<PAGE> 1
EXHIBIT INDEX ON PAGE 26
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: MARCH 31, 1999
-----------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-11954
VORNADO REALTY TRUST
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
MARYLAND 22-1657560
<S> <C>
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY 07663
(Address of principal executive offices) (Zip Code)
</TABLE>
(201) 587-1000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
As of April 23, 1999 there were 85,196,765 common shares of the registrant's
shares of beneficial interest outstanding.
Page 1
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page Number
<S> <C> <C>
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998......................................................... 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and March 31, 1998................................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and March 31, 1998................................... 5
Notes to Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 15
Item 3. Quantitative and Qualitative Disclosures About Market Risks............... 23
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings......................................................... 24
Item 6. Exhibits and Reports on Form 8-K.......................................... 24
Signatures .......................................................................... 25
Exhibit Index ......................................................................... 26
</TABLE>
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Real estate, at cost:
Land ................................................................................. $ 754,324 $ 743,324
Buildings and improvements ........................................................... 2,709,713 2,561,383
Leasehold improvements and
equipment ........................................................................ 12,254 11,184
----------- -----------
Total ...................................................................... 3,476,291 3,315,891
Less accumulated depreciation and
amortization ..................................................................... (245,280) (226,816)
----------- -----------
Real estate, net ..................................................................... 3,231,011 3,089,075
Cash and cash equivalents, including U.S. government obligations under repurchase
agreements of $27,000 and $56,500 ................................................. 80,139 167,808
Restricted cash ........................................................................... 18,535 44,195
Marketable securities ..................................................................... 76,244 77,156
Investments and advances to partially-owned entities, including Alexander's of
$102,267 and $104,038 ................................................................ 1,143,850 827,840
Due from officers ......................................................................... 17,479 17,165
Accounts receivable, net of allowance for doubtful accounts of $3,901 and $3,044 .......... 35,905 35,517
Notes and mortgages receivable ............................................................ 71,250 10,683
Deposits in connection with real estate acquisitions ...................................... 15,316 22,947
Receivable arising from the straight-lining of
rents ................................................................................ 56,767 49,711
Other assets .............................................................................. 101,621 83,682
----------- -----------
TOTAL ASSETS .............................................................................. $ 4,848,117 $ 4,425,779
=========== ===========
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and mortgages payable ............................................................... $ 1,499,787 $ 1,363,750
Revolving credit facility ................................................................. 607,250 687,250
Accounts payable and accrued expenses ..................................................... 87,483 109,925
Officer's deferred compensation payable ................................................... 35,406 35,628
Deferred leasing fee income ............................................................... 8,725 10,051
Other liabilities ......................................................................... 3,840 3,196
----------- -----------
2,242,491 2,209,800
----------- -----------
Minority interest ......................................................................... 734,317 433,301
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest:
no par value per share; authorized,
20,000,000 shares;
Series A: liquidation preference $50.00
per share; issued 5,789,239 shares ............................................. 283,476 282,758
Series B: liquidation preference $25.00
per share; issued 3,400,000 shares ............................................. 82,305 --
Common shares of beneficial interest:
$.04 par value per share; authorized,
125,000,000 shares; issued 85,096,765
and 85,076,542 shares .......................................................... 3,404 3,403
Additional capital .................................................................. 1,653,634 1,653,208
Accumulated deficit ................................................................. (126,668) (132,837)
----------- -----------
1,896,151 1,806,532
Accumulated other comprehensive loss ................................................ (19,982) (18,957)
Due from officers for purchase of common
shares ......................................................................... (4,860) (4,897)
----------- -----------
Total shareholders' equity ................................................ 1,871,309 1,782,678
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ................................................................ $ 4,848,117 $ 4,425,779
=========== ===========
</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 MARCH 31,
------------------------------------
1999 1998
--------- --------
<S> <C> <C>
Revenues:
Property rentals ........................... $ 138,159 $ 72,365
Expense reimbursements ..................... 20,728 15,696
Other income (including fee income
from related parties of $465 and $405) ... 4,677 2,150
--------- --------
Total revenues ................................ 163,564 90,211
--------- --------
Expenses:
Operating .................................. 65,037 34,153
Depreciation and amortization .............. 19,292 10,366
General and administrative ................. 9,628 4,947
--------- --------
Total expenses ................................ 93,957 49,466
--------- --------
Operating income .............................. 69,607 40,745
Income applicable to Alexander's .............. 1,502 1,656
Income from partially owned entities .......... 19,093 3,920
Interest and other investment income .......... 3,458 7,566
Interest and debt expense ..................... (35,617) (19,823)
Minority interest ............................. (9,115) (2,577)
--------- --------
Net income .................................... 48,928 31,487
Preferred stock dividends (including accretion
of issuance expenses of $719 in each period) (5,712) (5,423)
--------- --------
Net income applicable to common shares ........ $ 43,216 $ 26,064
========= ========
Net income per common share - basic ........... $ .51 $ .36
========= ========
Net income per common share - diluted ......... $ .50 $ .35
========= ========
Dividends per common share .................... $ .44 $ .40
========= ========
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 5
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 48,928 $ 31,487
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization (including debt issuance costs) 19,292 11,171
Straight-lining of rental income ............................ (7,056) (2,292)
Minority interest ........................................... 9,115 2,577
Equity in income of Alexander's,
including depreciation of $150 in each period ............. (282) (120)
Equity in net income of partially-owned entities ............ (19,093) (3,920)
Gain on marketable securities ............................... (293) (1,391)
Changes in operating assets and liabilities ...................... (30,271) (2,081)
--------- ---------
Net cash provided by operating activities ........................ 20,340 35,431
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of real estate and other ............................ (45,000) (503,877)
Investments in partially-owned entities .......................... (13,200) --
Proceeds from sale of Cold Storage assets ........................ 22,769 --
Investment in notes and mortgages receivable ..................... (60,567) (2,500)
Cash restricted for tenant improvements .......................... 25,660 (340)
Additions to real estate ......................................... (61,228) (20,435)
Purchases of securities available for sale ....................... (3,818) (13,616)
Proceeds from sale or maturity of securities available for sale .. 3,998 14,903
Real estate deposits and other ................................... (9,706) (18,000)
--------- ---------
Net cash used in investing activities ............................ (141,092) (543,865)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ......................................... 165,000 547,192
Repayments of borrowings ......................................... (163,963) (118,714)
Debt issuance costs .............................................. (3,504) (3,945)
Proceeds from issuance of preferred stock ........................ 82,305 --
Distributions to minority partners ............................... (4,970) (2,577)
Dividends paid on common shares .................................. (37,047) (28,505)
Dividends paid on preferred shares ............................... (4,993) (4,704)
Exercise of stock options ........................................ 255 390
--------- ---------
Net cash provided by financing activities ........................ 33,083 389,137
--------- ---------
Net decrease in cash and cash equivalents ........................ (87,669) (119,297)
Cash and cash equivalents at beginning of period ................. 167,808 355,954
--------- ---------
Cash and cash equivalents at end of period ....................... $ 80,139 $ 236,657
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest (including capitalized interest of
$705 in 1999) ................................................. $ 35,143 $ 19,418
NON-CASH TRANSACTIONS:
Financing assumed in acquisitions ................................ $ 55,000 $ 8,000
Minority interest in connection with acquisitions ................ 297,800 398
Unrealized (loss) gain on securities available for sale .......... (1,025) 1,551
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 6
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Vornado Realty Trust 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 the
Operating Partnership. Vornado is the sole general partner of, and owned
approximately 85% of the common limited partnership interest in, the Operating
Partnership at April 23, 1999. All references to the "Company" and "Vornado"
refer to Vornado Realty Trust and its consolidated subsidiaries, including the
Operating Partnership.
2. BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1999, the consolidated
statements of income for the three months ended March 31, 1999 and March 31,
1998 and the consolidated statements of changes in cash flows for the three
months ended March 31, 1999 and March 31, 1998 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 1998
consolidated financial statements included in its Form 10-K as filed with the
Securities and Exchange Commission. The results of operations for the three
months ended March 31, 1999 are not necessarily indicative of the operating
results for the full year.
The accompanying consolidated financial statements include the accounts of
Vornado Realty Trust and its majority-owned subsidiary, Vornado Realty L.P., as
well as interests acquired that individually (or in the aggregate with prior
interests) exceed a 50% interest and the Company exercises unilateral control.
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. These
investments are recorded initially at cost and subsequently adjusted for net
equity in 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 is owned by Officers and Trustees of Vornado.
Management has made estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year presentation.
3. ACQUISITIONS AND FINANCINGS
ACQUISITIONS
888 Seventh Avenue
In January 1999, the Company completed the acquisition of 888 Seventh
Avenue, a 46 story Manhattan office building for approximately $100,000,000.
Newkirk Joint Ventures
In March 1999, the Company and its joint venture partner completed the
acquisition of additional equity interests in certain limited partnerships. The
Company's investment of $52,435,000 consisted of $47,790,000 in Operating
Partnership Units and $4,645,000 in cash.
Page 6
<PAGE> 7
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Charles E. Smith Commercial Realty L.P. ("CESCR")
In March 1999, the Company made an additional $242,000,000 investment in
CESCR by contributing to CESCR the land under certain CESCR office properties in
Crystal City, Arlington, Virginia and partnership interests in certain CESCR
subsidiaries. The Company acquired these assets from Commonwealth Atlantic
Properties, Inc. ("CAPI"), an affiliate of Lazard Freres Real Estate Investors
L.L.C., immediately prior to the contribution to CESCR. Together with the
Company's investment in CESCR made in 1997 and the units it reacquired in March
1999 from Vornado Operating Company, the Company owned approximately 34% of
CESCR's limited partnership units as of March 31, 1999. In addition, the Company
acquired from CAPI for $8,000,000 the land under a Marriott Hotel located in
Crystal City.
The purchase price was paid to CAPI by the Company issuing $250,000,000 of
6% Convertible Preferred Units of the Company's Operating Partnership. The
Preferred Units are convertible at $44 per unit and the coupon increases to
6.50% over the next three years and then fixes at 6.75% in year eight. The
Company will appoint one of three members to CESCR's Board of Managers,
increasing under certain circumstances to two of four members in March 2002.
In connection with these transactions, the Company made a five-year
$41,000,000 loan to CAPI with interest at 8%, increasing to 9% ratably over the
term. The loan is secured by approximately $55,000,000 of the Operating
Partnership's units issued to CAPI as well as certain real estate assets.
FINANCINGS
Two Penn Plaza Refinancing
In February 1999, the Company completed a $165,000,000 refinancing of its
Two Penn Plaza office building and prepaid the then existing $80,000,000 debt on
the property. The new 5-year debt matures in February 2004 and bears interest at
7.08%.
Page 7
<PAGE> 8
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Offering of Preferred Shares
In March 1999, the Company completed the sale of 3 million 8.5% Series B
Cumulative Redeemable Preferred Shares, at a price of $25.00 per share, pursuant
to an effective registration statement with net proceeds to the Company of
approximately $72,200,000. Additionally in March 1999, 400,000 shares were sold
when the underwriters exercised their over-allotment option resulting in
additional net proceeds to the Company of $9,700,000. The perpetual preferred
shares may be called without penalty at the option of the Company commencing on
March 17, 2004.
PRO FORMA INFORMATION
The pro forma condensed consolidated operating results for Vornado for the
three months ended March 31, 1999 and 1998 are presented as if the acquisitions
described above and those included in Investments and Advances to
Partially-Owned Entities and the financings attributable thereto had occurred on
January 1, 1998.
