) hereof, Employee shall also be entitled to (A) receive an amount (the
"Severance Amount") equal to the sum of (x) three times Employee's annualized
Base Compensation (as in effect on the date of such termination or, if greater,
immediately prior to the Good Reason event, if any, based on which the
termination of employment occurs) and (y) three times Employee's Bonus Severance
Amount (as defined herein). The "Bonus Severance Amount" shall mean an amount
equal to the average of all annual bonuses earned by the Employee from Employer
in the two (2) fiscal years ending immediately prior to Employee's termination;
provided, however, that if Employee's termination occurs during fiscal 1998, the
"Bonus Severance Amount" shall be the higher of Employee's annual bonus amount
for the 1997 fiscal year or Employee's annual target bonus for 1998 (the
Severance Amount shall be payable in a lump sum within thirty (30) days of such
termination) and (B) Employee shall become fully vested in any stock options
granted to Employee by the Board. In the event of a termination pursuant to
Section 7(a), 7(c) or 7(d) hereof, Employee (his spouse and his dependents, if
applicable) shall also be entitled to continue to participate in the medical,
dental, hospitalization and life insurance programs existing on the date of
termination (or any replacement plans for any such plans) with regard to senior
executive officers of a similar level
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<PAGE> 12
(or their cash equivalents, and, if Employer provides a cash payment in lieu of
such benefits, it shall be calculated on a grossed-up tax basis as if Employee
had remained an employee) for three (3) years from the date of termination;
provided, that Employee shall be obligated to make all employee contributions
required to receive such benefits under Employer's programs and that such
continued benefits shall terminate on the date or dates Employee receives
equivalent coverage and benefits, without waiting period or pre-existing
conditions limitations, under the plans and programs of a subsequent employer
(such coverage and benefits to be determined on a coverage-by-coverage or
benefit-by-benefit, basis). Employee shall not be entitled to any compensation
or benefits pursuant to this Section 7(g)(ii) if his employment hereunder is
terminated pursuant to Section 7(b) or as a result of Employee's voluntary
termination pursuant to Section 7(e).
(h) No Mitigation. All amounts due hereunder shall be paid without
any obligation to mitigate and such amounts shall not be reduced by or offset by
any other amounts earned by Employee or any claims of Employer.
8. Non-Competition and Non-Disclosure.
In consideration of the benefits to be provided to Employee
hereunder, Employee covenants that he will not, without the consent in writing
of Employer, (a) during the Period of Employment and the twelve (12) month
period following his termination of employment for any reason other than
pursuant to Section 7(c) hereof, Employee will not engage in any business
otherwise competitive with that of Employer or any of its subsidiaries in the
States of New Jersey, New York, Pennsylvania, Maryland, Massachusetts and
Connecticut; and (b) upon termination of the Period of Employment for any reason
whatsoever, Employee will not for a period of two years thereafter, (i) solicit
or aid in soliciting any employees of Employer or its
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subsidiaries to leave their employment, or (ii) copy, remove from Employer or
its subsidiaries, disclose or make any use of, any client list, confidential
business information with respect to clients, material relating to the practices
or procedures of Employer or its subsidiaries, or any other proprietary
information. Employee acknowledges that the restrictions, prohibitions and other
provisions of this Section 8 are reasonable, fair and equitable in scope, terms
and duration, are necessary to protect the legitimate business interests of the
Employer and are a material inducement to the Employer to enter into this
Agreement. It is the intention of the parties hereto that the restrictions
contained in this paragraph be enforceable to the fullest extent permitted by
applicable law. Therefore, to the extent any court of competent jurisdiction
shall determine that any portion of the foregoing restrictions is excessive,
such provision shall not be entirely void, but rather shall be limited or
revised only to the extent necessary to make it enforceable. Should Employee
engage in or perform, directly or indirectly, any of the acts prohibited by
Section 8 hereof, it is agreed that the Employer shall be entitled to full
injunctive relief, to be issued by any competent court of equity, enjoining and
restraining Employee and each and every other person, firm, organization,
association, or corporation concerned therein, from the continuance of such
violative acts. The foregoing remedy available to Employer shall not be deemed
to limit or prevent the exercise by the Employer of any or all further rights
and remedies which may be available to the Employer hereunder or at law or in
equity.
9. Burden and Benefit.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, personal and legal
representatives, successors and assigns. In the event of the death of Employee
at or after his termination, any amounts due hereunder shall be paid to his
estate unless he has designated a beneficiary.
