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EXHIBIT INDEX ON PAGE 49

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

ý

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

 

 

For the quarterly period ended: June 30, 2003

 

 

or

 

 

o

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: 000-22685

 

VORNADO REALTY L.P.

(Exact name of registrant as specified in its charter)

 

Delaware

 

13-3925979

(State or other jurisdiction of incorporation
or organization)

 

(I.R.S. Employer
Identification Number)

 

 

 

888 Seventh Avenue, New York, New York

 

10019

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(212) 894-7000

(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.

 

ý Yes    o No

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)

 

ý Yes    o No

 

 



 

INDEX

 

PART I.

Financial Information:

 

 

 

 

 

Item 1.

Financial Statements:

Page Number

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002

3

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended  June 30, 2003 and June 30, 2002

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2003 and June 30, 2002

5

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

6

 

 

 

 

 

 

Independent Accountants’ Report

21

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

45

 

 

 

 

 

Item 4.

Controls and Procedures

45

 

 

 

 

PART II.

Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

46

 

 

 

 

 

Item 2.

Changes in Securities and Use of Proceeds

46

 

 

 

 

 

Item 6.

Exhibits and Reports on Form 8-K

47

 

 

 

Signatures

48

 

 

 

Exhibit Index

49

 

2



 

PART I.  FINANCIAL INFORMATION

Item 1.            Financial Statements

 

VORNADO REALTY L.P.

CONSOLIDATED BALANCE SHEETS

 

 

 

(UNAUDITED)

 

 

 

(Amounts in thousands, except unit amounts)

 

June 30,
2003

 

December 31,
2002

 

ASSETS

 

 

 

 

 

Real estate, at cost:

 

 

 

 

 

Land

 

$

1,447,235

 

$

1,447,414

 

Buildings and improvements

 

5,886,384

 

5,846,338

 

Development costs and construction in progress

 

83,729

 

40,294

 

Leasehold improvements and equipment

 

69,618

 

67,521

 

Total

 

7,486,966

 

7,401,567

 

Less accumulated depreciation and amortization

 

(800,612

)

(713,069

)

Real estate, net

 

6,686,354

 

6,688,498

 

Assets related to discontinued operations

 

124,124

 

125,294

 

Cash and cash equivalents, including U.S. government obligations under repurchase agreements of $38,560 and $33,393

 

173,199

 

208,200

 

Escrow deposits and restricted cash

 

139,460

 

263,125

 

Marketable securities

 

65,084

 

42,525

 

Investments and advances to partially-owned entities, including Alexander’s of $200,088 and $193,879

 

1,051,064

 

997,711

 

Due from Officers

 

20,811

 

20,643

 

Accounts receivable, net of allowance for doubtful accounts of $16,287 and $13,887

 

75,446

 

65,754

 

Notes and mortgage loans receivable

 

60,489

 

86,581

 

Receivable arising from the straight-lining of rents, net of allowance of $4,887 and $4,071

 

247,568

 

229,467

 

Other assets

 

327,981

 

290,381

 

TOTAL ASSETS

 

$

8,971,580

 

$

9,018,179

 

LIABILITIES AND PARTNERS’ CAPITAL

 

 

 

 

 

Notes and mortgages payable

 

$

3,461,714

 

$

3,537,720

 

Senior Unsecured Notes due 2007, at fair value (accreted face amount of $499,426 and $499,355)

 

542,880

 

533,600

 

Accounts payable and accrued expenses

 

190,643

 

202,756

 

Officers’ compensation payable

 

18,351

 

16,997

 

Deferred credit

 

54,298

 

59,362

 

Other liabilities

 

4,730

 

3,030

 

Total liabilities

 

4,272,616

 

4,353,465

 

Minority interest

 

2,183

 

20,508

 

Commitments and contingencies

 

 

 

 

 

Partners’ Capital:

 

 

 

 

 

Equity

 

4,808,672

 

4,774,901

 

Distributions in excess of net income

 

(157,026

)

(176,458

)

 

 

4,651,646

 

4,598,443

 

Deferred compensation units earned but not yet delivered

 

68,204

 

66,660

 

Deferred compensation units issued but not yet earned

 

(8,561

)

(2,629

)

Accumulated other comprehensive loss

 

(9,804

)

(13,564

)

Due from officers for purchase of Class A units of beneficial interest

 

(4,704

)

(4,704

)

Total partners’ capital

 

4,696,781

 

4,644,206

 

TOTAL LIABILITIES AND PARTNERS’ CAPITAL

 

$

8,971,580

 

$

9,018,179

 

 

See notes to consolidated financial statements.

 

3



 

VORNADO REALTY L.P.

 

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

For The Three Months
Ended June 30,

 

For The Six Months
Ended June 30,

 

(Amounts in thousands except per unit amounts)

 

2003

 

2002

 

2003

 

2002

 

Revenues:

 

 

 

 

 

 

 

 

 

Rentals

 

$

313,848

 

$

303,467

 

$

625,211

 

$

599,360

 

Expense reimbursements

 

44,058

 

35,203

 

87,428

 

71,742

 

Fee and other income

 

16,630

 

7,033

 

29,760

 

13,763

 

Total revenues

 

374,536

 

345,703

 

742,399

 

684,865

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating

 

141,635

 

121,589

 

290,055

 

244,798

 

Depreciation and amortization

 

53,974

 

49,352

 

105,597

 

96,731

 

General and administrative

 

27,436

 

23,501

 

54,672

 

46,719

 

Amortization of officer’s deferred compensation expense

 

 

6,875

 

 

13,750

 

Total expenses

 

223,045

 

201,317

 

450,324

 

401,998

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

151,491

 

144,386

 

292,075

 

282,867

 

Income applicable to Alexander’s

 

4,348

 

4,487

 

11,602

 

10,055

 

Income from partially-owned entities

 

19,799

 

9,826

 

43,033

 

23,612

 

Interest and other investment income

 

3,628

 

9,934

 

13,424

 

19,577

 

Interest and debt expense

 

(58,485

)

(59,212

)

(116,238

)

(116,335

)

Net loss on disposition of wholly-owned and partially-owned assets

 

(1,294

)

(4,981

)

(1,106

)

(3,450

)

Minority interest

 

35

 

(554

)

(736

)

(1,543

)

Income from continuing operations

 

119,522

 

103,886

 

242,054

 

214,783

 

Discontinued operations

 

5,361

 

4,046

 

12,404

 

8,174

 

Cumulative effect of change in accounting principle

 

 

 

 

(30,129

)

Net income

 

124,883

 

107,932

 

254,458

 

192,828

 

 

 

 

 

 

 

 

 

 

 

Preferred unit distributions

 

(29,050

)

(30,038

)

(58,100

)

(60,230

)

NET INCOME applicable to Class A units

 

$

95,833

 

$

77,894

 

$

196,358

 

$

132,598

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER CLASS A UNIT – BASIC:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

.70

 

$

.58

 

$

1.41

 

$

1.23

 

Discontinued operations

 

.04

 

.03

 

.10

 

.06

 

Cumulative effect of change in accounting principle

 

 

 

 

(.24

)

Net income per Class A unit

 

$

.74

 

$

.61

 

$

1.51

 

$

1.05

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER CLASS A UNIT – DILUTED:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

.68

 

$

.56

 

$

1.39

 

$

1.18

 

Discontinued operations

 

.04

 

.03

 

.09

 

.06

 

Cumulative effect of change in accounting principle

 

 

 

 

(.23

)

Net income per Class A unit

 

$

.72

 

$

.59

 

$

1.48

 

$

1.01

 

 

See notes to consolidated financial statements.

 

4



 

VORNADO REALTY L.P.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For The Six Months Ended June 30,

 

(Amounts in thousands)

 

2003

 

2002

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

 

$

254,458

 

$

192,828

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Gain on sale of real estate

 

(2,644

)

 

Minority interest

 

736

 

1,543

 

Net loss on disposition of wholly-owned and partially-owned assets

 

1,106

 

3,450

 

Depreciation and amortization

 

105,597

 

95,507

 

Straight-lining of rental income

 

(18,874

)

(17,298

)

Amortization of acquired below market leases, net

 

(3,752

)

(6,234

)

Equity in income of Alexander’s

 

(11,602

)

(10,055

)

Equity in income of partially-owned entities

 

(43,033

)

(23,612

)

Cumulative effect of change in accounting principle

 

 

30,129

 

Amortization of Officer’s deferred compensation expense

 

 

13,750

 

Changes in operating assets and liabilities

 

(35,517

)

(32,710

)

Net cash provided by operating activities

 

246,475

 

247,298

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

Development costs and construction in progress

 

(32,237

)

(34,841

)

Additions to real estate

 

(42,990

)

(60,323

)

Investments in partially-owned entities

 

(36,011

)

(21,984

)

Distributions from partially-owned entities

 

33,439

 

67,454

 

Proceeds received from repayment of notes and mortgage loans receivable

 

26,092

 

60,000

 

Cash restricted for mortgage escrows and tenant improvements

 

123,665

 

(113,831

)

Proceeds from sale of real estate

 

4,752

 

 

Acquisition of Building Maintenance Service Company

 

(13,000

)

 

Acquisition of Kaempfer Management Company

 

(31,237

)

 

Acquisitions of real estate

 

(30,000

)

 

Proceeds from sale of marketable securities

 

 

53,445

 

Real estate deposits and other

 

 

(24,970

)

Investment in notes and mortgage loans receivable

 

 

(741

)

Net cash provided by (used in) investing activities

 

2,473

 

(75,791

)

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

Class A unit distributions

 

(176,926

)

(169,838

)

Repayments of borrowings

 

(293,006

)

(200,612

)

Distributions to preferred unitholders and minority partners

 

(59,210

)

(82,809

)

Exercise of unit options

 

28,193

 

23,728

 

Proceeds from borrowings

 

217,000

 

619,965

 

Proceeds from issuance of Class A units

 

 

56,658

 

Net cash (used in) provided by financing activities

 

(283,949

)

247,092

 

Net (decrease) increase in cash and cash equivalents

 

(35,001

)

418,599

 

Cash and cash equivalents at beginning of period

 

208,200

 

265,584

 

Cash and cash equivalents at end of period

 

$

173,199

 

$

684,183

 

 

 

 

 

 

 

Supplemental Disclosure Of Cash Flow Information:

 

 

 

 

 

Cash payments for interest (including capitalized interest of $2,196 and $4,721)

 

$

125,171

 

$

113,172

 

 

 

 

 

 

 

Non-Cash Transactions:

 

 

 

 

 

Class A units issued in acquisitions

 

$

3,600

 

$

607,155

 

Financing assumed in acquisitions

 

 

991,980

 

Unrealized gain on securities available for sale

 

4,467

 

 

Capitalized development payroll

 

1,045

 

1,719

 

 

See notes to consolidated financial statements.

 

5



 

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.          Organization

 

Vornado Realty L.P. (the “Operating Partnership” and/or the “Company”) is a Delaware limited partnership. Vornado Realty Trust (“Vornado”), a fully-integrated real estate investment trust (“REIT”), is the sole general partner of, and owned approximately 81% of the common limited partnership interest in, the Operating Partnership at June 30, 2003. All references to the “Company” refer to the Operating Partnership and its consolidated subsidiaries.

 

2.          Basis of Presentation

 

The consolidated balance sheet as of June 30, 2003, the consolidated statements of income for the three and six months ended June 30, 2003 and 2002 and the consolidated statements of cash flows for the six months ended June 30, 2003 and 2002 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 accounting principles generally accepted in the United States of America have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission.  The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the operating results for the full year.

 

The accompanying consolidated financial statements include the accounts of Vornado Realty L.P., as well as entities in which the Company has a 50% or greater interest, provided that the Company exercises control (where the Company does not exercise control, such entities are accounted for under the equity method).  All significant intercompany amounts have been eliminated.  Equity interests in partially-owned corporate entities are accounted for under the equity method of accounting when the Company’s ownership interest is more than 20% but less than 50%.  When partially-owned investments are in partnership form, the 20% threshold may be reduced.  For all other investments, the Company uses the cost method.  Equity investments are recorded initially at cost and subsequently adjusted for the Company’s share of the net income or loss and cash contributions and distributions to or from these entities.

 

Management has made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 144 — Accounting for the Impairment or Disposal of Long-Lived Assets, for all periods presented the Company reclassified its consolidated statements of operations to reflect income and expenses for properties which are held for sale or sold during 2003 as discontinued operations and reclassified assets and liabilities related to such properties to assets related to discontinued operations and liabilities related to discontinued operations on its consolidated balance sheets.

 

6



 

3.             Recently Issued Accounting Standards

 

Financial Accounting Standards Board (“FASB”) Interpretation No. 46 – Consolidation of Variable Interest Entities

 

In January 2003, the FASB issued Interpretation No. 46 – Consolidation of Variable Interest Entities, which requires the consolidation of an entity by an enterprise (i) if that enterprise, known as a “primary beneficiary”, has a variable interest that will absorb a majority of the entity’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur, or both and (ii) if the entity is a variable interest entity, as defined by Interpretation No. 46.  An entity is a variable interest entity if (a) the total equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (b) the equity investors do not have the characteristics of a controlling financial interest in the entity.  Interpretation No. 46 applies immediately to all variable interest entities created after January 31, 2003.  For variable interest entities created by public companies before February 1, 2003, Interpretation No. 46 must be applied no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003.  The initial determination of whether an entity is a variable interest entity shall be made as of the date at which a primary beneficiary becomes involved with the entity and reconsidered as of the date one of three triggering events described by Interpretation No. 46 occur.  The adoption of this statement on July 1, 2003 will cause the Company to consolidate its 85% equity interest in 400 North LaSalle, a development joint venture which has total assets of $68,500,000 and no operating results as the project is under development and all costs are being capitalized.

 

SFAS No. 149 – Amendment of SFAS 133 on Derivative Instruments and Hedging Activities

 

In April 2003, the FASB issued SFAS No.149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.  The adoption of SFAS No. 149 on July 1, 2003, as required, had no impact on the Company’s consolidated financial statements.

 

SFAS No. 150 - Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity

 

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.  SFAS No. 150 establishes standards for classifying and measuring as liabilities, certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity.  The adoption of SFAS No. 150 on July 1, 2003, will not have a material effect on the Company’s consolidated financial statements.

 

4.             Acquisitions, Dispositions and Financings

 

Acquisitions

 

Upon acquisition of real estate, the Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships.  The Company allocates the purchase price to the assets acquired and liabilities assumed based on their relative fair values.  The Company utilizes third party appraisers or methods similar to those used by third party appraisers such as estimated cash flow projections utilizing appropriate discount and capitalization rates and available market information.

 

7



 

The fair value of the tangible assets (land, building and improvements) of an acquired property considers the value of the property as if it were vacant.  The fair value of the identified intangible assets and liabilities for (1) above and below market in-place leases is based on the present value of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of the market lease rates measured over a period equal to the remaining non-cancelable term of the lease.  The capitalized above market (deferred charge) or below market (deferred credit) intangible is amortized to rental income over the non-cancelable term of the respective leases and (2) the aggregate value of the other acquired identified intangible assets, consisting of in-place leases and tenant relationships considers the difference between the estimated fair value of the property as if vacant and the estimated value of property as if occupied at the level it was on the date of acquisition, adjusted to market rental rates.  Management considers current market conditions and costs to execute similar leases in arriving at an estimate of carrying costs during the expected lease-up period in determining the value of in-place leases.  In estimating carrying costs management includes real estate taxes, insurance, other operating expenses and estimates of lost revenue during the expected lease-up periods and costs to execute similar leases including commissions and other related costs.  In estimating the value of tenant relationships management considers, among other factors, the nature and extent of the existing tenant relationship and the expectation of lease renewals, growth prospects and tenant credit quality.  The value of the tenant relationship is amortized over the anticipated life of the relationship while the value of the in-place leases is amortized over the non-cancelable term of the acquired in-place leases.  If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.