Condensed Consolidated Pro Forma Operating Results
<TABLE>
<CAPTION>
Pro Forma
-------------------------------
Three Months Ended March 31,
-------------------------------
1999 1998
--------- ---------
<S> <C> <C>
(amounts in thousands, except per share amounts)
Revenues ....................................... $ 164,719 $ 156,828
========= =========
Net income ..................................... $ 51,236 $ 36,526
Preferred stock dividends ...................... (5,712) (5,423)
--------- ---------
Net income applicable to common shares ......... $ 45,524 $ 31,103
========= =========
Net income per common share - basic ............ $ .54 $ .37
========= =========
Net income per common share - diluted .......... $ .53 $ .36
========= =========
</TABLE>
Page 8
<PAGE> 9
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENTS AND ADVANCES TO PARTIALLY-OWNED ENTITIES
The Company's investments and advances to partially-owned entities and
income recognized from such investments are as follows:
Investments and Advances
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
(amounts in thousands)
Cold Storage Companies............................. $ 448,565 $ 459,172
Alexander's........................................ 102,267 104,038
Charles E. Smith Commercial Realty L.P............. 313,204 49,151
Hotel Pennsylvania................................. 48,832 47,813
Newkirk Joint Ventures............................. 108,885 58,665
Mendik Partially-Owned Office Buildings............ 59,033 59,902
Vornado Management Corp., Mendik
Management Company, Merchandise
Mart Properties, Inc. and other............... 63,064 49,099
----------- -----------
$ 1,143,850 $ 827,840
=========== ===========
</TABLE>
Income
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
1999 1998
---------- ----------
<S> <C> <C>
(amounts in thousands)
Income Applicable to Alexander's................... $ 1,502 $ 1,656
========== ==========
Other Partially-Owned Entities:
Cold Storage Companies, including income
tax benefit of $4,324 in 1999................. $ 11,990 $ 1,714
Charles E. Smith Commercial Realty L.P........... 3,129 999
Hotel Pennsylvania............................... 143 (56)
Newkirk Joint Ventures........................... 2,032 --
Mendik Partially-Owned Office Buildings............ 317 913
Vornado Management Corp., Mendik
Management Company,
Merchandise Mart Properties
Inc. and other.............................. 1,482 350
---------- ----------
$ 19,093 $ 3,920
========== ==========
</TABLE>
Page 9
<PAGE> 10
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alexander's
The Company owns 29.3% of the outstanding shares of common stock of
Alexander's. In March 1995, the Company lent Alexander's $45,000,000. The loan,
which was originally scheduled to mature in March 1998, has been renewed for two
additional one year periods and currently matures in March 2000. The interest
rate was reset in March 1999 from 13.87% per annum to 14.18% per annum.
Alexander's is managed by and its properties are leased by the Company,
pursuant to agreements with a one-year term expiring in March of each year which
are automatically renewable. Subject to the payments of rents by Alexander's
tenants, the Company is due $3,445,000 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 for Alexander's of $954,000 and $938,000 for the three months ended March
31, 1999 and 1998, respectively.
Cold Storage Companies
In March 1999, the partnerships in which affiliates of the Company have a
60% interest and affiliates of Crescent Real Estate Equities Company have a 40%
interest ("Vornado/Crescent Partnerships") sold all of the non-real estate
assets of the Cold Storage Companies encompassing the operations of the cold
storage business for approximately $48,000,000 to a new partnership owned 60% by
Vornado Operating Company and 40% by Crescent Operating Inc. The new partnership
leases the underlying cold storage warehouses used in this business from the
Vornado/Crescent Partnerships which continue to own the real estate. The leases
have a 15 year term with two-five year renewal options and provide for the
payment of fixed base rent and percentage rent based on customer revenues. The
new partnership is required to pay for all costs arising from the operation,
maintenance and repair of the properties, as well as property capital
expenditures in excess of $5,000,000 annually. Fixed base rent and percentage
rent for the initial lease year is projected to be approximately $151,000,000.
The new partnership has the right to defer a portion of the rent for up to three
years beginning in March 1999 to the extent that available cash, as defined in
the leases, is insufficient to pay such rent.
In connection with the sale of the Cold Storage non-real estate assets,
the Company lent $18,587,000 to Vornado Operating pursuant to a $75,000,000
unsecured five-year revolving credit facility. Borrowing under the facility
bears interest at LIBOR plus 3% (currently 8.01%).
5. OTHER RELATED PARTY TRANSACTIONS
The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement. For the three months
ended March 31, 1999 and 1998, $270,000 and $198,000 of management fees were
earned by the Company pursuant to the management agreement.
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. The Company was charged fees in connection with
these contracts of $11,011,000 and $5,267,000 for the three months ended March
31, 1999 and 1998.
Page 10
<PAGE> 11
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. MINORITY INTEREST
The minority interest represents limited partners', other than Vornado,
interests in the Operating Partnership and are comprised of:
<TABLE>
<CAPTION>
Preferred or
Per Unit Annual Conversion
Outstanding Units at Liquidation Distribution Rate Into
-------------------------------------
Unit Series March 31, 1999 December 31, 1998 Preference Rate Class A Units
-------------- ----------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Class A ................................ 3,240,985 1,887,781 -- $ 1.76 (a)
Class C ................................ 3,529,098 3,534,098 -- $ 1.69(b) 1.0(c)
Class D ................................ 1,332,596 1,332,596 -- $ 2.015 1.0(d)
5.0% B-1 Convertible Preferred ......... 899,566 899,566 $ 50.00 $ 2.50 .914
8.0% B-2 Convertible Preferred ......... 499,783 449,783 $ 50.00 $ 4.00 .914
6.5% C-1 Convertible Preferred ......... 747,912 747,912 $ 50.00 $ 3.25 1.1431
8.5% D-1 Cumulative Redeemable Preferred 3,500,000 3,500,000 $ 25.00 $ 2.125 (e)
6.0% E-1 Convertible Preferred ......... 4,998,000 -- $ 50.00 $ 3.00 1.1364
</TABLE>
(a) Class A units are convertible into one common share of beneficial interest
in Vornado or cash at Vornado's option.
(b) Class C unit holders participate in distributions at an annual rate of
$1.69, then pari passu with the Class A rate. Based on the current level
of dividends, conversion will occur in November 1999.
(c) Mandatory conversion of Class C units occurs after four consecutive
quarters of distributions of at least $.4225 per unit ($1.69 annually).
(d) Mandatory conversion of Class D units occurs after four consecutive
quarters of distributions of at least $.50375 per unit ($2.015 annually),
then pari passu with the Class A rate.
(e) Convertible into an equivalent Vornado 8.5% preferred share.
Page 11
<PAGE> 12
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. CONTINGENCIES
At March 31, 1999, in addition to the $607,250,000 balance outstanding
under the Company's revolving credit facility, the Company had utilized
approximately $91,615,000 of availability under the facility for letters of
credit and guarantees primarily related to pending acquisitions.