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10. Legal Fees and Expenses.
If any contest or dispute shall arise between Employer and Employee
regarding any provision of this Agreement or any equity grant or other agreement
or compensation arrangement specifically set forth or provided for herein,
Employer shall reimburse Employee for all legal fees and expenses reasonably
incurred by Employee in connection with such contest or dispute, but only if
Employee is successful in respect of substantially all of the Employee's claims
brought and pursued in connection with such contest or dispute. Such
reimbursement shall be made as soon as practicable following the resolution of
such contest or dispute (whether or not appealed) to the extent Employer
receives reasonable written evidence of such fees and expenses.
11. Governing Law.
This Agreement is governed by and is to be construed and enforced in
accordance with the laws of the State of New Jersey. If under such law any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement; and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
12. Notices.
All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person (in the Employer's case to its
Secretary) or twenty-four (24) hours after deposit thereof in the U.S. mails,
postage prepaid, for delivery as registered or certified mail -- addressed, in
the case of Employee, to him at his residential address, and in the case of
Employer, to its corporate headquarters, attention of the Secretary, or to such
other address as
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<PAGE> 15
Employee or Employer may designate in writing at any time or from time to time
to the other party. In lieu of notice by deposit in the U.S. mail, a party may
give notice by telegram or telex.
13. Amendment.
No provisions of this Agreement may be amended, modified, or waived
unless such amendment or modification is agreed to in writing signed by Employee
and by a duly authorized officer of the Employer, and such waiver is set forth
in writing and signed by the party to be charged. No waiver by either party
hereto at any time of any breach by the other party hereto of any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
14. Survival.
The respective obligations of, and benefits afforded to, Employee
and Employer as provided in Section 8 of this Agreement shall survive the
termination of this Agreement.
15. No Conflict of Interest.
During the Period of Employment, Employee shall not directly, or
indirectly render service, or undertake any employment or consulting agreement
with another entity without the express written consent of the Board of Trustees
of the Employer.
16. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one of the same instrument.
17. Section Headings.
The section headings in this Agreement are for convenience of
reference only, and they form no part of this Agreement and shall not affect its
interpretation.
18. Miscellaneous.
This Agreement constitutes the entire understanding between
Employer and Employee relating to employment of Employee by Employer and
supersedes and cancels all prior written and oral agreements and understandings
with respect to the subject matter of this Agreement. Any prior agreement of
the parties hereto in respect of the subject matter contained herein is hereby
terminated and canceled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the year and day first above written.
VORNADO REALTY TRUST and
VORNADO REALTY LP
By: /s/ Steven Roth
---------------------------------
Steven Roth
Title: Chairman of the Board of
Trustees
/s/ Joseph Macnow
---------------------------------
Joseph Macnow
15
<PAGE> 1
Exhibit 10.8
AGREEMENT
AGREEMENT, dated as of January 1, 1998, by and between VORNADO
REALTY TRUST, a Maryland unincorporated business trust (hereinafter referred to
as "Employer") and RICHARD ROWAN, an individual (hereinafter referred to as
"Employee").
IN CONSIDERATION of the mutual covenants herein contained, and other
good and valuable consideration, the parties hereto agree as follows:
1. Employment.
Employer hereby agrees to employ Employee, and Employee agrees to
serve as Vice President-Real Estate of Employer during the Period of employment,
as defined in Section 2.
2. Period of Employment.
The "Period of Employment" shall be the period commencing on January
1, 1998 and, subject to the provisions of this Agreement, ending three years
thereafter on December 31, 2000.
3. Duties During the Period of Employment.
Employee shall devote his full business time, attention and best
efforts to the affairs of Employer and its subsidiaries during the Period of
Employment; provided, however, that Employee may engage in other activities,
such as activities involving charitable, educational, religious and similar
types of organizations (all of which are deemed to benefit Employer), speaking
engagements, membership on the board of directors of non-profit organizations,
and similar type activities to the extent that such other activities do not
materially impair the performance of his duties under this Agreement, or inhibit
or conflict in any material way with
1
<PAGE> 2
the business of Employer and its subsidiaries, and to the extent Employer does
not object to such other activities.