 

Building Maintenance Service Company (“BMS”)

 

On January 1, 2003, the Company acquired for $13,000,000 in cash BMS, which provides cleaning, security and engineering services to office properties, including the Company’s Manhattan office properties.  This company was previously owned by the estate of Bernard Mendik and certain other individuals including Mr. David R. Greenbaum, one of the Company’s executive officers.  This acquisition was recorded as a business combination under the purchase method of accounting.  Accordingly, the operations of BMS are consolidated into the accounts of the Company beginning January 1, 2003.

 

For the three and six months ended June 30, 2003, BMS revenues of $6,977,000 and $14,675,000 are included in fee and other income and BMS expenses of $4,456,000 and $10,524,000 are included in operating expenses in the Company’s consolidated statements of income.

 

Kaempfer Company (“Kaempfer”)

 

On April 9, 2003, the Company acquired Kaempfer, which owns partial interests in six Class “A” office properties in Washington D.C., manages and leases these properties and four others for which it receives customary fees and has options to acquire certain other real estate interests, including 50% of Kaempfer’s 5% interest in the planned redevelopment of Waterfront, located at 401 M Street, a mixed-use project in Southwest Washington D.C.  Kaempfer’s equity interest in the properties approximates 5.0%.  The aggregate purchase price for the equity interests and the management and leasing business was $33,400,000 (consisting of $29,800,000 in cash and $3,600,000 of Class A units) and may be increased by up to $9,000,000 based on the performance of the management company.  This acquisition was recorded as a business combination under the purchase method of accounting.  Accordingly, the operations of Kaempfer are consolidated into the accounts of the Company beginning April 9, 2003.

 

The six Class “A” office buildings contain 1.8 million square feet and are as follows: the Warner Building located at 1299 Pennsylvania Avenue containing 600,000 square feet, the Investment Building located at 1501 K Street containing 380,000 square feet, the Commonwealth Tower located at 1300 Wilson Boulevard in Rosslyn, VA, containing 343,000 square feet, the Bowen Building (under development) located at 875 15th Street containing 220,000 square feet, 1925 K Street containing 150,000 square feet, and the Executive Tower located at 1399 New York Avenue, containing 123,000 square feet.  Kaempfer, which was founded in 1977 and has 65 employees, was combined with the Company’s Charles E. Smith Commercial Realty division (“CESCR”).  Mitchell N. Schear, the President of Kaempfer, has become President of CESCR.

 

8



 

20 Broad Street

 

On May 2, 2003, the Company acquired the remaining 40% of a 78-year leasehold interest in 20 Broad Street it did not already own.  The purchase price was approximately $30,000,000 in cash.  20 Broad Street contains 466,000 square feet of office space, of which 348,000 square feet is leased to the New York Stock Exchange.  Prior to the acquisition of the remaining 40%, the Company consolidated the operations of this property and reflected the 40% interest that it did not own as a component of minority interest.  Subsequent to this acquisition, the Company will no longer reflect the 40% minority interest.

 

2101 L Street

 

On August 4, 2003, the Company completed the acquisition of 2101 L Street, a 370,000 square foot office building located in Washington D.C.  The consideration for the acquisition consisted of approximately 1.1 million newly issued Class A units (valued at approximately $50,000,000) and the assumption of existing mortgage debt and transaction costs totaling approximately $32,000,000.  Mr. Robert H. Smith and Mr. Robert P. Kogod, trustees of Vornado, together with family members own approximately 24 percent of the limited partnership that sold the building.  Mr. Smith is also a general partner in the limited partnership.

 

Dispositions

 

On January 9, 2003, the Company sold its Baltimore, Maryland shopping center for $4,752,000, which resulted in a net gain of $2,644,000.

 

The Company recognized a gain of $188,000 in the three months ended March 31, 2003 and gains of $1,531,000 and $1,875,000 in the three and six months ended June 30, 2002 from the sale of residential condominiums in Chicago, Illinois, which are included in the income statement caption “net loss on disposition of wholly-owned and partially-owned assets.”

 

On June 27, 2003, the Park Laurel joint venture completed the sale of the remaining condominium unit in the project resulting in a net gain to the Company of $94,000.

 

On June 13, 2003, the Company received its $5,000,000 share of a settlement with affiliates of Primestone Investment Partners of the amounts due under the guarantees of the Primestone loans.  In connection therewith, the Company recognized a $1,388,000 loss on settlement of the guarantees which has been reflected as a component of Net Loss on Dispositions of Wholly-owned and Partially-owned Assets in the Company’s consolidated income statement for the three and six months ended June 30, 2003.

 

Financings

 

On February 25, 2002, Vornado sold 1,398,743 common shares based on the closing price of $42.96 on the NYSE.  The Company issued an equivalent amount of Class A units to Vornado and received net proceeds of approximately $56,658,000.

 

For further details of the Company’s financing activities see Note 6. - Debt.

 

9



 

 

5.             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:

 

(Amounts in thousands)

 

June 30, 2003

 

December 31, 2002

 

 

 

 

 

 

 

Temperature Controlled Logistics

 

$

466,540

 

$

459,559

 

Alexander’s

 

200,088

 

193,879

 

Newkirk Master Limited Partnership (“MLP”)

 

202,909

 

182,465

 

400 North LaSalle Joint Venture

 

64,024

 

36,585

 

Monmouth Mall Joint Venture

 

32,679

 

31,416

 

Partially-Owned Office Buildings

 

43,211

 

27,164

 

Starwood Ceruzzi Joint Ventures

 

24,967

 

24,959

 

Prime Group Realty L.P.

 

 

23,408

 

Park Laurel

 

 

3,481

 

Other

 

16,646

 

14,795

 

 

 

$

1,051,064

 

$

997,711

 

 

Income:

 

 

 

For The Three Months
Ended June 30,

 

For The Six Months
Ended June 30,

 

(Amounts in thousands)

 

2003

 

2002

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

 

Income applicable to Alexander’s:

 

 

 

 

 

 

 

 

 

33.1% share of equity in net (loss) income

 

$

(1,655

)

$

(525

)

$

(215

)

$

494

 

Interest income (1)

 

2,567

 

2,756

 

5,094

 

5,287

 

Development and guarantee fees (1)

 

2,366

 

1,158

 

4,559

 

1,974

 

Management and leasing fees (1)

 

1,070

 

1,098

 

2,164

 

2,300

 

 

 

$

4,348

 

$

4,487

 

$

11,602

 

$

10,055

 

Temperature Controlled Logistics:

 

 

 

 

 

 

 

 

 

60% share of equity in net income (loss)

 

$

1,316

 

$

(424

)

$

5,677

 

$

3,383

 

Management fee (40% of 1% per annum of  Total Combined Assets, as defined)

 

1,384

 

1,389

 

2,753

 

2,765

 

Other

 

250

 

122

 

372

 

244

 

 

 

2,950

 

1,087

 

8,802

 

6,392

 

 

 

 

 

 

 

 

 

 

 

Newkirk MLP:

 

 

 

 

 

 

 

 

 

22.6% share of equity in income

 

8,378

(2)

5,974

 

23,557

(2)

11,403

 

Interest and other income

 

1,750

 

2,326

 

3,571

 

4,597

 

 

 

10,128

 

8,300

 

27,128

 

16,000

 

Partially-Owned Office Buildings

 

791

 

726

 

1,409

 

1,276

 

Other

 

5,930

(3)

(287

)

5,694

(3)

(56

)

 

 

$

19,799

 

$

9,826

 

$

43,033

 

$

23,612

 

 


(1)          Alexander’s capitalizes the fees and interest charged by the Company.  Because the Company owns 33.1% of Alexander’s, the Company recognizes 66.9% of such amounts as income and the remainder is reflected as a reduction of the Company’s carrying amount of the investment in Alexander’s.

(2)          The three months ended June 30, 2003 includes $1,900 for the Company’s share of gains on sale of real estate.  The six months ended June 30, 2003 includes net gains of $9,900 from the sale of properties and the early extinguishment of debt in the first quarter of 2003.

(3)          Includes $4,576 and $5,583 for the Company’s share of Prime Group Realty L.P.’s equity in net income recognized by the Company in the three and six months ended June 30, 2003, which the Company records on a one-quarter lag basis.  Included in these amounts is $4,413 for the Company’s share of Prime Group’s lease termination fee income recognized by the Company in the second quarter of 2003.

 

10



 

Below is a summary of the debt of partially owned entities as of June 30, 2003 and December 31, 2002, none of which is guaranteed by the Company.

 

 

 

100% of
Partially-Owned Entities Debt

 

(Amounts in thousands)

 

June 30,
2003

 

December 31,
2002

 

Alexander’s (33.1% interest):

 

 

 

 

 

Due to Vornado on January 3, 2006 with interest at 12.48% (prepayable without penalty)

 

$

124,000

 

$

119,000

 

Lexington Avenue construction loan payable, due on January 3, 2006, plus two one-year extensions, with interest at LIBOR plus 2.50% (3.62% at June 30, 2003)

 

142,957

 

55,500

 

Rego Park mortgage payable, due in June 2009, with interest at 7.25%

 

82,000

 

82,000

 

Kings Plaza Regional Shopping Center mortgage payable, due in June 2011, with interest at 7.46% (prepayable with yield maintenance)

 

217,950

 

219,308

 

Paramus mortgage payable, due in October 2011, with interest at 5.92%  (prepayable without penalty)

 

68,000

 

68,000

 

Temperature Controlled Logistics (60% interest):

 

 

 

 

 

Mortgage notes payable collateralized by 58 temperature controlled warehouses, due from 2004 to 2023 with a weighted average interest rate of 6.92% (various prepayment terms)

 

530,312

 

537,716

 

Other notes and mortgages payable

 

37,037

 

37,789

 

Newkirk MLP (22.6% interest):

 

 

 

 

 

Portion of first mortgages and contract rights, collateralized by the partnership’s real estate, due from 2003 to 2024, with a weighted average interest rate of 10.1% at June 30, 2003 (various prepayment terms)

 

1,283,649

 

1,432,438

 

Prime Group Realty L.P. (14.9% interest):

 

 

 

 

 

24 mortgages payable

 

(1)

868,374

 

Partially Owned Office Buildings:

 

 

 

 

 

330 Madison Avenue (25% interest) mortgage note payable, due in April 2008, with interest at 6.52% (prepayable with yield maintenance)

 

60,000

 

60,000

 

Fairfax Square (20% interest) mortgage note payable due in August 2009, with interest at 7.50%

 

68,485

 

68,900

 

825 Seventh Avenue (50% interest) mortgage payable, due in October 2014, with interest at 8.07% (prepayable with yield maintenance)

 

23,190

 

23,295

 

Orleans Hubbard (50% interest) mortgage note payable, due in March 2009, with interest at 7.03%

 

9,882

 

9,961

 

Wells/Kinzie Garage (50% interest) mortgage note payable, due in May 2009, with interest at 7.03%

 

15,735

 

15,860

 

Kaempfer Equity Interests (1% to 10% interests in six partnerships) Mortgage notes payable, collateralized by the partnerships’ real estate, due from 2007 to 2031, with a weighted average interest rate of 6.56% at June 30, 2003 (various prepayment terms)

 

378,642

 

 

Monmouth Mall (50% interest):

 

 

 

 

 

Mortgage note payable, due in November 2005, with interest at LIBOR + 2.05% and two one-year extension options (3.65% at June 30, 2003)

 

135,000

 

135,000

 

 

Based on the Company’s ownership interest in the partially-owned entities above, the Company’s share of the debt of these partially-owned entities was $935,525,000 and $1,048,108,000 as of June 30, 2003 and December 31, 2002.

 


(1)          The Company’s investment in Prime Group Realty L.P. was converted into common shares of Prime Group Realty Trust on May 23, 2003, and is reflected as a marketable security at June 30, 2003.

 

11



 

Temperature Controlled Logistics

 

Based on the joint venture’s policy of recognizing rental income when earned and collection is assured or cash is received, the Company did not recognize $7,726,000 and $11,103,000 of rent it was due for the three and six months ended June 30, 2003 and $3,744,000 and $5,552,000 of rent it was due for the three and six months ended June 30, 2002, which together with previously deferred rent is $35,452,000.

 

On March 7, 2003, AmeriCold Logistics and the Landlord extended the deferred rent period to December 31, 2004 from December 31, 2003.

 

On March 28, 2003, a joint venture in which the Company had a 44% interest acquired $6,640,000 of trade receivables from AmeriCold Logistics for $6,500,000 in cash (a 2% discount).  These receivables were collected in full during the second quarter of 2003.

 

Alexander’s

 

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.  As of June 30, 2003, the Company has a receivable from Alexander’s of $16,440,000 under the management and development agreement.

 

At June 30, 2003, the Company had loans receivable from Alexander’s of $124,000,000, including $29,000,000 drawn under a $50,000,000 line of credit, of which $5,000,000 was drawn this quarter.  The maturity date of the loan and the line of credit is the earlier of January 3, 2006 or the date the Alexander’s Lexington Avenue construction loan is repaid.  The interest rate on the loan and line of credit, which resets quarterly using the same spread to treasuries as presently exists with a 3% floor for treasuries, is 12.48% at June 30, 2003.  The Company believes that although Alexander’s has disclosed that it does not have positive cash flow sufficient to repay this loan to the Company currently, Alexander’s will be able to repay the loan upon the successful development and permanent financing of its Lexington Avenue development project or through asset sales.

 

Equity in income from Alexander’s reflects the Company’s share of Alexander’s stock appreciation rights compensation expense of $3,285,000 and $1,402,000 for the three months ended June 30, 2003 and 2002, respectively, based on a closing Alexander’s stock price of $83.49 and $76.80 on June 30, 2003 and 2002.

 

Prime Group Realty L.P.

 

On May 23, 2003, the Company exercised its right to exchange the 3,972,447 units it owned in Prime Group Realty L.P. for 3,972,447 common shares in Prime Group Realty Trust (NYSE: PGE).  Prior to the exchange, the Company accounted for its investment in the partnership on the equity method.

 

Subsequent to the exchange, since the Company’s shares represent less than a 20% ownership interest in PGE, which is not a partnership, and the Company does not exercise direct or indirect control over PGE, the Company is accounting for its investment in PGE as a marketable equity security – available for sale.  Accordingly, the carrying amount previously included in Investments and Advances to Partially-owned Entities has been reclassified to Marketable Securities on the Company’s consolidated balance sheet as of June 30, 2003.  The Company was also required to mark-to-market these securities based on the closing price of the PGE shares on the NYSE on June 30, 2003, and recognized a $2,805,000 unrealized gain, which is not included in the Company’s net income, but is reflected as a component of Accumulated Other Comprehensive Loss in the Partners' Capital section of the consolidated balance sheet.  From the date of exchange, income recognition is limited to dividends received on the PGE shares.

 

On June 13, 2003, the Company received its $5,000,000 share of a settlement with affiliates of Primestone Investment Partners of the amounts due under the guarantees of the Primestone loans.  In connection therewith, the Company recognized a $1,388,000 loss on settlement of the guarantees which has been reflected as a component of Net Loss on Dispositions of Wholly-owned and Partially-owned Assets in the Company’s consolidated income statement for the three months ended June 30, 2003.