There are various legal actions against the Company in the ordinary course
of business. In the opinion of management, after consultation with legal
counsel, the outcome of such matters will not have a material effect on the
Company's financial condition, results of operations or cash flows.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
(amounts in thousands except per share amounts)
Numerator:
Net income ....................................................... $ 48,928 $ 31,487
Preferred stock dividends ........................................ (5,712) (5,423)
-------- --------
Numerator for basic and diluted earnings per
share - net income applicable to common shares ................... $ 43,216 $ 26,064
======== ========
Denominator:
Denominator for basic earnings per share - weighted average shares 85,086 72,165
Effect of dilutive securities:
Employee stock options ......................................... 1,611 2,188
-------- --------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions ............................................ 86,697 74,353
======== ========
Net income per common share - basic ................................ $ .51 $ .36
======== ========
Net income per common share - diluted .............................. $ .50 $ .35
======== ========
</TABLE>
9. COMPREHENSIVE INCOME
The following table sets forth the Company's comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
-------- --------
<S> <C> <C>
(amounts in thousands)
Net income applicable to common shares .......................... $ 43,216 $ 26,064
Other comprehensive (loss) income ............................... (1,025) 1,551
-------- --------
Comprehensive income ............................................ $ 42,191 $ 27,615
======== ========
</TABLE>
Page 12
<PAGE> 13
Page 15
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SEGMENT INFORMATION
The Company has four business segments: Office, Retail, Cold Storage and
Merchandise Mart Properties.
(amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------------------
1999
---------------------------------------------------------------------------
Merchandise
Office Retail Cold Storage Mart Other(2) Total
-------- -------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ..................... $ 87,276 $ 41,357 $ -- $ 32,988 $ 1,943 $ 163,564
Total expenses ..................... 51,484 17,157 -- 18,502 6,814 93,957
---------- -------- -------- -------- -------- ---------
Operating income ................... 35,792 24,200 -- 14,486 (4,871) 69,607
Income applicable to Alexander's ... -- -- -- -- 1,502 1,502
Income from partially-owned entities 3,407 200 11,990 1,176 2,320 19,093
Interest and other investment income 538 -- -- 298 2,622 3,458
Interest and debt expense .......... (10,481) (8,032) -- (6,296) (10,808) (35,617)
Minority interest .................. (3,965) (2,215) (1,622) (1,313) -- (9,115)
---------- -------- -------- -------- -------- ---------
Net income ......................... 25,291 14,153 10,368 8,351 (9,235) 48,928
Minority interest .................. 3,965 2,215 1,622 1,313 -- 9,115
Interest and debt expense(4) ....... 14,605 8,689 6,665 6,296 13,444 49,699
Depreciation and
amortization(4) .................. 13,284 4,132 8,397 4,073 1,832 31,718
Straight-lining of rents(4) ........ (3,713) (635) -- (1,108) 579 (4,877)
Other .............................. -- -- (4,123)(3) -- 1,469 (2,654)
---------- -------- -------- -------- -------- ---------
EBITDA(1) .......................... $ 53,432 $ 28,554 $ 22,929 $ 18,925 $ 8,089 $ 131,929
========== ======== ======== ======== ======== =========
March 31, 1999
-----------------------------------------------------------------------------
Balance sheet data:
Real estate, net ................. $1,908,676 $575,387 $ -- $731,368 $ 15,580 $3,231,011
Investments and advances
to partially-owned entities .... 381,862 2,552 448,565 27,873 282,998 1,143,850
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------------------
1998
---------------------------------------------------------------------------
Merchandise
Office Retail Cold Storage Mart Other(2) Total
--------- -------- ------------ ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ..................... $ 46,845 $ 41,466 $ -- $ -- $ 1,900 $ 90,211
Total expenses ..................... 27,115 17,628 -- -- 4,723 49,466
--------- -------- -------- ------- ------- ----------
Operating income ................... 19,730 23,838 -- -- (2,823) 40,745
Income applicable to Alexander's ... -- -- -- -- 1,656 1,656
Income from partially-owned entities 2,105 -- 1,714 -- 101 3,920
Interest and other investment income 1,515 1,156 -- -- 4,895 7,566
Interest and debt expense .......... (4,018) (7,778) -- -- (8,027) (19,823)
Minority interest .................. (1,301) (1,160) (116) -- -- (2,577)
--------- -------- -------- ------- ------- ----------
Net income ......................... 18,031 16,056 1,598 -- (4,198) 31,487
Minority interest .................. 1,301 1,160 116 -- -- 2,577
Interest and debt expense(4) ....... 7,555 7,778 7,274 -- 8,891 31,498
Depreciation and
amortization(4) .................... 7,443 3,953 9,516 -- 1,168 22,080
Straight-lining of rents(4) ........ (1,441) (933) -- -- (263) (2,637)
Other .............................. -- -- -- -- 224 224
--------- -------- -------- ------- ------- ----------
EBITDA(1) .......................... $ 32,889 $ 28,014 $ 18,504 $ -- $ 5,822 $ 85,229
========= ======== ======== ======= ======= ==========
December 31, 1998
-------------------------------------------------------------------------------
Balance sheet data:
Real estate, net ................... $1,777,919 $565,723 $ -- $729,485 $ 15,948 $3,089,075
Investments and advances
to partially-owned entities ........ 118,337 2,946 459,172 26,638 220,747 827,840
</TABLE>
See footnotes 1-4 on the next page.
Page 13
<PAGE> 14
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to segment information:
(1) EBITDA represents net income before interest, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses on
sales of real estate and the effect of straight-lining of property
rentals for rent escalations. Management considers EBITDA a supplemental
measure for making decisions and assessing the performance of its
segments. EBITDA may not be comparable to similarly titled measures
employed by other companies.
(2) Other includes (i) the operations of the Company's warehouse and
industrial properties, (ii) investments in the Hotel Pennsylvania,
Alexander's, and Newkirk Joint Ventures, (iii) corporate general and
administrative expenses and (iv) unallocated investment income and
interest and debt expense.
(3) Includes adjustment of $(4,324) for income taxes, which are considered
non-recurring because of the expected conversion of the Cold Storage
Companies to REITs.