4. Cash Compensation.
Employer shall pay to Employee during the first year of the Period
of Employment a salary at an annual rate of $380,500.00, to be paid in equal
biweekly installments. Employer shall pay to Employee during the second year of
the Period of Employment a salary at an annual rate equal to the salary paid
Employee during the first year of the Period of Employment, increased by a
factor which is equal to 125% of the percentage increase in the Consumer Price
Index during the period from January 1998 through December 1998, to be paid in
equal biweekly installments. Employer shall pay to Employee during the third
year of the Period of Employment a salary at an annual rate equal to the salary
paid Employee during the second year of the Period of Employment increased by a
factor which is equal to 125% of the percentage increase in the Consumer Price
Index during the period from January 1999 through December 1999, to be paid in
equal biweekly installments. For purposes of this Agreement, the "Consumer Price
Index" shall mean the Revised Consumer Price Index for Urban Wage Earners and
Clerical Workers - All Items (CPI-W), Northeast Region, Class A, on the base
1982-84=100, published by the Bureau of Labor Statistics of the U.S.
Department of Labor.
5. Stock Options.
During each year in the Period of Employment, the Employer shall
grant Employee share options to purchase 50,000 shares of Employer's common
shares of the Common Shares of Beneficial Interest of the Employer ("Stock")
pursuant to the terms of the Employer's 1993 Omnibus Share plan at a purchase
price per share equal to the fair market value of the Stock on the date the
options are granted. Such options shall be granted, at the discretion of the
2
<PAGE> 3
Compensation Committee of the Board of Trustees of the Employer, at the first
meeting of the Committee in which options are ordinarily granted. Employer shall
take all necessary actions to ensure that such options qualify, to the extent
permitted, as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and successor provisions.
6. Other Employee Benefits.
(a) Vacation and Sick Leave.
Employee shall be entitled to paid annual vacation periods and to
sick leave in accordance with Employer's policy.
(b) Automobile.
Employer shall provide Employee with the use of an automobile of the
same quality as that provided to other corporate officers of equal or similar
position and pay all expenses incurred by Employee in connection with the use of
the automobile.
(c) Regular Reimbursed Business Expenses.
Employer shall reimburse Employee for all expenses and disbursements
reasonably incurred by Employee in the performance of his duties during the
Period of Employment, and such other facilities or services as Employer and
Employee may, from time to time, agree are reimbursable.
(d) Employee Benefit Plans or Arrangements.
In addition to the cash compensation provided for in Section 4
hereof and the stock options provided in Section 5 hereof, Employee, subject to
meeting eligibility provisions and to the provisions of this Agreement, shall be
entitled to participate in all employee benefits plans of Employer, as presently
in effect or as they may be modified or added to by Employer from
3
<PAGE> 4
time to time, including, without limitation, plans providing retirement
benefits, medical insurance, life insurance, disability insurance, and
accidental death or dismemberment insurance.
7. Termination.
Employee's employment hereunder shall terminate upon the earliest of
the events described below. Employee acknowledges and agrees that the payments
set forth in this Section 7 constitute liquidated damages for termination of his
employment during the Period of Employment.
(a) Expiration.
The expiration of the Period of Employment. If Employee's employment
is terminated pursuant to this Section 7(a), Employer shall continue to pay to
Employee his then-current annual salary, as provided in Section 4, in biweekly
installments for a two-year period following such date of termination, provided,
however, that such payments shall be reduced by the amount of any compensation
paid to Employee by another employer or earned by the Employee by being
self-employed during such two-year period. In addition, for two years following
such termination, the Employer shall continue to provide Employee, his spouse
and his dependents, with the same level of medical, dental, accident, disability
and life insurance benefits upon substantially the same terms and conditions
(including contributions required by Employee for such benefits) as existed
immediately prior to Employee's termination; provided, that, if Employee cannot
continue to participate in the Employer plans providing such benefits, the
Employer shall otherwise provide such benefits on the same after-tax basis as if
continued participation had been permitted. Notwithstanding the foregoing, in
the event Employee becomes reemployed with another employer and becomes eligible
to receive comparable welfare benefits from such employer, the welfare benefits
described herein shall cease.
4
<PAGE> 5
(b) Death.
The death of Employee. If Employee's employment should terminate due
to his death, Employer shall no longer have any obligations under this Agreement
as of the date of termination.
(c) Disability.