 

12



 

6.             Debt

 

Following is a summary of the Company’s debt:

 

 

 

 

 

Interest Rate

 

Balance as of

 

(Amounts in thousands)

 

Maturity

 

as at June 30,
2003

 

June 30,
2003

 

December 31,
2002

 

 

 

 

 

 

 

 

 

 

 

Notes and Mortgages Payable:

 

 

 

 

 

 

 

 

 

Fixed Interest:

 

 

 

 

 

 

 

 

 

Office:

 

 

 

 

 

 

 

 

 

NYC Office:

 

 

 

 

 

 

 

 

 

Two Penn Plaza

 

03/04

 

7.08

%

$

153,073

 

$

154,669

 

888 Seventh Avenue

 

02/06

 

6.63

%

105,000

 

105,000

 

Eleven Penn Plaza

 

05/07

 

8.39

%

49,854

 

50,383

 

866 UN Plaza

 

04/04

 

7.79

%

33,000

 

33,000

 

CESCR Office:

 

 

 

 

 

 

 

 

 

Crystal Park 1-5

 

07/06-08/13

 

6.66%-7.08

%

262,575

 

264,441

 

Crystal Gateway 1-4 Crystal Square 5

 

07/12-01/25

 

6.75%-7.09

%

215,191

 

215,978

 

Crystal Square 2, 3 and 4

 

10/10-11/14

 

6.82%-7.08

%

145,112

 

146,081

 

Skyline Place

 

08/06-12/09

 

6.60%-6.93

%

137,743

 

139,212

 

1101 17th , 1140 Connecticut, 1730 M & 1150 17th

 

08/10

 

6.74

%

96,617

 

97,318

 

Courthouse Plaza 1 and 2

 

01/08

 

7.05

%

79,535

 

80,062

 

Crystal Gateway N., Arlington Plaza and 1919 S. Eads

 

11/07

 

6.77

%

72,125

 

72,721

 

Reston Executive I, II & III

 

01/06

 

6.75

%

73,365

 

73,844

 

Crystal Plaza 1-6

 

10/04

 

6.65

%

69,653

 

70,356

 

One Skyline Tower

 

06/08

 

7.12

%

65,293

 

65,764

 

Crystal Malls 1-4

 

12/11

 

6.91

%

63,377

 

65,877

 

1750 Pennsylvania Avenue

 

06/12

 

7.26

%

49,569

 

49,794

 

One Democracy Plaza

 

02/05

 

6.75

%

27,309

 

27,640

 

Retail:

 

 

 

 

 

 

 

 

 

Cross collateralized mortgages payable on 42 shopping centers

 

03/10

 

7.93

%

484,619

 

487,246

 

Green Acres Mall

 

02/08

 

6.75

%

149,557

 

150,717

 

Montehiedra Town Center

 

05/07

 

8.23

%

59,248

 

59,638

 

Las Catalinas Mall

 

11/13

 

6.97

%

67,219

 

67,692

 

Merchandise Mart:

 

 

 

 

 

 

 

 

 

Market Square Complex

 

07/11

 

7.95

%

47,633

 

48,213

 

Washington Design Center

 

10/11

 

6.95

%

48,257

 

48,542

 

Washington Office Center

 

02/04

 

6.80

%

44,061

 

44,924

 

Furniture Plaza

 

02/13

 

5.23

%

46,552

 

 

Other

 

10/10-06/13

 

7.52%-7.71

%

18,567

 

18,703

 

Other:

 

 

 

 

 

 

 

 

 

Industrial Warehouses

 

10/11

 

6.95

%

49,207

 

49,423

 

Student Housing Complex

 

11/07

 

7.45

%

18,899

 

19,019

 

Other

 

08/21

 

9.90

%

6,928

 

6,937

 

Total Fixed Interest Notes and Mortgages Payable

 

 

 

7.36

%

2,739,138

 

2,713,194

 

 

13



 

 

 

 

 

Spread

 

Interest Rate

 

Balance as of

 

(Amounts in thousands)

 

Maturity

 

over
LIBOR

 

as at June 30,
2003

 

June 30,
2003

 

December 31,
2002

 

Notes and Mortgages Payable:

 

 

 

 

 

 

 

 

 

 

 

Variable Interest:

 

 

 

 

 

 

 

 

 

 

 

Office:

 

 

 

 

 

 

 

 

 

 

 

NYC Office:

 

 

 

 

 

 

 

 

 

 

 

One Penn Plaza

 

06/05

 

L+125

 

2.25

%

$

275,000

 

$

275,000

 

595 Madison Avenue

 

 

(2)

L+40

 

1.72

%

20,000

 

70,345

 

770 Broadway (1)

 

06/06

 

L+105

 

2.36

%

170,000

 

83,314

 

909 Third Avenue

 

 

(2)

L+165

 

2.96

%

105,254

 

105,837

 

CESCR Office:

 

 

 

 

 

 

 

 

 

 

 

Tyson Dulles Plaza (1)

 

N/A

 

L+130

 

2.61

%

 

69,507

 

Commerce Executive III, IV & V

 

 

(3)

L+150

 

2.61

%

52,944

 

53,307

 

Merchandise Mart:

 

 

 

 

 

 

 

 

 

 

 

Furniture Plaza

 

N/A

 

L+200

 

 

 

48,290

 

33 North Dearborn Street (1)

 

N/A

 

L+175

 

 

 

18,926

 

Other:

 

 

 

 

 

 

 

 

 

 

 

Palisades construction loan

 

12/03

 

L+185

 

2.79

%

99,378

 

100,000

 

Total Variable Interest Notes and Mortgages Payable

 

 

 

 

 

2.47

%

722,576

 

824,526

 

Total Notes and Mortgages Payable

 

 

 

 

 

6.34

%

$

3,461,714

 

$

3,537,720

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured notes due 2007 at fair value (accreted face amount of $499,426 and $499,355)

 

06/07

 

L+77

 

1.96

%

$

542,880

 

$

533,600

 

Unsecured revolving credit facility (4)

 

 

(4)

L+90

 

N/A

 

$

 

$

 

 


(1)          On June 9, 2003, the Company completed a $170,000 mortgage financing of its 770 Broadway property.  The loan bears interest at LIBOR plus 1.05%, is prepayable after one year without penalty and matures in June 2006 with two-one year extension options.  The proceeds of the new loan were used primarily to repay (i) a $18,926 mortgage loan on 33 North Dearborn, (ii) a $69,507 mortgage loan on Tysons Dulles Plaza, and (iii) $40,000 of borrowings under the Company’s unsecured revolving credit facility.  In connection with the closing of the 770 Broadway loan, the Company purchased an interest rate cap, and simultaneously sold an interest rate cap with the same terms. Since these instruments do not reduce the Company’s net interest rate risk exposure, they do not qualify as hedges and changes in their respective values are charged to earnings. As the significant terms of these arrangements are the same, the effects of a revaluation of these instruments is expected to substantially offset one another.  Simultaneously with the completion of the 770 Broadway loan, the Company used cash from its mortgage escrow account to repay $133,659 of the $153,659 of debt previously cross-collateralized by its 770 Broadway and 595 Madison Avenue properties.

(2)          On August 4, 2003, the Company completed a refinancing of its 909 Third Avenue mortgage loan.  The new $125,000 mortgage loan is for a term of three years and bears interest at LIBOR plus .70% and has two one—year extension options.  Simultaneously with the completion of the 909 Third Avenue loan, the Company used cash from its mortgage escrow account to repay the balance of $20,000 of debt previously cross-collateralized by its 770 Broadway and 595 Madison Avenue properties.

(3)          On July 31, 2003, the Company replaced the mortgage on the Commerce Executive property with (i) a new $43,000 non-recourse mortgage loan at LIBOR plus 1.50% with a two-year term and a one-year extension option and (ii) a $10,000 unsecured loan for three years at LIBOR plus .65% with a one-year extension option.

(4)          On July 3, 2003, the Company entered into a new $600 million unsecured revolving credit facility which has replaced its $1 billion unsecured revolving credit facility due to mature in July, 2003.  The new facility has a three-year term, a one-year extension option and bears interest at LIBOR plus .65%.  The Company also has the ability under the new facility to seek up to $800 million of commitments during the facility’s term.  The new facility contains financial covenants similar to the prior facility.

 

14



 

7.             Fee And Other Income

 

The following table sets forth the details of fee and other income:

 

 

 

For The Three Months
Ended June 30,

 

For The Six Months
Ended June 30,

 

(Amounts in thousands)

 

2003

 

2002

 

2003

 

2002

 

Tenant cleaning fees

 

$

6,977

 

$

 

$

14,675

 

$

 

Management and leasing fees

 

3,767

 

3,567

 

6,045

 

7,504

 

Other income

 

5,886

 

3,466

 

9,040

 

6,259

 

 

 

$

16,630

 

$

7,033

 

$

29,760

 

$

13,763

 

 

The above table excludes fee income from partially-owned entities which is included in income from partially-owned entities (see Note 5).  Fee and other income above includes management fee income from Interstate Properties, a related party, of $387,000 and $381,000 in the three months ended June 30, 2003 and 2002 and $563,000 and $584,000 in the six months ended June 30, 2003 and 2002.

 

8.             Income Per Class A Unit

 

The following table sets forth the computation of basic and diluted income per Class A unit:

 

 

 

For The Three Months
Ended June 30,

 

For The Six Months
Ended June 30,

 

(Amounts in thousands except per unit amounts)

 

2003

 

2002

 

2003

 

2002

 

Numerator:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

119,522

 

$

103,886

 

$

242,054

 

$

214,783

 

Discontinued operations

 

5,361

 

4,046

 

12,404

 

8,174

 

Cumulative effect of change in accounting principle

 

 

 

 

(30,129

)

Net income

 

124,883

 

107,932

 

254,458

 

192,828

 

Preferred unit distributions

 

(29,050

)

(30,038

)

(58,100

)

(60,230

)

 

 

 

 

 

 

 

 

 

 

Numerator for basic income per unit – net income applicable to Class A units

 

95,833

 

77,894

 

196,358

 

132,598

 

Impact of Assumed Conversions:

 

 

 

 

 

 

 

 

 

Preferred unit distributions

 

6,399

 

 

12,798

 

 

Numerator for diluted income per Class A unit –net income applicable to Class A units and assumed conversions

 

$

102,232

 

$

77,894

 

$

209,156

 

$

132,598

 

Denominator:

 

 

 

 

 

 

 

 

 

Denominator for basic income per unit – weighted average units

 

129,881

 

127,255

 

129,710

 

126,347

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Convertible preferred units

 

9,349

 

 

9,348

 

 

Employee unit options

 

3,191

 

4,464

 

2,604

 

4,204

 

Deferred compensation units issued but not yet earned

 

220

 

347

 

187

 

264

 

 

 

 

 

 

 

 

 

 

 

Denominator for diluted income per unit – adjusted weighted average units and assumed conversions

 

142,641

 

132,066

 

141,849

 

130,815

 

INCOME PER CLASS A UNIT – BASIC:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

.70

 

$

.58

 

$

1.41

 

$

1.23

 

Discontinued operations

 

.04

 

.03

 

.10

 

.06

 

Cumulative effect of change in accounting principle

 

 

 

 

(.24

)

Net income per Class A unit

 

$

.74

 

$

.61

 

$

1.51

 

$

1.05

 

INCOME PER CLASS A UNIT – DILUTED:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

.68

 

$

.56

 

$

1.39

 

$

1.18

 

Discontinued operations

 

.04

 

.03

 

.09

 

.06

 

Cumulative effect of change in accounting principle

 

 

 

 

(.23

)

Net income per Class A unit

 

$

.72

 

$

.59

 

$

1.48

 

$

1.01

 

 

15



 

9.             Comprehensive Income

 

The following table sets forth the Company’s comprehensive income:

 

 

 

For The Three Months
Ended June 30,

 

For The Six Months
Ended June 30,

 

(Amounts in thousands)

 

2003

 

2002

 

2003

 

2002

 

Net income applicable to Class A units

 

$

95,833

 

$

77,894

 

$

196,358

 

$

132,598

 

Other comprehensive income (loss)

 

3,669

 

(11,787

)

3,760

 

(8,862

)

Comprehensive income

 

$

99,502

 

$

66,107

 

$

200,118

 

$

123,736

 

 

10.          Stock-Based Compensation

 

As part of the 2002 annual compensation review, in lieu of stock options, on January 28, 2003 Vornado granted 166,990 restricted shares at $34.50 per share (the then closing stock price on the NYSE) to employees of the Company, for which the Company has issued an equivalent amount of Class A units.  These awards vest over a 5-year period.  Stock-based compensation expense is recognized on a straight-line basis over the vesting period.  In the six months ended June 30, 2003, the Company recognized compensation expense of $1,544,000, of which $474,000 related to the January 2003 awards.

 

Prior to 2003, the Company accounted for stock-based compensation using the intrinsic value method (i.e. the difference between the price per share at the date of grant and the option exercise price).  Accordingly, no stock-based compensation was recognized in the Company’s financial statements for these years.  If compensation cost for Plan awards had been determined based on fair value at the grant dates, net income and income per Class A unit would have been reduced to the pro-forma amounts below:

 

 

 

For The Three Months
Ended June 30,

 

For The Six Months
Ended June 30,

 

(Amounts in thousands, except per unit amounts)

 

2003

 

2002

 

2003

 

2002

 

Net income applicable to Class A units:

 

 

 

 

 

 

 

 

 

As reported

 

$

95,833

 

$

77,894

 

$

196,358

 

$

132,598

 

Stock-based compensation cost

 

(1,384

)

(2,561

)

(2,769

)

(5,122

)

Pro-forma

 

$

94,449

 

$

75,333

 

$

193,589

 

$

127,476

 

Net income per Class A unit:

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

As reported

 

$

.74

 

$

.61

 

$

1.51

 

$

1.05

 

Pro-forma

 

$

.73

 

$

.59

 

$

1.49

 

$

1.01

 

Diluted:

 

 

 

 

 

 

 

 

 

As reported

 

$

.72

 

$

.59

 

$

1.48

 

$

1.01

 

Pro-forma

 

$

.71

 

$

.57

 

$

1.46

 

$

.97

 

 

16



 

11.          Discontinued Operations

 

Assets related to discontinued operations at June 30, 2003, represents the Company’s New York City office property located at Two Park Avenue (see Note 14).  The results of operations of this property as well as the Company’s Baltimore, Maryland retail property which was sold on January 9, 2003 (resulting in net gain of $2,644,000) are shown as discontinued operations.  The following is a summary of the combined results of operations of these properties:

 

(Amounts in thousands)

 

 

 

For the Three Months Ended
June 30,

 

For the Six Months Ended
June 30,

 

 

 

2003

 

2002

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

8,994

 

$

9,236

 

$

18,136

 

$

18,495

 

Total expenses

 

3,633

 

5,190

 

8,376

 

10,321

 

Net income

 

5,361

 

4,046

 

9,760

 

8,174

 

Gain on sale of Baltimore

 

 

 

2,644

 

 

Income from discontinued operations

 

$

5,361

 

$

4,046

 

$

12,404

 

$

8,174

 

 

12.          Commitments and Contingencies

 

At June 30, 2003, the Company’s revolving credit facility had a zero balance, and the Company utilized $9,112,000 of availability under the facility for letters of credit and guarantees.  In addition, the Company has $10,167,000 of other letters of credit outstanding as of June 30, 2003.

 

Each of the Company’s properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to the Company.

 

The Company’s debt instruments, consisting of mortgage loans secured by its properties (which are generally non-recourse to the Company) and its revolving credit agreement, contain customary covenants requiring the Company to maintain insurance.  There can be no assurance that the lenders under these instruments will not take the position that since the Company’s current all risk insurance policies, differ from policies in effect prior to September 11, 2001 as to coverage for terrorist acts, there are breaches of these debt instruments that allow the lenders to declare an event of default and accelerate repayment of debt.  In addition, if lenders insist on coverage for these risks, as it existed prior to September 11, 2001, it could adversely affect the Company’s ability to finance and/or refinance its properties and to expand its portfolio.