(4) Interest and debt expense, depreciation and amortization and
straight-lining of rents included in the reconciliation of net income to
EBITDA reflects amounts which are netted in income from partially-owned
entities.
Page 14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(All of the amounts presented are in thousands, except share amounts
and percentages)
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, as amended.
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) failure by Vornado, or by other companies with which it does
business, to remediate possible Year 2000 problems in computer software or
embedded technology.
OVERVIEW
The Company's net income was $48,928 in the three months ended March
31, 1999, as compared to $31,487 in the prior year's quarter, an increase of
$17,441. EBITDA, as defined,(1) was $131,929 in the three months ended March
31, 1999, as compared to $85,229 in the prior year's quarter, an increase of
$46,700.
Below is a summary of net income and EBITDA by segment for the three
months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------------------------------------------------------------------
Merchandise
Total Office Retail Cold Storage Mart Other(2)
--------- -------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ..................... $ 163,564 $ 87,276 $ 41,357 $ -- $ 32,988 $ 1,943
Total expenses ..................... 93,957 51,484 17,157 -- 18,502 6,814
--------- -------- -------- -------- -------- --------
Operating income ................... 69,607 35,792 24,200 -- 14,486 (4,871)
Income applicable to Alexander's ... 1,502 -- -- -- -- 1,502
Income from partially-owned entities 19,093 3,407 200 11,990 1,176 2,320
Interest and other investment income 3,458 538 -- -- 298 2,622
Interest and debt expense .......... (35,617) (10,481) (8,032) -- (6,296) (10,808)
Minority interest .................. (9,115) (3,965) (2,215) (1,622) (1,313) --
--------- -------- -------- -------- -------- --------
Net income ......................... 48,928 25,291 14,153 10,368 8,351 (9,235)
Minority interest .................. 9,115 3,965 2,215 1,622 1,313 --
Interest and debt expense (4) ...... 49,699 14,605 8,689 6,665 6,296 13,444
Depreciation and amortization (4) .. 31,718 13,284 4,132 8,397 4,073 1,832
Straight-lining of rents (4) ....... (4,877) (3,713) (635) -- (1,108) 579
Other .............................. (2,654) -- -- (4,123)(3) -- 1,469
--------- -------- -------- -------- -------- --------
EBITDA ............................. $ 131,929 $ 53,432 $ 28,554 $ 22,929 $ 18,925 $ 8,089
========= ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------------------------------------
Merchandise
Total Office Retail Cold Storage Mart Other(2)
--------- -------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ..................... $ 90,211 $ 46,845 $ 41,466 $ -- $ -- $ 1,900
Total expenses ..................... 49,466 27,115 17,628 -- -- 4,723
-------- -------- -------- -------- ---- -------
Operating income ................... 40,745 19,730 23,838 -- -- (2,823)
Income applicable to Alexander's ... 1,656 -- -- -- -- 1,656
Income from partially-owned entities 3,920 2,105 -- 1,714 -- 101
Interest and other investment income 7,566 1,515 1,156 -- -- 4,895
Interest and debt expense .......... (19,823) (4,018) (7,778) -- -- (8,027)
Minority interest .................. (2,577) (1,301) (1,160) (116) -- --
-------- -------- -------- -------- ---- -------
Net income ......................... 31,487 18,031 16,056 1,598 -- (4,198)
Minority interest .................. 2,577 1,301 1,160 116 -- --
Interest and debt expense (4) ...... 31,498 7,555 7,778 7,274 -- 8,891
Depreciation and amortization (4) .. 22,080 7,443 3,953 9,516 -- 1,168
Straight-lining of rents (4) ....... (2,637) (1,441) (933) -- -- (263)
Other .............................. 224 -- -- -- -- 224
-------- -------- -------- -------- ---- -------
EBITDA ............................. $ 85,229 $ 32,889 $ 28,014 $ 18,504 $ -- $ 5,822
======== ======== ======== ======== ==== =======
</TABLE>
Footnotes 1-4 are explained on the following page.
Page 15
<PAGE> 16
(1) EBITDA represents net income before interest, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses on
sales of real estate and the effect of straight-lining of property
rentals for rent escalations. Management considers EBITDA a supplemental
measure for making decisions and assessing the performance of its
segments. EBITDA may not be comparable to similarly titled measures
employed by other companies.
(2) Other includes (i) the operations of the Company's warehouse and
industrial properties, (ii) investments in the Hotel Pennsylvania,
Alexander's, and Newkirk Joint Ventures, (iii) corporate general and
administrative expenses and (iv) unallocated investment income and
interest and debt expense.
(3) Includes adjustment of $(4,324) for income taxes which are considered
non-recurring because of the expected conversion of the Cold Storage
Companies to REITs.
(4) Interest and debt expense, depreciation and amortization and
straight-lining of rents included in the reconciliation of net income to
EBITDA reflects amounts which are netted in income from partially-owned
entities.
Page 16
<PAGE> 17
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
Below are the details of the changes by segment in EBITDA. The change in
the Cold Storage EBITDA is discussed in Income from partially-owned entities.
<TABLE>
<CAPTION>
Cold Merchandise
Total Office Retail Storage Mart Other
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Three months ended
March 31, 1998 $ 85,229 $ 32,889 $ 28,014 $ 18,504 $ -- $ 5,822
1999 Operations:
Same store operations(1) 4,591 3,659 1,379 185 -- (632)
Acquisitions and other 42,109 16,884 (839) 4,240 18,925 2,899
-------- -------- -------- -------- -------- --------
Three months ended
March 31, 1999 $131,929 $ 53,432 $ 28,554 $ 22,929 $ 18,925 $ 8,089
======== ======== ======== ======== ======== ========
% increase in same
store operations 5.4% 11.1% 4.9% 1.0% * (10.9%)
</TABLE>
* not applicable
(1) Represents operations which were owned for the same period in each year.