If, as a result of Employee's Disability, Employee shall have been
substantially unable to perform his duties hereunder for an entire period of six
(6) consecutive months and within thirty (30) days after written notice of
termination is given by the Employer after such six (6) month period, Employee
shall not have returned to the substantial performance of his duties on a
full-time basis, Employer shall have the right to terminate Employee's
employment hereunder for "Disability". For purposes of this Agreement,
"Disability" shall have the same meaning as that term is defined in the
Employer's Long Term Disability Plan; provided, that, if no such plan exists,
"Disability" shall have the same meaning as prescribed in Section 22(e)(3) of
the Code. During any period that Employee fails to perform his duties hereunder
as a result of Disability ("disability period"), Employee shall continue to
receive his then-current annual salary for such period until his employment is
terminated pursuant to this Section 7(c); provided, that, payments so made to
Employee during the first six (6) months of the disability period shall be
reduced by the sum of the amounts, if any, paid to the Employee at or prior to
the time of any such payment under disability benefit plans of the Employer or
under the Social Security disability insurance program, and which amounts were
not previously applied to reduce any such payment.
5
<PAGE> 6
(d) Without Just Cause.
The Employer shall have the right to terminate Employee's employment
hereunder without "Just Cause" (as defined below). If Employer should terminate
Employee's employment pursuant to this Section 7(d), Employer shall continue to
pay to Employee his then-current annual salary, as provided in Section 4, in
equal biweekly installments for a two-year period after the date of termination
provided, however, that the amount of compensation paid to Employee hereunder
shall be reduced by the amount of any compensation paid to Employee by another
employer or earned by the Employee by being self-employed during such two year
period. In addition, for two years following such termination, the Employer
shall continue to provide Employee, his spouse and his dependents, with the same
level of medical, dental, accident, disability and life insurance benefits upon
substantially the same terms and conditions (including contributions required by
Employee for such benefits) as existed immediately prior to Employee's
termination; provided, that, if Employee cannot continue to participate in the
Employer plans providing such benefits, the Employer shall otherwise provide
such benefits on the same after-tax basis as if continued participation had been
permitted. Notwithstanding the foregoing, in the event Employee becomes
reemployed with another employer and becomes eligible to receive comparable
welfare benefits from such employer, the welfare benefits described herein shall
cease.
(e) Just Cause.
The Employer may terminate Employee's employment for just cause. If
Employer should terminate Employee's employment pursuant to this Section 7(e),
Employee will be entitled to be paid his annual salary, as provided in Section
4, through the end of the month in which the Period of Employment is terminated.
6
<PAGE> 7
For purposes of this Agreement, "just cause" shall mean failure to
follow the legitimate directions of Employer; conviction of a felony; habitual
drug or alcohol abuse; absenteeism not related to illness, sick leave or
vacations; dishonesty; or conflicts of interest which are continued after notice
in writing from Employer.
(f) Voluntary Termination.
Employee may terminate this Agreement and Employee's employment
hereunder at any time upon ninety (90) days prior written notice to the
Employer. If Employee should terminate his employment pursuant to this Section
7(f), Employer shall no longer have any obligations under this Agreement as of
the date of termination.
(g) Good Reason.
Employee may terminate his employment for "good reason" (as defined
below). If Employee should terminate his employment pursuant to this Section
7(g), Employer shall, on the date of termination, pay to Employee an amount
equal to the product of Employee's then current annual salary, as provided in
Section 4, multiplied by 2.99. In addition, on the date of termination, Employee
shall become fully vested in any stock options granted to Employee by the Board
of Trustees of the Employer.
For purposes of this Agreement, "good reason" shall mean Employer's
relocation to a site outside of the New York metropolitan area; a requirement
the Employee report to anyone other than the Chief Executive Officer or
President of the Employer or the Board of Trustees of the Employer, Employer's
merger or consolidation with another entity where Employer is not the surviving
entity; a material change in Employee's responsibilities, authority,
compensation, or title; or the acquisition of 40% or more of the voting power of
Employer's Stock by persons or entities other than shareholders currently owning
5% or more of the voting power of Employer's
7
<PAGE> 8
Stock, Employer, its affiliates, employees of Employer (including the Employee)
or its affiliates, and employee benefit plans maintained by Employer or its
affiliates.