 

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

 

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

 

17



 

13.          Segment Information

 

The Company has four business segments: Office, Retail, Merchandise Mart Properties and Temperature Controlled Logistics.  Effective with the first quarter of 2003, to comply with the Securities and Exchange Commission’s Regulation G concerning non-GAAP financial measures, the Company has revised its definition of EBITDA to include minority interest, gains (losses) on the sale of depreciable real estate and income arising from the straight-lining of rent and the amortization of below market leases net of above market leases.  EBITDA as disclosed represents “Earnings Before Interest, Taxes, Depreciation and Amortization”.  The prior period EBITDA has been restated to reflect these changes.

 

 

 

For The Three Months Ended June 30,

 

 

 

2003

 

2002

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Temperature
Controlled
Logistics

 

Other(4)

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Temperature
Controlled
Logistics

 

Other(4)

 

Property rentals

 

$

301,927

 

$

205,766

 

$

33,285

 

$

49,297

 

$

 

$

13,579

 

$

291,157

 

$

197,671

 

$

29,082

 

$

50,599

 

$

 

$

13,805

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

8,057

 

5,760

 

1,714

 

574

 

 

9

 

8,559

 

7,131

 

380

 

1,042

 

 

6

 

Amortization of free rent

 

1,557

 

(502

)

1,104

 

871

 

 

84

 

634

 

(243

)

569

 

(198

)

 

506

 

Amortization of acquired below market leases, net

 

2,307

 

2,147

 

160

 

 

 

 

3,117

 

3,117

 

 

 

 

 

Total rentals

 

313,848

 

213,171

 

36,263

 

50,742

 

 

13,672

 

303,467

 

207,676

 

30,031

 

51,443

 

 

14,317

 

Expense reimbursements

 

44,058

 

24,462

 

14,534

 

4,216

 

 

846

 

35,203

 

18,926

 

11,711

 

3,872

 

 

694

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

6,977

 

6,977

 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

3,767

 

3,368

 

387

 

 

 

12

 

3,567

 

3,186

 

381

 

 

 

 

Other

 

5,886

 

3,969

 

991

 

792

 

 

134

 

3,466

 

1,874

 

10

 

1,220

 

 

362

 

Total revenues

 

374,536

 

251,947

 

52,175

 

55,750

 

 

14,664

 

345,703

 

231,662

 

42,133

 

56,535

 

 

15,373

 

Operating expenses

 

141,635

 

91,688

 

18,805

 

19,264

 

 

11,878

 

121,589

 

76,535

 

13,554

 

19,928

 

 

11,572

 

Depreciation and amortization

 

53,974

 

38,700

 

4,235

 

6,719

 

 

4,320

 

49,352

 

33,818

 

3,638

 

7,288

 

 

4,608

 

General and administrative

 

27,436

 

9,469

 

2,679

 

4,881

 

 

10,407

 

23,501

 

9,215

 

1,763

 

4,894

 

 

7,629

 

Amortization of officer’s deferred compensation expense

 

 

 

 

 

 

 

6,875

 

 

 

 

 

6,875

 

Total expenses

 

223,045

 

139,857

 

25,719

 

30,864

 

 

26,605

 

201,317

 

119,568

 

18,955

 

32,110

 

 

30,684

 

Operating income

 

151,491

 

112,090

 

26,456

 

24,886

 

 

(11,941

)

144,386

 

112,094

 

23,178

 

24,425

 

 

(15,311

)

Income applicable to Alexander’s

 

4,348

 

 

 

 

 

4,348

 

4,487

 

 

 

 

 

4,487

 

Income from partially-owned entities

 

19,799

 

791

 

2,722

 

(3

)

2,950

(3)

13,339

 

9,826

 

726

 

(298

)

11

 

1,087

(3)

8,300

 

Interest and other investment income

 

3,628

 

761

 

54

 

27

 

 

2,786

 

9,934

 

2,758

 

78

 

143

 

 

6,955

 

Interest and debt expense

 

(58,485

)

(34,151

)

(15,188

)

(3,939

)

 

(5,207

)

(59,212

)

(34,024

)

(13,835

)

(6,687

)

 

(4,666

)

Net (loss) gain on disposition of wholly-owned and partially-owned assets

 

(1,294

)

 

 

 

 

(1,294

)

(4,981

)

 

 

344

 

 

(5,325

)

Minority interest

 

35

 

 

 

 

 

35

 

(554

)

(474

)

 

226

 

 

(306

)

Income from continuing operations

 

119,522

 

79,491

 

14,044

 

20,971

 

2,950

 

2,066

 

103,886

 

81,080

 

9,123

 

18,462

 

1,087

 

(5,866

)

Discontinued operations

 

5,361

 

5,361

 

 

 

 

 

4,046

 

3,847

 

199

 

 

 

 

Net income

 

124,883

 

84,852

 

14,044

 

20,971

 

2,950

 

2,066

 

107,932

 

84,927

 

9,322

 

18,462

 

1,087

 

(5,866

)

Interest and debt expense(2)

 

75,848

 

35,368

 

15,864

 

4,286

 

6,197

 

14,133

 

76,199

 

35,436

 

14,470

 

6,687

 

6,302

 

13,304

 

Depreciation and amortization(2)

 

67,572

 

38,982

 

4,987

 

6,808

 

8,721

 

8,074

 

62,670

 

34,755

 

4,229

 

7,288

 

7,880

 

8,518

 

EBITDA(1)

 

$

268,303

 

$

159,202

 

$

34,895

 

$

32,065

 

$

17,868

 

$

24,273

 

$

246,801

 

$

155,118

 

$

28,021

 

$

32,437

 

$

15,269

 

$

15,956

 

 


See footnotes on page 20.

 

18



 

 

 

For The Six Months Ended June 30,

 

 

 

2003

 

2002

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Temperature
Controlled
Logistics

 

Other(4)

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Temperature
Controlled
Logistics

 

Other(4)

 

Property rentals

 

$

600,943

 

$

408,620

 

$

67,301

 

$

97,942

 

$

 

$

27,080

 

$

575,624

 

$

396,034

 

$

58,898

 

$

95,024

 

$

 

$

25,668

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

16,554

 

13,080

 

2,114

 

1,370

 

 

(10

)

16,958

 

14,096

 

760

 

2,091

 

 

11

 

Amortization of free rent

 

3,962

 

104

 

2,871

 

988

 

 

(1

)

544

 

(849

)

569

 

318

 

 

506

 

Amortization of acquired below market leases, net

 

3,752

 

3,425

 

327

 

 

 

 

6,234

 

6,234

 

 

 

 

 

Total rentals

 

625,211

 

425,229

 

72,613

 

100,300

 

 

27,069

 

599,360

 

415,515

 

60,227

 

97,433

 

 

26,185

 

Expense reimbursements

 

87,428

 

48,244

 

28,495

 

8,998

 

 

1,691

 

71,742

 

39,065

 

23,731

 

7,215

 

 

1,731

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

14,675

 

14,675

 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees

 

6,045

 

5,458

 

563

 

 

 

24

 

7,504

 

6,903

 

584

 

17

 

 

 

Other

 

9,040

 

5,290

 

2,000

 

1,532

 

 

218

 

6,259

 

3,110

 

21

 

2,620

 

 

508

 

Total revenues

 

742,399

 

498,896

 

103,671

 

110,830

 

 

29,002

 

684,865

 

464,593

 

84,563

 

107,285

 

 

28,424

 

Operating expenses

 

290,055

 

183,481

 

37,996

 

44,133

 

 

24,445

 

244,798

 

156,021

 

27,990

 

40,135

 

 

20,652

 

Depreciation and amortization

 

105,597

 

74,721

 

8,494

 

13,822

 

 

8,560

 

96,731

 

67,646

 

7,111

 

13,768

 

 

8,206

 

General and administrative

 

54,672

 

17,627

 

5,054

 

9,666

 

 

22,325

 

46,719

 

17,123

 

3,061

 

9,705

 

 

16,830

 

Amortization of officer’s deferred compensation expense

 

 

 

 

 

 

 

13,750

 

 

 

 

 

13,750

 

Total expenses

 

450,324

 

275,829

 

51,544

 

67,621

 

 

55,330

 

401,998

 

240,790

 

38,162

 

63,608

 

 

59,438

 

Operating income

 

292,075

 

223,067

 

52,127

 

43,209

 

 

(26,328

)

282,867

 

223,803

 

46,401

 

43,677

 

 

(31,014

)

Income applicable to Alexander’s

 

11,602

 

 

 

 

 

11,602

 

10,055

 

 

 

 

 

10,055

 

Income from partially-owned entities

 

43,033

 

1,409

 

2,254

 

3

 

8,802

(3)

30,565

 

23,612

 

1,276

 

(69

)

13

 

6,392

(3)

16,000

 

Interest and other investment income

 

13,424

 

1,645

 

101

 

57

 

 

11,621

 

19,577

 

3,869

 

157

 

278

 

 

15,273

 

Interest and debt expense

 

(116,238

)

(67,955

)

(29,970

)

(7,150

)

 

(11,163

)

(116,335

)

(68,108

)

(27,311

)

(13,870

)

 

(7,046

)

Net (loss) gain on disposition of wholly-owned and partially-owned assets

 

(1,106

)

 

 

188

 

 

(1,294

)

(3,450

)

 

 

1,875

 

 

(5,325

)

Minority interest

 

(736

)

(818

)

 

 

 

82

 

(1,543

)

(1,786

)

 

127

 

 

116

 

Income from continuing operations

 

242,054

 

157,348

 

24,512

 

36,307

 

8,802

 

15,085

 

214,783

 

159,054

 

19,178

 

32,100

 

6,392

 

(1,941

)

Discontinued operations

 

12,404

 

9,760

 

2,644

 

 

 

 

8,174

 

7,891

 

283

 

 

 

 

Cumulative effect of change in accounting principle

 

 

 

 

 

 

 

(30,129

)

 

 

 

(15,490

)

(14,639

)

Net income

 

254,458

 

167,108

 

27,156

 

36,307

 

8,802

 

15,085

 

192,828

 

166,945

 

19,461

 

32,100

 

(9,098

)

(16,580

)

Cumulative effect of change in accounting principle

 

 

 

 

 

 

 

30,129

 

 

 

 

15,490

 

14,639

 

Interest and debt expense(2)

 

150,038

 

69,674

 

31,394

 

7,614

 

12,343

 

29,013

 

150,492

 

70,919

 

28,581

 

13,870

 

12,861

 

24,261

 

Depreciation and amortization(2)

 

133,682

 

76,619

 

9,998

 

13,999

 

17,470

 

15,596

 

123,806

 

69,780

 

8,009

 

13,768

 

17,253

 

14,996

 

EBITDA(1)

 

$

538,178

 

$

313,401

 

$

68,548

 

$

57,920

 

$

38,615

 

$

59,694

 

$

497,255

 

$

307,644

 

$

56,051

 

$

59,738

 

$

36,506

 

$

37,316

 

 


See footnotes on the following page.

 

19



 

Notes to segment information:

 

(1)          Management considers EBITDA a supplemental measure for making decisions and assessing the performance of its segments.  EBITDA should not be considered a substitute for net income or a substitute for cash flow as a measure of liquidity. EBITDA may not be comparable to similarly titled measures employed by other companies.

(2)          Interest and debt expense and depreciation and amortization included in the reconciliation of net income to EBITDA reflects amounts which are netted in income from partially-owned entities.

(3)          Net of rent not recognized of $7,726 and $3,744 for the three months ended June 30, 2003 and 2002 and $11,103 and $5,552 for the six months ended June 30, 2003 and 2002.

(4)          Other EBITDA is comprised of:

 

 

 

For the Three Months
Ended June 30,

 

For the Six Months
Ended June 30,

 

(Amounts in thousands)

 

2003

 

2002

 

2003

 

2002

 

Newkirk MLP:

 

 

 

 

 

 

 

 

 

Equity in income of limited partnership

 

$

14,655

 

$

15,500

 

$

38,457

 

$

30,529

 

Interest and other income

 

1,752

 

2,200

 

3,571

 

4,471

 

Alexander’s

 

5,756

 

7,354

 

14,751

 

15,360

 

Industrial warehouses

 

1,586

 

1,163

 

3,128

 

2,901

 

Palisades (placed in service March 1, 2002)

 

1,269

 

(260

)

1,907

 

(260

)

Student Housing

 

432

 

614

 

1,060

 

1,268

 

Hotel Pennsylvania

 

267

 

2,404

 

(638

)

3,157

 

 

 

25,717

 

28,975

 

62,236

 

57,426

 

Minority interest expense

 

35

 

(306

)

82

 

116

 

Unallocated general and administrative expenses

 

(9,443

)

(6,829

)

(20,256

)

(14,549

)

Investment income and other

 

9,352

 

6,316

 

19,020

 

13,398

 

Amortization of Officer’s deferred compensation expense

 

 

(6,875

)

 

(13,750

)

Loss on Primestone foreclosure (2002) and settlement of guarantees (2003)

 

(1,388

)

(17,671

)

(1,388

)

(17,671

)

Net gain on sale of marketable equity securities

 

 

12,346

 

 

12,346

 

Total

 

$

24,273

 

$

15,956

 

$

59,694

 

$

37,316

 

 

14.          Subsequent Event

 

On August 6, 2003, the Company entered into an agreement to sell Two Park Avenue, a 965,000 square foot office building, for $292 million to SEB Immobilien-Investment GMBH, a German capital investment company.   The Company’s net gain on the sale after closing costs will be approximately $157,000,000.  The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter of the year.

 

20



 

INDEPENDENT ACCOUNTANTS’ REPORT

 

Partners

Vornado Realty L.P.

New York, New York

 

We have reviewed the accompanying condensed consolidated balance sheet of Vornado Realty L.P. as of June 30, 2003, and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2003 and 2002, and of cash flows for the six-month periods ended June 30, 2003 and 2002.  These interim financial statements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants.  A review of interim financial information consists principally of applying analytical procedures and  making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Vornado Realty L.P. as of December 31, 2002, and the related consolidated statements of income, partners’ capital, and cash flows for the year then ended (not presented herein); and in our report dated March 6, 2003, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the Company’s adoption of SFAS No. 142 “Goodwill and Other Intangible Assets” on January 1, 2002.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

 

DELOITTE & TOUCHE LLP

 

 

Parsippany, New Jersey

August 13, 2003

 

21



 

Item 2.    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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements are not guarantees of performance.  They involve risks, uncertainties and assumptions.  Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements.  You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “intends,” “plans” or similar expressions in this quarterly report on Form 10-Q.  These forward-looking statements are subject to numerous assumptions, risks and uncertainties.  Many of the factors that will determine these items are beyond our ability to control or predict.  Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those set forth in our Annual Report on Form 10-K for the year ended December 31, 2002 under “Forward-Looking Statements” and “Item 1. Business – Certain Factors That May Adversely Affect the Company’s Business and Operations.”  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

Overview

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of the Company’s consolidated financial statements for the three and six months ended June 30, 2003 and 2002.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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.

 

A summary of the Company’s critical accounting policies is included in the Company’s annual report on Form 10-K for the year ended December 31, 2002 in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the footnotes to the consolidated financial statements, Note 2 –Summary of Significant Accounting Policies also included in the Company’s annual report on Form 10-K.  There have been no significant changes to those policies during 2003.