Revenues
The Company's revenues, which consist of property rentals, tenant expense
reimbursements and other income were $163,564 in the three months ended March
31, 1999, compared to $90,211 in the prior year's quarter, an increase of
$73,353. This increase by segment resulted from:
<TABLE>
<CAPTION>
Date of Merchandise
Acquisition Total Office Retail Mart Other
----------- ----- ------ ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Property Rentals:
Acquisitions:
888 Seventh Avenue January 1999 $ 5,278 $ 5,278 $ -- $ -- $ --
Market Square Complex December 1998 3,458 -- -- 3,458 --
Mendik RELP December 1998 6,826 6,826 -- -- --
20 Broad Street August 1998 2,702 2,702 -- -- --
689 Fifth Avenue August 1998 861 861 -- -- --
770 Broadway July 1998 2,678 2,678 -- -- --
40 Fulton Street June 1998 1,568 1,568 -- -- --
Merchandise Mart
Properties April 1998 27,227 -- -- 27,227 --
150 E. 58th Street March 1998 2,403 2,403 -- -- --
One Penn Plaza February 1998 5,478 5,478 -- -- --
Westport January 1998 274 274 -- -- --
------- ------- ----- ------- -----
58,753 28,068 -- 30,685 --
------- ------- ----- ------- -----
Leasing activity, including
$312 of step-ups
in Retail .................. 7,041 6,979 414 -- (352)
------- ------- ----- ------- -----
Total increase in property
rentals .................... 65,794 35,047 414 30,685 (352)
------- ------- ----- ------- -----
Tenant expense reimbursements:
Increase in tenant expense
reimbursements due to
acquisitions ............... 4,385 2,433 -- 1,952 --
Other ........................... 647 831 (117) -- (67)
------- ------- ----- ------- -----
Total increase in tenant
expense reimbursements ..... 5,032 3,264 (117) 1,952 (67)
------- ------- ----- ------- -----
Other income .................... 2,527 2,120 (406) 351 462
------- ------- ----- ------- -----
Total increase in revenues ...... $73,353 $40,431 $(109) $32,988 $ 43
======= ======= ===== ======= =====
</TABLE>
Page 17
<PAGE> 18
Expenses
The Company's expenses were $93,957 in the three months ended March 31,
1999, compared to $49,466 in the prior year's quarter, an increase of $44,491.
This increase by segment resulted from:
<TABLE>
<CAPTION>
Merchandise
Total Office Retail Mart Other
------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Operating:
Acquisitions $27,589 $ 14,768 $ -- $ 12,821 $ --
Same store operations 3,295 3,442 (348) -- 201
------- -------- -------- -------- -------
30,884 18,210 (348) 12,821 201
------- -------- -------- -------- -------
Depreciation and
amortization:
Acquisitions 7,611 3,538 -- 4,073 --
Same store operations 1,315 1,443 (93) -- (35)
------- -------- -------- -------- -------
8,926 4,981 (93) 4,073 (35)
------- -------- -------- -------- -------
General and administrative: 4,681(2) 1,148 -- 1,608 1,925(1)
------- -------- -------- -------- -------
$44,491 $ 24,339 $ (441) $ 18,502 $ 2,091
======= ======== ======== ======== =======
</TABLE>
(1) Retail general and administrative expenses are included in corporate
expenses which are not allocated.
(2) Of this increase: (i) $2,005 is attributable to acquisitions, (ii)
$1,420 resulted from payroll, primarily for additional employees and
corporate office expenses, and (iii) $1,256 resulted from
professional fees.
Income applicable to Alexander's (loan interest income, equity in income
and depreciation) was $1,502 in the three months ended March 31, 1999, compared
to $1,656 in the prior year's quarter, a decrease of $154. This decrease
resulted primarily from the Company's equity in the write-off of an asset
arising from the straight-lining of rent of $879, partially offset by income
from Alexander's acquisition of the remaining 50% interest in the Kings Plaza
Mall.
Income from partially-owned entities was $19,093 in the three months ended
March 31, 1999, compared to $3,920 in the prior year's quarter, an increase of
$15,173. This increase by segment resulted from:
<TABLE>
<CAPTION>
Date of Cold Merchandise
Acquisition Total Office Retail Storage Mart Other
----------- ----- ------ ------ ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Acquisitions:
Cold Storage:
Freezer Services June 1998 $ 2,550 $ -- $ -- $ 2,550 $ -- $ --
Carmar Group July 1998 1,358 -- -- 1,358 -- --
Newkirk Joint Ventures July 1998 2,032 -- -- -- -- 2,032
Merchandise Mart
Management Company April 1998 1,176 -- -- -- 1,176 --
Caguas November 1998 200 -- 200 -- -- --
-------- -------- ------ ------- ------ -------
7,316 -- 200 3,908 1,176 2,032
Increase (decrease) in equity
in income:
Americold and URS 6,201(1) -- -- 6,201(1) -- --
Charles E. Smith
Commercial Realty L.P. 2,130 2,130 -- -- -- --
Hotel Pennsylvania 199 -- -- -- -- 199
Mendik partially-owned
office buildings (596)(2) (596)(2) -- -- -- --
Other (77) (232) -- 167 -- (12)
-------- -------- ------ ------- ------ -------
$ 15,173 $ 1,302 $ 200 $10,276 $1,176 $ 2,219
======== ======== ====== ======= ====== =======
</TABLE>
(1) Includes a benefit for income taxes of $4,324 resulting from the
reversal of income taxes because of the expected conversion of the
Cold Storage Companies to REITs.
(2) Reflects the elimination of the Company's equity in income of Two
Park Avenue which is wholly-owned as of November 17, 1998 and
accordingly is consolidated in 1999.
Page 18
<PAGE> 19
Interest and other investment income (interest income on mortgage loans
receivable, other interest income, dividend income and net gains on marketable
securities) was $3,458 for the three months ended March 31, 1999, compared to
$7,566 in the prior year's quarter, a decrease of $4,108. This decrease resulted
primarily from lower average investments this year.
Interest and debt expense was $35,617 for the three months ended March 31,
1999, compared to $19,823 in the prior year's quarter, an increase of $15,794.
This increase resulted primarily from debt in connection with acquisitions.
Minority interest was $9,115 for the three months ended March 31, 1999,
compared to $2,577 in the prior year's quarter, an increase of $6,538. Of this
increase $4,332 is due to acquisitions and $2,206 results from higher income.