8. Non-Competition and Non-Disclosure.
In consideration of the benefits to be provided to Employee
hereunder, Employee covenants that he will not, without the consent in writing
of Employer, (a) during the Period of Employment and the twelve (12) month
period following his termination of employment for any reason other than
pursuant to Section 7(c) hereof, Employee will not engage in any business
otherwise competitive with that of Employer or any of its subsidiaries in the
States of New Jersey, New York, Pennsylvania, Maryland, Massachusetts and
Connecticut; and (b) upon termination of the Period of Employment for any reason
whatsoever, Employee will not for a period of two years thereafter, (i) solicit
or aid in soliciting any employees of Employer or its subsidiaries to leave
their employment, or (ii) copy, remove from Employer or its subsidiaries,
disclose or make any use of, any client list, confidential business information
with respect to clients, material relating to the practices or procedures of
Employer or its subsidiaries, or any other proprietary information. Employee
acknowledges that the restrictions, prohibitions and other provisions of this
Section 8 are reasonable, fair and equitable in scope, terms and duration, are
necessary to protect the legitimate business interests of the Employer and are a
material inducement to the Employer to enter into this Agreement. It is the
intention of the parties hereto that the restrictions contained in this
paragraph be enforceable to the fullest extent permitted by applicable law.
Therefore, to the extent any court of competent jurisdiction shall determine
that any portion of the foregoing restrictions is excessive, such provision
shall not be entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Should Employee engage in or perform,
either directly or indirectly, any of the acts prohibited by Section
8
<PAGE> 9
8 hereof, it is agreed that the Employer shall be entitled to full injunctive
relief, to be issued by any competent court of equity, enjoining and restraining
Employee and each and every other person, firm, organization, association, or
corporation concerned therein, from the continuance of such violative acts. The
foregoing remedy available to Employer shall not be deemed to limit or prevent
the exercise by the Employer of any or all further rights and remedies which may
be available to the Employer hereunder or at law or in equity.
9. Governing Law.
This Agreement is governed by and is to be construed and enforced in
accordance with the laws of the State of New Jersey. If under such law any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement; and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
10. Notices.
All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person (in the Employer's case to its
Secretary) or twenty-four (24) hours after deposit thereof in the U.S. mails,
postage prepaid, for delivery as registered or certified mail -- addressed, in
the case of Employee, to him at his residential address, and in the case of
Employer, to its corporate headquarters, attention of the Secretary, or to such
other address as Employee or Employer may designate in writing at any time or
from time to time to the other party. In lieu of notice by deposit in the U.S.
mail, a party may give notice by telegram or telex.
9
<PAGE> 10
11. Amendment.
No provisions of this Agreement may be amended, modified, or waived
unless such amendment or modification is agreed to in writing signed by Employee
and by a duly authorized officer of the Employer, and such waiver is set forth
in writing and signed by the party to be charged. No waiver by either party
hereto at any time of any breach by the other party hereto of any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
12. Survival.
The respective obligations of, and benefits afforded to, Employee
and Employer as provided in Section 8 of this Agreement shall survive the
termination of this Agreement.
13. No Conflict of Interest.
During the Period of Employment, Employee shall not directly, or
indirectly render service, or undertake any employment or consulting agreement
with another entity without the express written consent of the Board of Trustees
of the Employer.
14. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
15. Section Headings.
The section headings in this Agreement are for convenience of
reference only, and they form no part of this Agreement and shall not affect its
interpretation.
10
<PAGE> 11
16. Miscellaneous.
This Agreement constitutes the entire understanding between Employer
and Employee relating to employment of Employee by Employer and supersedes and
cancels all prior written and oral agreements and understandings with respect to
the subject matter of this Agreement. Any prior agreement of the parties hereto
in respect of the subject matter contained herein is hereby terminated and
canceled. This Agreement shall be binding upon and shall inure to the benefit of
Employee, his heirs, executors, administrators, beneficiaries and assigns and to
the benefit of Employer and its successors.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the year and day first above written.
VORNADO REALTY TRUST
By: /s/ Steven Roth
----------------------------------------
Steven Roth
Title: Chairman of the Board of Trustees
/s/ Richard Rowan
----------------------------------------
Richard Rowan
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited financial statements for the nine months ended September 30,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> $140,853
<SECURITIES> 91,687
<RECEIVABLES> 35,242
<ALLOWANCES> 2,457
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,012,738
<DEPRECIATION> 208,943
<TOTAL-ASSETS> 4,127,720
<CURRENT-LIABILITIES> 0
<BONDS> 1,917,564
282,039
0
<COMMON> 3,369
<OTHER-SE> 1,498,719
<TOTAL-LIABILITY-AND-EQUITY> 4,127,720
<SALES> 0
<TOTAL-REVENUES> 359,406
<CGS> 0
<TOTAL-COSTS> 144,214
<OTHER-EXPENSES> 60,397
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,536
<INCOME-PRETAX> 112,885
<INCOME-TAX> 0
<INCOME-CONTINUING> 112,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,617
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.19
</TABLE>