 

Effective with the first quarter of 2003, to comply with the Securities and Exchange Commission’s Regulation G concerning non-GAAP financial measures, the Company has revised its definition of EBITDA to include minority interest, gains (losses) on the sale of depreciable real estate and income arising from the straight-lining of rent and the amortization of below market leases net of above market leases.  EBITDA as disclosed represents “Earnings before Interest, Taxes, Depreciation and Amortization”.  The prior period EBITDA has been restated to reflect these changes.

 

22



 

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended June 30, 2003 and 2002.

 

 

 

Three Months Ended June 30, 2003

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Temperature
Controlled
Logistics

 

Other(4)

 

Property rentals

 

$

301,927

 

$

205,766

 

$

33,285

 

$

49,297

 

$

 

$

13,579

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

8,057

 

5,760

 

1,714

 

574

 

 

9

 

Amortization of free rent

 

1,557

 

(502

)

1,104

 

871

 

 

84

 

Amortization of acquired below market leases, net

 

2,307

 

2,147

 

160

 

 

 

 

Total Rentals

 

313,848

 

213,171

 

36,263

 

50,742

 

 

13,672

 

Expense Reimbursements

 

44,058

 

24,462

 

14,534

 

4,216

 

 

846

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

6,977

 

6,977

 

 

 

 

 

Management and leasing fees

 

3,767

 

3,368

 

387

 

 

 

12

 

Other

 

5,886

 

3,969

 

991

 

792

 

 

134

 

Total revenues

 

374,536

 

251,947

 

52,175

 

55,750

 

 

14,664

 

Operating expenses

 

141,635

 

91,688

 

18,805

 

19,264

 

 

11,878

 

Depreciation and amortization

 

53,974

 

38,700

 

4,235

 

6,719

 

 

4,320

 

General and administrative

 

27,436

 

9,469

 

2,679

 

4,881

 

 

10,407

 

Total expenses

 

223,045

 

139,857

 

25,719

 

30,864

 

 

26,605

 

Operating income

 

151,491

 

112,090

 

26,456

 

24,886

 

 

(11,941

)

Income applicable to Alexander’s

 

4,348

 

 

 

 

 

4,348

 

Income from partially-owned entities

 

19,799

 

791

 

2,722

 

(3

)

2,950

(3)

13,339

 

Interest and other investment income

 

3,628

 

761

 

54

 

27

 

 

2,786

 

Interest and debt expense

 

(58,485

)

(34,151

)

(15,188

)

(3,939

)

 

(5,207

)

Net loss on disposition of wholly-owned and partially-owned assets

 

(1,294

)

 

 

 

 

(1,294

)

Minority interest

 

35

 

 

 

 

 

35

 

Income from continuing operations

 

119,522

 

79,491

 

14,044

 

20,971

 

2,950

 

2,066

 

Discontinued operations

 

5,361

 

5,361

 

 

 

 

 

Net income

 

124,883

 

84,852

 

14,044

 

20,971

 

2,950

 

2,066

 

Interest and debt expense(2)

 

75,848

 

35,368

 

15,864

 

4,286

 

6,197

 

14,133

 

Depreciation and amortization(2)

 

67,572

 

38,982

 

4,987

 

6,808

 

8,721

 

8,074

 

EBITDA(1)

 

$

268,303

 

$

159,202

 

$

34,895

 

$

32,065

 

$

17,868

 

$

24,273

 

 

_____________________

See footnotes on the following page.

 

23



 

 

 

Three Months Ended June 30, 2002

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Temperature
Controlled
Logistics

 

Other(4)

 

Property rentals

 

$

291,157

 

$

197,671

 

$

29,082

 

$

50,599

 

$

 

$

13,805

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

8,559

 

7,131

 

380

 

1,042

 

 

6

 

Amortization of free rent

 

634

 

(243

)

569

 

(198

)

 

506

 

Amortization of acquired below market leases, net

 

3,117

 

3,117

 

 

 

 

 

Total rentals

 

303,467

 

207,676

 

30,031

 

51,443

 

 

14,317

 

Expense reimbursements

 

35,203

 

18,926

 

11,711

 

3,872

 

 

694

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

 

 

 

 

 

 

Management and leasing fees

 

3,567

 

3,186

 

381

 

 

 

 

Other

 

3,466

 

1,874

 

10

 

1,220

 

 

362

 

Total revenues

 

345,703

 

231,662

 

42,133

 

56,535

 

 

15,373

 

Operating expenses

 

121,589

 

76,535

 

13,554

 

19,928

 

 

11,572

 

Depreciation and amortization

 

49,352

 

33,818

 

3,638

 

7,288

 

 

4,608

 

General and administrative

 

23,501

 

9,215

 

1,763

 

4,894

 

 

7,629

 

Amount of officer’s deferred compensation expense

 

6,875

 

 

 

 

 

6,875

 

Total expenses

 

201,317

 

119,568

 

18,955

 

32,110

 

 

30,684

 

Operating income

 

144,386

 

112,094

 

23,178

 

24,425

 

 

(15,311

)

Income applicable to Alexander’s

 

4,487

 

 

 

 

 

4,487

 

Income from partially-owned entities

 

9,826

 

726

 

(298

)

11

 

1,087

(3)

8,300

 

Interest and other investment income

 

9,934

 

2,758

 

78

 

143

 

 

6,955

 

Interest and debt expense

 

(59,212

)

(34,024

)

(13,835

)

(6,687

)

 

(4,666

)

Net (loss) gain on disposition of wholly-owned and partially-owned assets

 

(4,981

)

 

 

344

 

 

(5,325

)

Minority interest

 

(554

)

(474

)

 

226

 

 

(306

)

Income from continuing operations

 

103,886

 

81,080

 

9,123

 

18,462

 

1,087

 

(5,866

)

Discontinued operations

 

4,046

 

3,847

 

199

 

 

 

 

Net income

 

107,932

 

84,927

 

9,322

 

18,462

 

1,087

 

(5,866

)

Interest and debt expense(2)

 

76,199

 

35,436

 

14,470

 

6,687

 

6,302

 

13,304

 

Depreciation and amortization(2)

 

62,670

 

34,755

 

4,229

 

7,288

 

7,880

 

8,518

 

EBITDA(1)

 

$

246,801

 

$

155,118

 

$

28,021

 

$

32,437

 

$

15,269

 

$

15,956

 

 


(1)                                  Management considers EBITDA a supplemental measure for making decisions and assessing the performance of its segments.  EBITDA should not be considered a substitute for net income or a substitute for cash flow as a measure of liquidity.  EBITDA may not be comparable to similarly titled measures employed by other companies.

(2)                                  Interest and debt expense and depreciation and amortization included in the reconciliation of net income to EBITDA reflects amounts which are netted in income from partially-owned entities.

(3)                                  Net of rent not recognized of $7,726 and $3,744 for the three months ended June 30, 2003 and 2002.

(4)                                  Other EBITDA is comprised of:

 

 

 

For the Three Months
Ended June 30,

 

(Amounts in thousands)

 

2003

 

2002

 

Newkirk MLP:

 

 

 

 

 

Equity in income of limited partnership

 

$

14,655

(A)

$

15,500

 

Interest and other income

 

1,752

 

2,200

 

Alexander’s (B)

 

5,756

 

7,354

 

Industrial warehouses

 

1,586

 

1,163

 

Palisades (placed in service March 1, 2002)

 

1,269

 

(260

)

Student Housing

 

432

 

614

 

Hotel Pennsylvania (C)

 

267

 

2,404

 

 

 

25,717

 

28,975

 

Minority interest expense

 

35

 

(306

)

Unallocated general and administrative expenses

 

(9,443

)

(6,829

)

Investment income and other

 

9,352

(D)

6,316

 

Loss on Primestone foreclosure (2002) and settlement of guarantees (2003)

 

(1,388

)

(17,671

)

Net gain on sale of marketable securities

 

 

12,346

 

Amortization of Officer’s deferred compensation expense

 

 

(6,875

)

Total

 

$

24,273

 

$

15,956

 

 


(A)                              The three months ended June 30, 2003 includes $1,900 for the Company’s share of gains on sale of real estate.

(B)                                Includes the Company’s share of Alexander’s stock appreciation rights compensation expense of $3,285 and $1,402 for the three months ended June 30, 2003 and 2002, respectively, based on a closing price for Alexander’s stock of $83.49 and $76.80 on June 30, 2003 and 2002.

(C)                                Average occupancy and REVPAR for the Hotel Pennsylvania were 54.8% and $46.43 for the three months ended June 30, 2003 compared to 66.0% and $58.77 for the prior year’s quarter.

(D)                               The three months ended June 30, 2003, includes $4,576 for the Company’s equity in net income of Prime Group, which includes $4,413 for the Company’s share of Prime Group’s lease termination fee income.

 

24



 

Results of Operations

 

Revenues

 

The Company’s revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below market leases net of above market leases pursuant to SFAS No. 141, and fee income, were $374,536,000 for the quarter ended June 30, 2003, compared to $345,703,000 in the prior year’s quarter, an increase of $28,833,000.  Below are the details of the increase by segment:

 

(Amounts in thousands)

 

Date of
Acquisition

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Other

 

Rentals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Las Catalinas (acquisition of remaining 50% and consolidation vs. equity method accounting for 50%)

 

September 2002

 

$

2,801

 

$

 

$

2,801

 

$

 

$

 

Crystal Gateway One

 

July 2002

 

2,658

 

2,658

 

 

 

 

435 Seventh Avenue (placed in service)

 

August 2002

 

1,763

 

 

1,763

 

 

 

424 Sixth Avenue

 

July 2002

 

284

 

 

284

 

 

 

(Decrease) Increase in amortization of acquired below market leases, net

 

 

 

(810

)

(970

)

160

 

 

 

Same store:

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel activity

 

 

 

(1,878

)(1)

 

 

 

(1,878

)(1)

Trade shows activity

 

 

 

(1,272

)(2)

 

 

(1,272

)(2)

 

Leasing activity

 

 

 

6,835

 

3,807

 

1,224

 

571

 

1,233

 

Total increase (decrease) in property rentals

 

 

 

10,381

 

5,495

 

6,232

 

(701

)

(645

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase due to acquisitions

 

 

 

1,123

 

95

 

1,028

 

 

 

Same store

 

 

 

7,732

 

5,441

 

1,795

 

344

 

152

 

Total increase in tenant expense reimbursements

 

 

 

8,855

 

5,536

 

2,823

 

344

 

152

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS tenant cleaning fees

 

 

 

6,977

 

6,977

 

 

 

 

Kaempfer management and leasing fees

 

 

 

1,756

 

1,756

 

 

 

 

Lease cancellation fee income

 

 

 

3,259

 

2,259

 

1,000

 

 

 

Management and leasing fees

 

 

 

(1,562

)

(1,571

)(3)

(3

)

 

12

 

Other

 

 

 

(833

)

(167

)

(10

)

(428

)

(228

)

Total increase (decrease) in fee and other income

 

 

 

9,597

 

9,254

 

987

 

(428

)

(216

)

Total increase (decrease) in  revenues

 

 

 

$

28,833

 

$

20,285

 

$

10,042

 

$

(785

)

$

(709

)

 


(1)                                  Average occupancy and REVPAR for the Hotel Pennsylvania were 54.8% and $46.43 for the three months ended June 30, 2003 compared to 66.0% and $58.77 for the prior year’s quarter.

(2)                                  Results primarily from a decrease in revenues of $898 from the April Market show which was smaller in size than the prior year Market show due to the conversion of trade show space to permanent space.

(3)                                  Results primarily from (i) a reduction in CESCR third party leasing fees of $576, (ii) a reduction in CESCR management fees of $224 and (iii) a reduction in New York City office management fees of $431.

 

See supplemental information on page 43 for further details of leasing activity and corresponding changes in occupancy.

 

25



 

Expenses

 

The Company’s expenses were $223,045,000 for the three months ended June 30, 2003, compared to $201,317,000 in the prior year’s quarter, an increase of $21,728,000.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

 

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Other

 

Operating:

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

BMS

 

$

4,958

 

$

4,958

 

$

 

$

 

$

 

Crystal Gateway One

 

1,061

 

1,061

 

 

 

 

Las Catalinas (acquisition of remaining 50% and consolidation vs. equity method accounting for 50%)

 

1,068

 

 

1,068

 

 

 

435 Seventh Avenue

 

179

 

 

179

 

 

 

424 Sixth Avenue

 

38

 

 

38

 

 

 

Hotel activity

 

(475

)

 

 

 

(475

)

Trade Shows activity

 

(269

)

 

 

(269

)

 

Same store operations

 

13,486

 

9,134

(1)

3,966

(2)

(395

)

781

 

 

 

20,046

 

15,153

 

5,251

 

(664

)

306

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

3,283

 

2,660

 

623

 

 

 

Same store operations

 

1,339

 

2,222

 

(26

)

(569

)

(288

)

 

 

4,622

 

4,882

 

597

 

(569

)

(288

)

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

2,137

 

1,506

 

631

 

 

 

Same store operations

 

1,798

 

(1,252

)(3)

285

 

(13

)

2,778

(4)

Total increase (decrease) in general and administrative

 

3,935

 

254

 

916

 

(13

)

2,778

 

Amortization of officer’s deferred compensation expense

 

(6,875

)

 

 

 

(6,875

)

 

 

$

21,728

 

$

20,289

 

$

6,764

 

$

(1,246

)

$

(4,079

)

 


(1)          Results primarily from (i) a $6,284 increase in real estate taxes in New York City and terrorism insurance coverage for the CESCR portfolio, a substantial portion of which is reimbursed by tenants, and (ii) an increase in bad debt expense of $2,090, partially offset by lower commission expenses in connection with CESCR’s third party leasing business.

(2)          Includes $1,688 of allowances for doubtful accounts in excess of the quarter ended June 30, 2002.

(3)          Results from lower payroll.

(4)          Results primarily from a $950 increase in professional fees in connection with corporate governance, insurance and other projects and a $1,300 increase in payroll and other corporate expenses, of which (i) $450 is due to a decrease in capitalized development payroll, (ii) $181 is due to stock compensation expense (see below) and (iii) $156 relates to the Company’s deferred compensation plan which is offset by an equal amount of investment income.

 

As part of the 2002 annual compensation review, in lieu of stock options, on January 28, 2003 Vornado granted 166,990 restricted shares at $34.50 per share (the then closing stock price on the NYSE) to employees of the Company, for which the Company has issued an equivalent amount of Class A units.  These awards vest over a 5-year period.  Stock-based compensation expense is recognized on a straight-line basis over the vesting period.  In the second quarter of 2003, the Company recognized compensation expense of $857,000, of which $286,000 related to the January 2003 awards.

 

Income Applicable to Alexander’s

 

Income applicable to Alexander’s (loan interest income, management, leasing, development and commitment fees, and equity in income) was $4,348,000 in the quarter ended June 30, 2003, compared to $4,487,000 in the prior year’s quarter, a decrease of $139,000.  This decrease resulted primarily from the Company’s share of Alexander’s stock appreciation rights compensation expense of $3,285,000 in 2003 as compared to $1,402,000 in 2002, partially offset by an increase in development and guarantee fees in connection with Alexander’s Lexington Avenue development project.