Preferred stock dividends were $5,712 for the three months ended March 31,
1999, compared to $5,423 in the prior year's quarter, an increase of $289. This
increase resulted from the issuance of the Company's Series B Cumulative
Redeemable Preferred shares in March 1999.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1999
Cash flows provided by operating activities of $20,340 was primarily
comprised of (i) income of $48,928 and (ii) adjustments for non-cash items of
$1,683, offset by (iii) the net change in operating assets and liabilities of
$30,271. The adjustments for non-cash items are primarily comprised of (i)
depreciation and amortization of $19,292 and (ii) minority interest of $9,115,
partially offset by (iii) the effect of straight-lining of rental income of
$7,056 and (iv) equity in net income of partially-owned entities of $19,093. The
net change in operating assets and liabilities primarily reflects an increase in
prepaid expenses of $16,295.
Net cash used in investing activities of $141,092 was primarily comprised
of (i) capital expenditures of $61,228 (see detail below), (ii) investment in
notes and mortgages receivable of $60,567 (including $41,200 loan to CAPI and
$18,587 loan to Vornado Operating Company), (iii) acquisitions of real estate of
$45,000 (see detail below), (iv) investments in partially-owned entities of
$13,200 (see detail below), (v) real estate deposits of $9,706 and (vi)
investments in securities of $3,818, partially offset by (vii) the use of cash
restricted for tenant improvements of $25,660, (viii) proceeds from sale of Cold
Storage assets of $22,769 and (ix) proceeds from sale or maturity of securities
available for sale of $3,998.
Page 19
<PAGE> 20
Acquisitions of real estate and investments in partially-owned entities
are comprised of:
<TABLE>
<CAPTION>
Debt Value of Assets
Cash Assumed Units Issued Acquired
---- ------- ------------ --------
<S> <C> <C> <C> <C>
Real Estate:
888 Seventh Avenue ............................ $45,000 $ 55,000 $ -- $100,000
======= ======== ======== ========
Investments in Partially Owned Entities:
Charles E. Smith Commercial Realty L.P.:
Additional investment ....................... $ -- $ -- $242,000 $242,000
Reacquired units from Vornado Operating
Company ................................... 13,200 -- -- 13,200
Crystal City hotel land ..................... -- -- 8,000 8,000
Additional investment in Newkirk Joint Ventures -- -- 47,800 47,800
------- -------- -------- --------
$13,200 $ -- $297,800 $311,000
======= ======== ======== ========
</TABLE>
Capital expenditures were comprised of:
<TABLE>
<CAPTION>
New York
City Merchandise
Office Retail Mart Other Total
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Expenditures to maintain the assets ..... $ 1,258 $ 271 $1,428 $ 1,712 $ 4,669
Tenant allowances and leasing commissions 3,464 231 4,464 -- 8,159
Redevelopment expenditures .............. 36,392 12,008 -- -- 48,400
------- ------- ------ ------- -------
$41,114 $12,510 $5,892 $ 1,712 $61,228
======= ======= ====== ======= =======
</TABLE>
Net cash provided by financing activities of $33,083 was primarily
comprised of (i) proceeds from borrowings of $165,000, and (ii) proceeds from
the issuance of Series B Cumulative Redeemable Preferred Shares of $82,305,
partially offset by (iii) repayment of borrowings of $163,963, (iv) dividends
paid on common shares of $37,047, (v) dividends paid on preferred shares of
$4,993 and (vi) distributions to minority partners of $4,970.
Three Months Ended March 31, 1998
Cash flows provided by operating activities of $35,431 was primarily
comprised of (i) net income of $31,487 and (ii) adjustments for non-cash items
of $6,025, offset by (iii) the net change in operating assets and liabilities of
$2,081. The adjustments for non-cash items are primarily comprised of (i)
depreciation and amortization of $11,171 and (ii) minority interest of $2,577,
partially offset by (iii) the effect of straight-lining of rental income of
$2,292 and (iv) equity in net income of partially-owned entities of $3,920.
Net cash used in investing activities of $543,865 was primarily comprised
of (i) acquisitions of real estate of $503,877 (One Penn Plaza ($369,000), 150
East 58th Street ($112,100) and Westport ($14,000)), (ii) capital expenditures
of $20,435 and (iii) real estate deposits and other of $18,000.
Net cash provided by financing activities of $389,137 was primarily
comprised of (i) proceeds from borrowings of $547,192, partially offset by (ii)
repayment of borrowings of $118,714, (iii) dividends paid on common shares of
$28,505, (iv) dividend paid on preferred shares of $4,704 and (v) distributions
to minority partners of $2,577.
Page 20
<PAGE> 21
Funds from Operations for the Three Months Ended March 31, 1999 and 1998
Funds from operations was $65,387 in the three months ended March 31, 1999,
compared to $44,612 in the prior year's quarter, an increase of $20,775. The
following table reconciles funds from operations and net income:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 1998
-------- --------
<S> <C> <C>
Net income applicable to common shares ............. $ 43,216 $ 26,064
Depreciation and amortization of real property ..... 18,752 10,194
Straight-lining of property rentals for rent
escalations ..................................... (5,295) (2,292)
Leasing fees received in excess of income
recognized ...................................... 380 368
Proportionate share of adjustments to equity
in net income of partially-owned entities to
arrive at funds from operations ................. 8,902 10,947
Appreciation of securities held in officer's
deferred compensation trust ...................... 920 --
Gain on sale of securities available
for sale ........................................ (294) --
Minority interest in excess of preferential
distributions ................................... (1,154) (669)
-------- --------
$ 65,427 $ 44,612
======== ========
</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. (See
Note 8 of Notes to Consolidated Financial Statements).
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 supplemental measure of operating performance
and along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the ability of
the Company to incur and service debt, to make capital expenditures and to fund
other cash needs. Funds from operations may not be comparable to similarly
titled measures reported by other REITs since a number of REITs, including the
Company, calculate funds from operations in a manner different from that used by
the National Association of Real Estate Investment Trusts ("NAREIT"). Funds from
operations, as defined by NAREIT, represents net income applicable to common
shares before depreciation and amortization, extraordinary items and gains or
losses on sales of real estate. Funds from operations as disclosed above has
been modified to adjust for the effect of straight-lining of property rentals
for rent escalations and leasing fee income. Below are the cash flows provided
by (used in) operating, investing and financing activities:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1999 1998
-----------------------------
<S> <C> <C>
Operating activities ................... $ 20,340 $ 35,431
========= =========
Investing activities ................... $(141,092) $(543,865)
========= =========
Financing activities ................... $ 33,083 $ 389,137
========= =========
</TABLE>
Page 21
<PAGE> 22
Financings
In February 1999, the Company completed a $165,000 refinancing of its Two
Penn Plaza office building and prepaid the then existing $80,000 debt on the
property. The new 5-year debt matures in February 2004 and bears interest at
7.08%.