 

26



 

Income from Partially-Owned Entities

 

In accordance with accounting principles generally accepted in the United States of America, the Company reflects the income it receives from (i) entities it owns less than 50% of and (ii) entities it owns more than 50% of, but which have a partner who has shared board and management representation and authority and substantive participating rights on all significant business decisions, on the equity method of accounting resulting in such income appearing on one line in the Company’s consolidated statements of income.  Below is the detail of income from partially-owned entities by investment as well as the increase (decrease) in income from partially-owned entities for the quarters ended June 30, 2003 and 2002:

 

(Amounts in thousands)

 

Total

 

Monmouth
Mall(1)

 

Temperature
Controlled
Logistics

 

Newkirk
MLP

 

Las
Catalinas
Mall(2)

 

Starwood
Ceruzzi
Joint
Venture

 

Partially-
Owned Office
Buildings

 

Other

 

June 30, 2003:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

142,638

 

$

5,614

 

$

27,960

 

$

75,708

 

 

 

$

3,106

(4)

$

30,250

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating, general and administrative

 

(13,687

)

(2,535

)

(1,765

)

(3,365

)

 

 

(668

)

(5,354

)

 

 

Depreciation

 

(28,865

)

(998

)

(14,196

)

(8,159

)

 

 

(316

)

(5,196

)

 

 

Interest expense

 

(47,909

)

(1,350

)

(10,328

)

(24,542

)

 

 

 

(11,689

)

 

 

Other, net

 

(3,089

)

(802

)

522

 

(2,571

)

 

 

 

(238

)

 

 

Net income (loss)

 

$

49,088

 

$

(71

)

$

2,193

 

$

37,071

 

 

 

$

2,122

 

$

7,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado’s interest

 

 

 

50

%

60

%

22.6

%

 

 

80

%

10

%

 

 

Equity in net income

 

$

15,355

 

$

(36

)

$

1,316

 

8,378

(3)

 

 

$

1,698

(4)

$

791

 

$

3,208

(5)

Interest and other income

 

2,823

 

823

 

250

 

1,750

 

 

 

 

 

 

Fee income

 

1,621

 

237

 

1,384

 

 

 

 

 

 

 

Income from partially-owned entities

 

$

19,799

 

$

1,024

 

$

2,950

 

$

10,128

 

N/A

(2)

$

1,698

 

$

791

 

$

3,208

 

June 30, 2002:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

115,347

 

 

 

$

29,143

 

$

72,707

 

$

3,937

 

$

117

 

$

9,443

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating, general and administrative

 

(8,597

)

 

 

(2,302

)

(912

)

(1,030

)

(363

)

(3,990

)

 

 

Depreciation

 

(29,447

)

 

 

(14,870

)

(12,516

)

(501

)

(261

)

(1,299

)

 

 

Interest expense

 

(44,583

)

 

 

(10,941

)

(30,629

)

(1,476

)

 

(1,537

)

 

 

Other, net

 

(2,671

)

 

 

(1,987

)

(336

)

 

(400

)

52

 

 

 

Net income (loss)

 

$

30,049

 

 

 

$

(957

)

$

28,314

 

$

930

 

$

(907

)

$

2,669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado’s interest

 

 

 

 

 

60

%

21.1

%

50

%

80

%

25

 %

 

 

Equity in net income

 

$

5,839

 

 

 

$

(574

)

$

5,974

 

$

428

 

$

(726

)

$

673

 

$

64

 

Interest and other income

 

2,476

 

 

 

150

 

2,326

 

 

 

 

 

Fee income

 

1,511

 

 

 

1,511

 

 

 

 

 

 

Income from partially-owned entities

 

$

9,826

 

N/A

(1)

$

1,087

 

$

8,300

 

$

428

 

$

(726

)

$

673

 

$

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income of partially-owned entities

 

$

9,973

 

$

1,024

 

$

1,863

 

$

1,828

(3)

$

(428

)

$

2,424

(4)

$

118

 

$

3,144

(5)

 


(1)                                  The Company acquired a 50% interest in the Monmouth Mall on October 19, 2002.

(2)                                  On September 23, 2002, the Company acquired the remaining 50% of the Mall and 25% of the Kmart anchor store it did not previously own. Accordingly, the operations of Las Catalinas are consolidated into the accounts of the Company subsequent to September 23, 2002.

(3)                                  Includes $1,900 for the Company’s share of gains on sale of real estate.

(4)                                  Includes $2,838 of income from the settlement of a tenant bankruptcy claim, of which the Company’s share is $2,271.

(5)                                  The Company records its equity in Prime Group Realty L.P. income on a one-quarter “lag basis”.  Equity in net income of $4,576 for the three months ended June 30, 2003 includes the Company’s share of Prime Group Realty L.P.’s lease termination income of $4,413.

 

27



 

Interest and Other Investment Income

 

Interest and other investment income (interest income on mortgage loans receivable, other interest income and dividend income) was $3,628,000 for the quarter ended June 30, 2003, compared to $9,934,000 in the prior year’s quarter, a decrease of $6,306,000.  This decrease resulted primarily from lower yields on the reinvestment of proceeds received from the repayment of loans from NorthStar Partnership L.P. in May 2002, and the Dearborn Center Mezzanine loan in March 2003.

 

Interest and Debt Expense

 

Interest and debt expense was $58,485,000 for the three months ended June 30, 2003, compared to $59,212,000 in the prior year’s quarter, a decrease of $727,000.  This decrease was primarily comprised of a $3,197,000 savings from a .71% reduction in weighted average interest rates of the Company’s variable rate debt, partially offset by (i) the consolidation as of September 2002 of the Las Catalinas operations which were previously included in Income from partially-owned entities and (ii) a reduction in interest capitalized in connection with development projects.

 

Net Loss on Disposition of Wholly-owned and Partially-owned Assets

 

Net loss on disposition of wholly-owned and partially-owned assets of $1,294,000 for the three months ended June 30, 2003 includes (i) a $1,388,000 loss on the settlement of the guarantees of the Primestone loans on June 13, 2003, partially offset by (ii) a net gain of $94,000 on the sale of the remaining condominium unit at the Park Laurel.  The net loss on disposition of wholly-owned and partially-owned assets of $4,981,000 for the three months ended June 30, 2002, represents (i) a $17,671,000 loss on foreclosure of the Prime Group L.P. units, partially offset by (ii) a $12,346,000 net gain on sale of marketable securities and (iii) a $344,000 gain on sale of Chicago condominium units.

 

Discontinued Operations

 

Assets related to discontinued operations at June 30, 2003 represents the Company’s New York City office property located at Two Park Avenue.  The results of operations of this property as well as the Company’s Baltimore, Maryland retail property which was sold on January 9, 2003 (resulting in net gain of $2,644,000).  The following is a summary of the combined results of operations of these properties:

 

 

 

For The Three Months Ended
June 30,

 

 

 

2003

 

2002

 

 

 

 

 

 

 

Total revenues

 

$

8,994

 

$

9,236

 

Total expenses

 

3,633

 

5,190

 

Income from discontinued operations

 

$

5,361

 

$

4,046

 

 

28



 

Three Months Ended June 30, 2003 and June 30, 2002

 

Below are the details of the changes by segment in EBITDA.

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise Mart

 

Temperature Controlled Logistics

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2002

 

$

246,801

 

$

155,118

 

$

28,021

 

$

32,437

 

$

15,269

 

$

15,956

 

2003 Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations(1)

 

(1,621

)

1,906

 

1,025

 

1,744

 

(66

)(3)

(6,230

)(5)

Acquisitions, dispositions and non-same store income and expenses

 

23,123

 

2,178

 

5,849

 

(2,116

)

2,665

(4)

14,547

(6)

Three months ended June 30, 2003

 

$

268,303

 

$

159,202

(2)

$

34,895

 

$

32,065

 

$

17,868

 

$

24,273

 

% increase (decrease) in same store operations

 

 

 

1.3

%(2)

3.7

%

5.6

%

(.4

)%(3)

 

 

 


(1)          Represents operations which were owned for the same period in each year and excludes non-recurring income and expenses.

(2)          EBITDA and the same store percentage increase (decrease) were $84,275 and 2.9% for the New York office portfolio and $74,927 and (.6%) for the CESCR portfolio.  The CESCR same store decrease of $423 reflects a reduction in third party net leasing fees of $287.

(3)          The Company reflects its 60% share of the Vornado Crescent Portland Partnership’s (“the Landlord”) rental income it receives from AmeriCold Logistics, its tenant, which leases the underlying temperature controlled warehouses used in its business.  The Company’s joint venture does not recognize rental income unless earned and collection is assured or cash is received.  The Company did not recognize $7,726 of rent it was due for the three months ended June 30, 2003, which together with previously deferred rent is $35,452.  The tenant has advised the Landlord that (i) its revenue for the current quarter ended June 30, 2003 from the warehouses it leases from the Landlord, is lower than last year by 3.7%, and (ii) its gross profit before rent at these warehouses for the corresponding period is lower than last year by $1,081 (a 2.9% decrease).  These decreases were offset by lower general and administrative expenses and an increase in other income.

(4)          Primarily represents losses on the sale of assets in the quarter ended June 30, 2002.

(5)          The decrease in same store operations was primarily due to (i) a $2,137 reduction in operating results at the Hotel Pennsylvania and (ii) a $4,454 reduction in investment income resulting from the investment of the proceeds received from the repayment of loans at lower yields.

(6)          Primarily reflects the loss on the Primestone foreclosure of $17,671 and a charge of $6,875 for the amortization of an Officer’s compensation arrangement in the three months ended June 30, 2002, partially offset by a gain on the sale of marketable securities of $12,346 during the same period.

 

29



 

Six Months Ended June 30, 2003 and June 30, 2002

 

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the six months ended June 30, 2003 and 2002.

 

 

 

Six Months Ended June 30, 2003

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Temperature
Controlled
Logistics

 

Other(4)

 

Property rentals

 

$

600,943

 

$

408,620

 

$

67,301

 

$

97,942

 

$

 

$

27,080

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

16,554

 

13,080

 

2,114

 

1,370

 

 

(10

)

Amortization of free rent

 

3,962

 

104

 

2,871

 

988

 

 

(1

)

Amortization of acquired below market leases, net

 

3,752

 

3,425

 

327

 

 

 

 

Total Rentals

 

625,211

 

425,229

 

72,613

 

100,300

 

 

27,069

 

Expense Reimbursements

 

87,428

 

48,244

 

28,495

 

8,998

 

 

1,691

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees

 

14,675

 

14,675

 

 

 

 

 

Management and leasing fees

 

6,045

 

5,458

 

563

 

 

 

24

 

Other

 

9,040

 

5,290

 

2,000

 

1,532

 

 

218

 

Total revenues

 

742,399

 

498,896

 

103,671

 

110,830

 

 

29,002

 

Operating expenses

 

290,055

 

183,481

 

37,996

 

44,133

 

 

24,445

 

Depreciation and amortization

 

105,597

 

74,721

 

8,494

 

13,822

 

 

8,560

 

General and administrative

 

54,672

 

17,627

 

5,054

 

9,666

 

 

22,325

 

Total expenses

 

450,324

 

275,829

 

51,544

 

67,621

 

 

55,330

 

Operating income

 

292,075

 

223,067

 

52,127

 

43,209

 

 

(26,328

)

Income applicable to Alexander’s

 

11,602

 

 

 

 

 

11,602

 

Income from partially-owned entities

 

43,033

 

1,409

 

2,254

 

3

 

8,802

(3)

30,565

 

Interest and other investment income

 

13,424

 

1,645

 

101

 

57

 

 

11,621

 

Interest and debt expense

 

(116,238

)

(67,955

)

(29,970

)

(7,150

)

 

(11,163

)

Net (loss) gain on disposition of wholly-owned and partially-owned assets

 

(1,106

)

 

 

188

 

 

(1,294

)

Minority interest

 

(736

)

(818

)

 

——

 

 

82

 

Income from continuing operations

 

242,054

 

157,348

 

24,512

 

36,307

 

8,802

 

15,085

 

Discontinued operations

 

12,404

 

9,760

 

2,644

 

 

 

 

Net income

 

254,458

 

167,108

 

27,156

 

36,307

 

8,802

 

15,085

 

Interest and debt expense(2)

 

150,038

 

69,674

 

31,394

 

7,614

 

12,343

 

29,013

 

Depreciation and amortization(2)

 

133,682

 

76,619

 

9,998

 

13,999

 

17,470

 

15,596

 

EBITDA(1)

 

$

538,178

 

$

313,401

 

$

68,548

 

$

57,920

 

$

38,615

 

$

59,694

 

 


See footnotes on page 32.

 

30



 

 

 

Six Months Ended June 30, 2002

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise Mart

 

Temperature Controlled Logistics

 

Other(4)

 

Property rentals

 

$

575,624

 

$

396,034

 

$

58,898

 

$

95,024

 

$

 

$

25,668

 

Straight-line rents:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual rent increases

 

16,958

 

14,096

 

760

 

2,091

 

 

11

 

Amortization of free rent

 

544

 

(849

)

569

 

318

 

 

506

 

Amortization of acquired below market leases, net

 

6,234

 

6,234

 

 

 

 

 

Total rentals

 

599,360

 

415,515

 

60,227

 

97,433

 

 

26,185

 

Expense reimbursements

 

71,742

 

39,065

 

23,731

 

7,215

 

 

1,731

 

Fee Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant cleaning fees:

 

 

 

 

 

 

 

Management and leasing fees

 

7,504

 

6,903

 

584

 

17

 

 

 

Other

 

6,259

 

3,110

 

21

 

2,620

 

 

508

 

Total revenues

 

684,865

 

464,593

 

84,563

 

107,285

 

 

28,424

 

Operating expenses

 

244,798

 

156,021

 

27,990

 

40,135

 

 

20,652

 

Depreciation and amortization

 

96,731

 

67,646

 

7,111

 

13,768

 

 

8,206

 

General and administrative

 

46,719

 

17,123

 

3,061

 

9,705

 

 

16,830

 

Amount of officer’s deferred compensation expense

 

13,750

 

 

 

 

 

13,750

 

Total expenses

 

401,998

 

240,790

 

38,162

 

63,608

 

 

59,438

 

Operating income

 

282,867

 

223,803

 

46,401

 

43,677

 

 

(31,014

)

Income applicable to Alexander’s

 

10,055

 

 

 

 

 

10,055

 

Income from partially-owned entities

 

23,612

 

1,276

 

(69

)

13

 

6,392

(3)

16,000

 

Interest and other investment income

 

19,577

 

3,869

 

157

 

278

 

 

15,273

 

Interest and debt expense

 

(116,335

)

(68,108

)

(27,311

)

(13,870

)

 

(7,046

)

Net (loss) gain on disposition of wholly-owned and partially-owned assets

 

(3,450

)

 

 

1,875

 

 

(5,325

)

Minority interest

 

(1,543

)

(1,786

)

 

127

 

 

116

 

Income from continuing operations

 

214,783

 

159,054

 

19,178

 

32,100

 

6,392

 

(1,941

)

Discontinued operations

 

8,174

 

7,891

 

283

 

 

 

 

Cumulative effect of change in accounting principle

 

(30,129

)

 

 

 

(15,490

)

(14,639

)

Net income

 

192,828

 

166,945

 

19,461

 

32,100

 

(9,098

)

(16,580

)

Cumulative effect of change in accounting principle

 

30,129

 

 

 

 

15,490

 

14,639

 

Interest and debt expense(2)

 

150,492

 

70,919

 

28,581

 

13,870

 

12,861

 

24,261

 

Depreciation and amortization(2)

 

123,806

 

69,780

 

8,009

 

13,768

 

17,253

 

14,996

 

EBITDA(1)

 

$

497,255

 

$

307,644

 

$

56,051

 

$

59,738

 

$

36,506

 

$

37,316

 

 


See footnotes on the following page.

 

31



 

Notes to segment tables:

 

(1)                Management considers EBITDA a supplemental measure for making decisions and assessing the performance of its segments.  EBITDA should not be considered a substitute for net income or a substitute for cash flow as a measure of liquidity.  EBITDA may not be comparable to similarly titled measures employed by other companies.

(2)                Interest and debt expense and depreciation and amortization included in the reconciliation of net income to EBITDA reflects amounts which are netted in income from partially-owned entities.

(3)                Net of rent not recognized of $11,103 and $5,552 for the six months ended June 30, 2003 and 2002.

(4)                Other EBITDA is comprised of:

 

 

 

For the Six Months
Ended June 30,

 

(Amounts in thousands)

 

2003

 

2002

 

Newkirk MLP:

 

 

 

 

 

Equity in income of limited partnership

 

$

38,457

(A)

$

30,529

 

Interest and other income

 

3,571

 

4,471

 

Alexander’s (B)

 

14,751

 

15,360

 

Industrial warehouses

 

3,128

 

2,901

 

Palisades (placed in service on March 1, 2002)

 

1,907

 

(260

)

Student Housing

 

1,060

 

1,268

 

Hotel Pennsylvania (C)

 

(638

)

3,157

 

 

 

62,236

 

57,426

 

Minority interest expense

 

82

 

116

 

Unallocated general and administrative expenses

 

(20,256

)

(14,549

)

Investment income and other

 

19,020

(D)

13,398

 

Loss on Primestone foreclosure (2003) and settlement of guarantees (2003)

 

(1,388

)

(17,671

)

Net gain on sale of marketable securities

 

 

12,346

 

Amortization of Officer’s deferred compensation expense

 

 

(13,750

)

Total

 

$

59,694

 

$

37,316

 

 


(A)                              Includes net gains of $9,900 on sales of real estate and the early extinguishment of debt.

(B)                                Includes the Company’s share of Alexander’s stock appreciation rights expense of $3,285 and $1,402 for the three months ended June 30, 2003 and 2002, respectively, based on a closing price for Alexander’s stock of $83.49 and $76.80 at the end of such periods.

(C)                                Average occupancy and REVPAR for the Hotel Pennsylvania were 54.1% and $45.90 for the six months ended June 30, 2003 compared to 57.8% and $52.19 for the prior year’s quarter.

(D)                               Includes (i) $5,583 for the Company’s equity in net income of Prime Group, which includes $4,413 for the Company’s share of lease termination fee income and (ii) $5,655 of contingent interest income recognized in connection with the repayment of the Company’s Dearborn Center Mezzanine loan.

 

32



 

Results of Operations

 

Revenues

 

The Company’s revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below market leases net of above market leases pursuant to SFAS No. 141, and fee income, were $742,399,000 for the six months ended June 30, 2003, compared to $684,865,000 in the prior year’s six months, an increase of $57,534,000.  Below are the details of the increase by segment:

 

(Amounts in thousands)

 

 

 

Date of
Acquisition

 

Total

 

Office

 

Retail

 

Merchandise Mart

 

Other

 

Rentals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Las Catalinas (acquisition of remaining 50% and consolidation vs. equity method accounting for 50%)

 

September 2002

 

$

5,556

 

$

 

$

5,556

 

$

 

$

——

 

Crystal Gateway One

 

July 2002

 

5,851

 

5,851

 

 

 

——

 

435 Seventh Avenue (placed in service)

 

August 2002

 

3,527

 

 

3,527

 

 

——

 

424 Sixth Avenue

 

July 2002

 

344

 

 

344

 

 

——

 

(Decrease) increase in amortization of acquired below market leases, net

 

 

 

(2,482

)

(2,809

)

327

 

 

 

Same store:

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel activity

 

 

 

(1,927

)(1)

 

 

 

(1,927

)(1)

Trade Shows activity

 

 

 

1,324

(2)

 

 

1,324

(2)

 

Leasing activity

 

 

 

13,658

 

6,672

 

2,632

 

1,543

 

2,811

 

Total increase in rentals

 

 

 

25,851

 

9,714

 

12,386

 

2,867

 

884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase due to acquisitions

 

 

 

2,390

 

128

 

2,262

 

 

 

Same store

 

 

 

13,296

 

9,051

 

2,502

 

1,783

 

(40

)

Total increase (decrease) in tenant expense reimburse-ments

 

 

 

15,686

 

9,179

 

4,764

 

1,783

 

(40

)

Fee and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS Tenant cleaning fees

 

 

 

14,675

 

14,675

 

 

 

 

Kaempfer management and leasing fees

 

 

 

1,756

 

1,756

 

 

 

 

Lease cancellation fee income

 

 

 

4,263

 

2,263

 

2,000

 

 

 

Management and leasing fees

 

 

 

(3,217

)

(3,220

)(3)

(21

)

 

24

 

Other

 

 

 

(1,480

)

(64

)

(21

)

(1,105

)

(290

)

Total increase (decrease) in fee and other income

 

 

 

15,997

 

15,410

 

1,958

 

(1,105

)

(266

)

Total increase in revenues

 

 

 

$

57,534

 

$

34,303

 

$

19,108

 

$

3,545

 

$

578

 

 


(1)                                  Average occupancy and REVPAR for the Hotel Pennsylvania were 54.1% and $45.90 for the six months ended June 30, 2003 compared to 57.8% and $52.19 for the prior year’s quarter.

(2)                                  Reflects an increase of $2,841 resulting from the rescheduling of two trade shows from the fourth quarter in which they were previously held to the first quarter of 2003, partially offset by lower trade show revenue in the second quarter of 2003 primarily due to a smaller April Market show this year as a result of a conversion of trade show space to permanent space.

(3)                                  Results primarily from a $2,118 decrease in CESCR third party leasing revenue and a $400 decrease in CESCR management fees.

 

See supplemental information on page 43 for further details of leasing activity and corresponding changes in occupancy.

 

33



 

Expenses

 

The Company’s expenses were $450,324,000 for the six months ended June 30, 2003, compared to $401,998,000 in the prior year’s six months, an increase of $48,326,000.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

 

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Other

 

Operating:

 

 

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

BMS

 

$

10,401

 

$

10,401

 

$

 

$

 

$

 

Las Catalinas (acquisition of remaining 50% and consolidation vs. equity method accounting for 50%)

 

1,969

 

 

1,969

 

 

 

Crystal Gateway One

 

1,742

 

1,742

 

 

 

 

435 Seventh Avenue

 

365

 

 

365

 

 

 

424 Sixth Avenue

 

72

 

 

72

 

 

 

Hotel activity

 

1,121

 

 

 

 

1,121

 

Trade Shows activity

 

1,559

 

 

 

1,559

(3)

 

Same store operations

 

28,028

 

15,317

(1)

7,600

(2)

2,439

 

2,672

 

 

 

45,257

 

27,460

 

10,006

 

3,998

 

3,793

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

4,606

 

3,264

 

1,342

 

 

 

Same store operations

 

4,260

 

3,811

 

41

 

54

 

354

 

 

 

8,866

 

7,075

 

1,383

 

54

 

354

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

2,550

 

1,912

 

638

 

 

 

Same store operations

 

5,403

 

(1,408

)

1,355

 

(39

)

5,495

(4)

Total increase (decrease) in general and administrative

 

7,953

 

504

 

1,993

 

(39

)

5,495

 

Amortization of officer’s deferred compensation expense

 

(13,750

)

 

 

 

(13,750

)

 

 

$

48,326

 

$

35,039

 

$

13,382

 

$

4,013

 

$

(4,108

)

 


(1)          Results primarily from (i) an increase in real estate taxes and insurance of $15,168, a substantial portion of which is reimbursed by tenants, and (ii) an increase in bad debt expense of $1,736, partially offset by lower expenses in connection with CESCR’s third party leasing business.

(2)          Includes $3,706 of bad debt allowances in the six months ended June 30, 2003 of which approximately $2,000 was recorded in connection with prior year’s common area maintenance and tax billings relating to former Bradlees leases.

(3)          Results primarily from the rescheduling of two trade shows from the fourth quarter of 2002 to the first quarter of 2003.

(4)          Results primarily from a $2,600 increase in professional fees in connection with corporate governance, insurance and other projects and a $2,400 increase in payroll and other Corporate office expenses, of which (i) $700 is due to a decrease in capitalized development payroll, (ii) $306 is due to stock compensation expense (see below) and (iii) $232 relates to the Company’s deferred compensation plan which is offset by an equal amount of investment income.

 

As part of the 2002 annual compensation review, in lieu of stock options, on January 28, 2003 Vornado granted 166,990 restricted shares at $34.50 per share (the then closing stock price on the NYSE) to employees of the Company, for which the Company issued an equivalent amount of Class A units.  These awards vest over a 5-year period.  Stock-based compensation expense is recognized on a straight-line basis over the vesting period.  In the six months ended June 30, 2003, the Company recognized compensation expense of $1,544,000, of which $474,000 related to the January 2003 awards.

 

34



 

Income Applicable to Alexander’s

 

Income applicable to Alexander’s (loan interest income, management, leasing, development and commitment fees, and equity in income) was $11,602,000 in the six months ended June 30, 2003, compared to $10,055,000 in the prior year’s six months, an increase of $1,547,000.  This resulted primarily from increased development and guarantee fees in connection with Alexander’s Lexington Avenue development project, partially offset by the Company’s share of Alexander’s stock appreciation rights compensation expense of $3,285,000  in 2003 as compared to $1,402,000 in 2002.

 

Income from Partially-Owned Entities

 

In accordance with accounting principles generally accepted in the United States of America, the Company reflects the income it receives from (i) entities it owns less than 50% of and (ii) entities it owns more than 50% of, but which have a partner who has shared board and management representation and authority and substantive participating rights on all significant business decisions, on the equity method of accounting resulting in such income appearing on one line in the Company’s consolidated statements of income.  Below is the detail of income from partially-owned entities by investment as well as the increase (decrease) in income from partially-owned entities for the six months ended June 30, 2003 and 2002:

 

(Amounts in thousands)

 

Total

 

Monmouth
Mall(1)

 

Temperature
Controlled
Logistics

 

Newkirk
MLP

 

Las
Catalinas
Mall(3)

 

Starwood
Ceruzzi
Joint
Venture

 

Partially-
Owned Office
Buildings

 

Other

 

June 30, 2003:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

303,072

 

$

11,635

 

$

60,875

 

$

183,745

 

 

 

$

3,433

 

$

43,384

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating, general and administrative

 

(27,719

)

(5,472

)

(3,559

)

(6,195

)

 

 

(1,370

)

(11,123

)

 

 

Depreciation

 

(54,395

)

(1,996

)

(28,440

)

(15,857

)

 

 

(632

)

(7,470

)

 

 

Interest expense

 

(89,958

)

(2,847

)

(20,572

)

(52,029

)

 

 

 

(14,510

)

 

 

Other, net

 

(7,100

)

(1,623

)

1,158

 

(5,430

)

 

 

(1,095

)

(110

)

 

 

Net income (loss)

 

$

123,900

 

$

(303

)

$

9,462

 

$

104,234

 

 

 

$

336

 

$

10,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado’s interest

 

 

 

50

%

60

%

22.6

%

 

 

80

%

14

%

 

 

Equity in net income

 

$

34,200

 

$

(152

)

$

5,677

 

23,557

(2)

 

 

$

269

(4)

$

1,409

 

$

3,440

(5)

Interest and other income

 

5,588

 

1,645

 

372

 

3,571

 

 

 

 

 

 

Fee income

 

3,245

 

492

 

2,753

 

 

 

 

 

 

 

Income from partially-owned entities

 

$

43,033

 

$

1,985

 

$

8,802

 

$

27,128

 

N/A

(3)

$

269

 

$

1,409

 

$

3,440

 

June 30, 2002:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

234,857

 

 

 

$

62,709

 

$

146,050

 

$

7,329

 

$

117

 

$

18,652

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating, general and administrative

 

(19,616

)

 

 

(4,217

)

(4,578

)

(1,939

)

(913

)

(7,969

)

 

 

Depreciation

 

(60,373

)

 

 

(29,686

)

(26,498

)

(1,032

)

(523

)

(2,634

)

 

 

Interest expense

 

(88,050

)

 

 

(21,873

)

(60,594

)

(2,519

)

 

(3,064

)

 

 

Other, net

 

(1,556

)

 

 

(1,805

)

(336

)

 

62

 

523

 

 

 

Net income (loss)

 

$

65,262

 

 

 

$

5,128

 

$

54,044

 

$

1,839

 

$

(1,257

)

$

5,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado’s interest

 

 

 

 

 

60

%

21.1

%

50

%

80

%

25

 %

 

 

Equity in net income

 

$

15,700

 

 

 

$

3,077

 

$

11,403

 

$

937

 

$

(1,006

)

$

1,237

 

$

52

 

Interest and other income

 

4,903

 

 

 

306

 

4,597

 

 

 

 

 

Fee income

 

3,009

 

 

 

3,009

 

 

 

 

 

 

Income from partially-owned entities

 

$

23,612

 

N/A

(1)

$

6,392

 

$

16,000

 

$

937

 

$

(1,006

)

$

1,237

 

$

52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in Income of partially-owned entities

 

$

19,421

 

$

1,985

 

$

2,410

 

$

11,128

(2)

$

(937

)

$

1,275

(4)

$

172

 

$

3,388

(5)

 


(1)                                  The Company acquired a 50% interest in the Monmouth Mall on October 19, 2002.

(2)                                  The six months ended June 30, 2003 includes a net gain of $9,900 from the sale of properties and the early extinguishment of debt.

(3)                                  On September 23, 2002, the Company acquired the remaining 50% of the Mall and 25% of the Kmart anchor store it did not previously own.  Accordingly, the operations of Las Catalinas are consolidated into the accounts of the Company subsequent to September 23, 2002.

(4)                                  Reflects $2,838 of income from the settlement of a tenant bankruptcy claim, of which the Company’s share is $2,271, partially offset by a $1,095 net loss on dispositions of leasehold improvements in the first quarter of 2003, of which the Company’s share is $876.

(5)                                  Includes $4,576 for the Company’s equity in net income of Prime Group Realty L.P., which the Company records on a one-quarter lag basis.

This amount includes $4,413 for the Company’s share of lease termination fee income recognized by the Company in the second quarter of 2003.

 

35



 

Interest and Other Investment Income

 

Interest and other investment income (interest income on mortgage loans receivable, other interest income and dividend income) was $13,424,000 for the six months ended June 30, 2003, compared to $19,577,000 in the six months ended June 30, 2002, a decrease of $6,153,000.  This decrease resulted primarily from (i) lower yields on the reinvestment of proceeds received from the repayment of the loan from NorthStar Partnership L.P. in May 2002 and the repayment of other loans (ii) lower average other investments at lower yields, partially offset by (iii) $5,655,000 of contingent interest income recognized in connection with the repayment of the Dearborn Center loan.

 

Interest and Debt Expense

 

Interest and debt expense was $116,238,000 for the six months ended June 30, 2003, compared to $116,335,000 in the six months ended June 30, 2002, a decrease of $97,000.  This decrease was primarily comprised of a $2,673,000 savings from a .63% reduction in weighted average interest rates of the Company’s variable rate debt, partially offset by (i) the consolidation as of September 2002 of the Las Catalinas operations which were previously included in Income from partially-owned entities and (ii) a reduction in interest capitalized in connection with development projects.

 

Net Loss on Disposition of Wholly-owned and Partially-owned Assets

 

Net loss on disposition of wholly-owned and partially-owned assets of $1,106,000 for the six months ended June 30, 2003, represents (i) a $1,388,000 loss on the settlement of the guarantees of the Primestone loans on June 13, 2003, partially offset by (ii) a $188,000 gain on sale of Chicago condominiums, and (iii) a $94,000 gain on sale of the last Park Laurel condominium unit.  The net loss on dispositions of wholly-owned and partially-owned assets in the six months ended June 30, 2002, represents (i) a $17,671,000 loss on Primestone foreclosure, partially offset by (ii) a $12,346,000 net gain on sale of marketable securities, and (iii) a $1,875,000 gain on sale of Chicago condominiums.