In February 1999, the Company also exercised its option to extend the
maturity date on the $250,000 loan on its Chicago Merchandise Mart building from
March 31, 1999 to September 30, 1999. In connection therewith, the Company paid
a fee of 1/8%.
In March, 1999, the Vornado/Crescent Partnerships sold all of the non-real
estate assets of the Cold Storage Companies encompassing the operations of the
cold storage business for approximately $48,000 to a new partnership owned 60%
by Vornado Operating Company and 40% by Crescent Operating Inc.
In March 1999, the Company completed the sale of 3 million 8.5% Series B
Cumulative Redeemable Preferred Shares, at a price of $25.00 per share, pursuant
to an effective registration statement with net proceeds to the Company of
approximately $72,200. Further in March 1999, 400,000 shares were sold when the
underwriters exercised their over-allotment option resulting in additional net
proceeds to the Company of $9,700. The perpetual preferred shares may be called
without penalty at the option of the Company commencing on March 17, 2004.
The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an on-going basis for more than the next twelve months;
however, capital outlays for significant acquisitions will require funding from
borrowings or equity offerings.
Year 2000 Issues
Year 2000 compliance programs and information systems modification were
initiated by the Company in early 1998 to address the risk posed by the year
2000 issue. The Company developed a plan to address their affected informational
(accounting, billing, payroll) and operational (refrigeration, HVAC, security,
elevators, lighting, energy management) systems. The Company's plan also
considers statements from outside vendors as to their year 2000 readiness.
The Company and its partially-owned entities have completed their initial
assessment, inventory and planning phases of their plan and have determined that
the majority of their systems, including all mission critical systems are
already year 2000 compliant. The Company anticipates that any issues encountered
with informational or operational systems will be remediated. The Company
expects that where appropriate, all mission critical systems will be tested by
June 30, 1999. The cost of the Company's year 2000 plan is not expected to be
material to 1999 operations.
The Company believes that its exposure may be the failure of third parties
(i.e., energy providers) in meeting their commitments which may result in
temporary business interruption at the Company's buildings, retail centers, mart
properties, cold storage warehouses and other real estate related properties.
The Company has contingency plans for its own day to day informational and
operational systems and is in the process of updating these plans. Failure of
third parties with which the Company conducts business to successfully respond
to their year 2000 issues may have an adverse effect on the Company.
Recently Issued Accounting Standards
In June 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.
Page 22
<PAGE> 23
In April, 1998 the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5), which is effective for the Company in the first quarter
of 1999. The Company has no deferred organization costs or other deferred
start-up costs as defined in SOP 98-5, and therefore adoption of SOP 98-5 had no
impact in the first quarter of 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
At March 31, 1999, the Company had $1,486,138,000 of variable rate debt at
a weighted average interest rate of 6.32% and $620,899,000 of fixed rate debt
bearing interest at a weighted average interest rate of 7.01%. A one-percent
increase in the base used to determine the interest rate of the variable rate
debt would result in a $14,861,000 decrease in the Company's annual net income
($.17 per diluted share).
Page 23
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time involved in legal actions arising in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the outcome of such matters will not have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The following exhibits are filed with this Quarterly Report on
Form 10-Q.
EXHIBIT NO.
27 Financial Data Schedule.
(b) Reports on Form 8-K and Form 8-K/A
During the quarter ended March 31, 1999, Vornado Realty Trust filed the
reports on Form 8-K and Form 8-K/A described below:
<TABLE>
<CAPTION>
Date of Report
(Date of Earliest
Event Reported) Item Reported Date Filed
--------------- ------------- ----------
<S> <C> <C>
August 12, 1998 Financial statements and pro forma in connection February 12, 1999
with the completed acquisitions of 689 Fifth Avenue,
certain properties from the Mendik Real Estate
Limited Partnership, Market Square Complex and
888 Seventh Avenue
August 12, 1998 Amended pro forma in connection with the February 24, 1999
completed acquisitions of 689 Fifth Avenue, certain
properties from the Mendik Real Estate Limited
Partnership, Market Square Complex and 888
Seventh Avenue
November 12, 1998 Issuance of additional Series D-1 Preferred Units February 9, 1999
by Vornado Realty L.P.
December 1, 1998 Issuance of Class A Units and Series C-1 Preferred February 9, 1999
Units by Vornado Realty L.P.
March 3, 1999 Increased investment in Charles E. Smith Realty
L.P. increased investment in Newkirk Joint Ventures,
and agreement to sell Series B Preferred Shares in
public offering
</TABLE>
Page 24
<PAGE> 25
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: May 6, 1999 By: /s/ Irwin Goldberg
-----------------------------------
IRWIN GOLDBERG
Vice President, Chief Financial Officer
Page 25
<PAGE> 26
EXHIBIT INDEX
EXHIBIT NO.
27 Financial Data Schedule
Page 26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited financial statements for the three months ended March 31,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 80,139
<SECURITIES> 76,244
<RECEIVABLES> 35,905
<ALLOWANCES> 3,901
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,476,291
<DEPRECIATION> (245,280)
<TOTAL-ASSETS> 4,848,117
<CURRENT-LIABILITIES> 0
<BONDS> 2,107,037
0
365,781
<COMMON> 3,403
<OTHER-SE> 1,502,124
<TOTAL-LIABILITY-AND-EQUITY> 4,848,117
<SALES> 0
<TOTAL-REVENUES> 163,564
<CGS> 0
<TOTAL-COSTS> 65,037
<OTHER-EXPENSES> 28,920
<LOSS-PROVISION> 920
<INTEREST-EXPENSE> 35,617
<INCOME-PRETAX> 48,928
<INCOME-TAX> 0
<INCOME-CONTINUING> 48,928
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,216
<EPS-PRIMARY> .51
<EPS-DILUTED> .50
</TABLE>