 

Discontinued Operations

 

Assets related to discontinued operations at June 30, 2003 represents the Company’s New York City office property located at Two Park Avenue.  The results of operations of this property as well as the Company’s Baltimore, Maryland retail property which was sold on January 9, 2003 (resulting in net gain of $2,644,000).  The following is a summary of the combined results of operations of these properties

 

 

 

For the Six Months Ended
June 30,

 

 

 

2003

 

2002

 

Total revenues

 

$

18,136

 

$

18,495

 

Total expenses

 

8,376

 

10,321

 

Net income

 

9,760

 

8,174

 

Gain on sale of Baltimore

 

2,644

 

 

Income from discontinued operations

 

$

12,404

 

$

8,174

 

 

Cumulative Effect of Change in Accounting Principle

 

In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and Other Intangible Assets (effective January 1, 2002).  SFAS No. 142 specifies that goodwill and some intangible assets will no longer be amortized but instead be subject to periodic impairment testing.  In the first quarter of 2002, the Company wrote-off goodwill of approximately $30,129,000 of which (i) $15,490,000 represents its share of the goodwill arising from the Company’s investment in Temperature Controlled Logistics and (ii) $14,639,000 represents goodwill arising from the Company’s acquisition of the Hotel Pennsylvania.  The write-off has been reflected as a cumulative effect of a change in accounting principle.

 

36



 

Six Months Ended June 30, 2003 and June 30, 2002

 

Below are the details of the changes by segment in EBITDA.

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise Mart

 

Temperature Controlled Logistics

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2002

 

$

497,255

 

$

307,644

 

$

56,051

 

$

59,738

 

$

36,506

 

$

37,316

 

2003 Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations(1)

 

(5,315

)

2,341

 

1,800

 

1,835

 

(91

)(3)

(11,200

)(5)

Acquisitions, dispositions and non-same store income and expenses

 

46,238

 

3,416

 

10,697

 

(3,653

)

2,200

(4)

33,578

(6)

Six months ended June 30, 2003

 

$

538,178

 

$

313,401

(2)

$

68,548

 

$

57,920

 

$

38,615

 

$

59,694

 

% increase (decrease) in same store operations

 

 

 

.8

%(2)

3.2

%

3.3

%

(.2

)%(3)

 

 

 

__________________________

 

(1)                                  Represents operations which were owned for the same period in each year and excludes non-recurring income and expenses.

(2)                                  EBITDA and the same store percentage increase (decrease) were $168,164 and 2.1% for the New York office portfolio and $145,237 and (.8%) for the CESCR portfolio.  The CESCR same store decrease of $1,101 reflects a reduction in third party net leasing fees of $869.

(3)                                  The Company reflects its 60% share of the Vornado Crescent Portland Partnership’s (“the Landlord”) the rental income it receives from AmeriCold Logistics, its tenant, which leases the underlying temperature controlled warehouses used in its business.  The Company’s joint venture does not recognize rental income unless earned and collection is assured or cash is received.  The Company did not recognize $11,103 of rent it was due for the six months ended June 30, 2003, which together with previously deferred rent is $35,452.  The tenant has advised the Landlord that (i) its revenue for the six months ended June 30, 2003 from the warehouses it leases from the Landlord, is lower than last year by 2.2%, and (ii) its gross profit before rent at these warehouses for the corresponding period is lower than last year by $1,573 (a 2.0% decrease).  These decreases were offset by lower general and administrative expenses and an increase in other income.

(4)                                  Primarily represents losses on the sale of assets in the quarter ended June 30, 2002.

(5)                                  The decrease in same store operations was primarily due to (i) a $5,707 increase in general and administrative expenses resulting primarily from higher professional fees and payroll, (ii) a $4,078 reduction in investment income primarily resulting from the reinvestment of the proceeds received from the repayment of loans at lower yields and (iii) a $3,787 reduction in operating results at the Hotel Pennsylvania.

(6)                                  Includes (i) $9,900 for the Company’s share of Newkirk’s gains on sale of real estate and early extinguishment of debt in the six months ended June 30, 2003 and (ii) a $17,671 loss on the Primestone foreclosure, a charge of $13,750 for the amortization of an Officer’s compensation arrangement, partially offset by a gain on sale of marketable securities of $12,346 in the six months ended June 30, 2002.

 

37



 

Liquidity And Capital Resources

 

Six Months Ended June 30, 2003

 

Cash flows provided by operating activities of $246,475,000 was primarily comprised of (i) income of $254,458,000 and (ii) adjustments for non-cash items of $27,534,000 partially offset by (iii) the net change in operating assets and liabilities of $35,517,000.  The adjustments for non-cash items are primarily comprised of (i) depreciation and amortization of $105,597,000 and (ii) minority interest of $736,000, partially offset by (iii) the effect of straight-lining of rental income of $18,874,000, (iv) equity in net income of partially-owned entities and income applicable to Alexander’s of $54,635,000 and (v) amortization of acquired below market leases net of above market leases of $3,752,000.

 

Net cash provided by investing activities of $2,473,000 was primarily comprised of, (i) distributions from partially-owned entities of $33,439,000, (ii) proceeds from the sale of real estate of $4,752,000, (iii) repayments on notes and mortgages receivable of $26,092,000, (iv) a decrease in restricted cash of $123,665,000 (used primarily to repay the cross-collateralized mortgages on 770 Broadway and 595 Madison Avenue), partially offset by, (v) recurring capital expenditures of $62,754,000, (see table on following page), (vi) non-recurring capital expenditures of $4,404,000, (see table on following page), (vii) development and redevelopment expenditures of $32,237,000 (see table on following page), (viii) investments in partially-owned entities of $36,011,000, (ix) the acquisition of Building Maintenance Service Company of $13,000,000, (x) the acquisition of Kaempfer company of $31,237,000, and (xi) the acquisition of 20 Broad Street of $30,000,000.

 

Net cash used in financing activities of $283,949,000 was primarily comprised of (i) distributions to Class A unitholders of $176,926,000 (ii) repayments of borrowings of $293,006,000, (iii) distributions to preferred unitholders and minority partners of $59,210,000, partially offset by, (iv) proceeds from borrowings of $217,000,000 and (v) proceeds of $24,617,000 from the exercise by employees of unit options.

 

Capital expenditures are categorized as follows:

 

                                          Recurring — capital improvements expended to maintain a property’s competitive position within the market and tenant improvements and leasing commissions for costs to re-lease expiring leases or renew or extend existing leases.

                                          Non-recurring — capital improvements completed in the year of acquisition and the following two years which were planned at the time of acquisition and tenant improvements and leasing commissions for space which was vacant at the time of acquisition of a property.

                                          Development and Redevelopment expenditures include all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions and capitalized interest and operating costs until the property is substantially complete and ready for its intended use.

 

38



 

Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures and a reconciliation of total expenditures on an accrual basis to the cash expended in the six months ended June 30, 2003.  See page 43 for per square foot data.

 

(Amounts in thousands)

 

Total

 

New York Office

 

CESCR

 

Retail

 

Merchandise Mart

 

Other

 

Capital Expenditures (Accrual basis):

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures to maintain the assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

15,837

 

$

5,995

 

$

1,391

 

$

120

 

$

7,507

 

$

824

 

Non-recurring

 

1,766

 

 

1,766

 

 

 

 

 

 

17,603

 

5,995

 

3,157

 

120

 

7,507

 

824

 

Tenant improvements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

46,917

 

9,603

 

16,529

 

5,079

 

15,706

 

 

Non-recurring

 

2,638

 

 

2,497

 

141

 

 

 

 

 

49,555

 

9,603

 

19,026

 

5,220

 

15,706

 

 

Total

 

$

67,158

 

$

15,598

 

$

22,183

 

$

5,340

 

$

23,213

 

$

824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

10,920

 

$

3,964

 

$

3,266

 

$

884

 

$

2,806

 

$

 

Non-recurring

 

730

 

 

697

 

33

 

 

 

 

 

$

11,650

 

$

3,964

 

$

3,963

 

$

917

 

$

2,806

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital Expenditures and Leasing Commissions (Accrual basis)

 

$

78,808

 

$

19,562

 

$

26,146

 

$

6,257

 

$

26,019

 

$

824

 

Adjustments to reconcile accrual basis to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year applicable to prior periods

 

17,932

 

5,451

 

9,366

 

 

3,115

 

 

Expenditures to be made in future periods for the current period

 

(44,519

)

(9,650

)

(21,201

)

 

(13,668

)

 

Total Capital Expenditures and Leasing Commissions (Cash basis)

 

$

52,221

 

$

15,363

 

$

14,311

 

$

6,257

 

$

15,466

 

$

824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development and Redevelopment: Expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

640 Fifth Avenue

 

$

12,658

 

$

12,658

 

$

 

$

 

$

 

$

 

Other

 

19,579

 

9,602

 

3,889

 

6,068

 

236

 

(216

)

 

 

$

32,237

 

$

22,260

 

$

3,889

 

$

6,068

 

$

236

 

$

(216

)

 

39



 

Six Months Ended June 30, 2002

 

Cash flow provided by operating activities of $247,298,000 was primarily comprised of (i) income of $192,828,000, (ii) adjustments for non-cash items of $87,180,000, partially offset by (iii) the net change in operating assets and liabilities of $32,710,000. The adjustments for non-cash items were primarily comprised of (i) a cumulative effect of change in accounting principle of $30,129,000, (ii) amortization of Officer’s deferred compensation expense of $13,750,000, (iii) depreciation and amortization of $95,507,000, (iv) minority interest of $1,543,000, partially offset by (v) the effect of straight-lining of rental income of $17,298,000, and (vi) equity in net income of partially-owned entities and income applicable to Alexander’s of $33,667,000.

 

Net cash used in investing activities of $75,791,000 was primarily comprised of (i) recurring capital expenditures of $27,851,000, (ii) non-recurring capital expenditures of $13,603,000, (iii) development and redevelopment expenditures of $34,841,000, (iv) investment in notes and mortgages receivable of $741,000, (v) investments in partially-owned entities of $21,984,000, (vi) cash restricted of $113,831,000 for funds escrowed in connection with a mortgage financing, partially offset by (vii) distributions from partially-owned entities of $67,454,000, (viii) repayments on notes receivable of $60,000,000 and (ix) proceeds from the sale of marketable securities of $53,445,000.

 

Net cash provided by financing activities of $247,092,000 was primarily comprised of (i) distributions to Class A unitholders of $169,838,000, (ii) distributions to preferred unitholders and minority partners of $82,809,000, (iii) repayments of borrowings of $200,612,000, partially offset by proceeds from (iv)  the issuance of Class A units of $56,658,000, (v)  notes and mortgages payable of $619,965,000, of which $500,000,000 was from the issuance of the Company’s senior unsecured notes on June 24, 2002, and (vi) the exercise of employee unit options of $23,728,000.

 

Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures.

 

(amounts in thousands)

 

 

 

Total

 

New York
City Office

 

CESCR

 

Retail

 

Merchandise
Mart

 

Other

 

Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures to maintain the assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

6,095

 

$

2,411

 

$

1,734

 

$

397

 

$

1,112

 

$

441

 

Non-recurring

 

7,090

 

3,762

 

1,570

 

 

1,758

 

 

 

 

13,185

 

6,173

 

3,304

 

397

 

2,870

 

441

 

Tenant improvements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

21,756

 

6,857

 

12,783

 

765

 

1,351

 

 

Non-recurring

 

6,513

 

1,525

 

4,988

 

 

 

 

 

 

28,269

 

8,382

 

17,771

 

765

 

1,351

 

 

Total

 

$

41,454

 

$

14,555

 

$

21,075

 

$

1,162

 

$

4,221

 

$

441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

3,659

 

$

2,028

 

$

1,292

 

$

153

 

$

98

 

$

88

 

Non-recurring

 

2,644

 

1,630

 

1,014

 

 

 

 

 

 

$

6,303

 

$

3,658

 

$

2,306

 

$

153

 

$

98

 

$

88

 

Total Capital Expenditures and Leasing Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

31,510

 

$

11,296

 

$

15,809

 

$

1,315

 

$

2,561

 

$

529

 

Non-recurring

 

16,247

 

6,917

 

7,572

 

 

1,758

 

 

 

 

$

47,757

 

$

18,213

 

$

23,381

 

$

1,315

 

$

4,319

 

$

529

 

Development and Redevelopment Expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

Palisades-Fort Lee, NJ (1)

 

$

9,287

 

$

 

$

 

$

 

$

 

$

9,287

 

Other

 

25,554

 

20,199

 

5,097

 

(871

)(2)

558

 

571

 

 

 

$

34,841

 

$

20,199

 

$

5,097

 

$

(871

)

$

558

 

$

9,858

 

 


(1)                                  Does not include $15,421 of Fort Lee development costs funded by a construction loan.

(2)                                  Represents reimbursements from tenants for expenditures incurred in the prior year.

 

40



 

SUPPLEMENTAL INFORMATION

 

Three Months Ended June 30, 2003 vs. Three Months Ended March 31, 2003

 

Below are the details of the changes by segment in EBITDA for the three months ended June 30, 2003 from the three months ended March 31, 2003.

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Temperature
Controlled
Logistics

 

Other

 

Three months ended March 31, 2003

 

$

269,875

 

$

154,199

 

$

33,653

 

$

25,855

 

$

20,747

 

$

35,421

 

2003 Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store operations(1)

 

4,195

 

2,186

 

241

 

7,515

(3)

(2,879

)

(2,868

)(4)

Acquisitions, dispositions and other non-same store income and expenses

 

(5,767

)

2,817

 

1,001

 

(1,305

)

 

(8,280

)(5)

Three months ended June 30, 2003

 

$

268,303

 

$

159,202

(2)

$

34,895

 

$

32,065

 

$

17,868

 

$

24,273

 

% increase (decrease) in same store operations

 

 

 

1.4

%(2)

.8

%

29.8

%(3)

(13.9

)%

 

 

 


(1)                                  Represents operations which were owned for the same period in each year and excludes non-recurring income and expenses.

(2)                                  Same store percentage increase was 1.9% for the New York office portfolio, and .9% for the CESCR portfolio

(3)                                  Primarily seasonality of operations.

(4)                                  The decrease resulted primarily from lower investment income.

(5)                                  Primarily reflects $8,000 for the Company’s share of the Newkirk MLP’s gains on sale of properties and early extinguishment of debt in the three months ended March 31, 2003.

 

Below is a reconciliation of net income and EBITDA for the three months ended March 31, 2003.

 

(Amounts in thousands)

 

Total

 

Office

 

Retail

 

Merchandise
Mart

 

Temperature
Controlled
Logistics

 

Other

 

Net income for the three months ended March 31, 2003

 

$

129,575

 

$

82,256

 

$

13,112

 

$

15,336

 

$

5,852

 

$

13,019

 

Interest and debt expense

 

74,190

 

34,306

 

15,530

 

3,328

 

6,146

 

14,880

 

Depreciation and amortization

 

66,110

 

37,637

 

5,011

 

7,191

 

8,749

 

7,522

 

EBITDA for the three months ended March 31, 2003

 

$

269,875

 

$

154,199

 

$

33,653

 

$

25,855

 

$

20,747

 

$

35,421

 

 

41



 

Senior Unsecured Debt Covenant Compliance Ratios

 

The following ratios as of and for the three months ended June 30, 2003, are computed pursuant to the covenants and definitions of the Company’s senior unsecured notes due 2007.

 

 

 

Actual

 

Required

 

 

 

 

 

 

 

Total Outstanding Debt/Total Assets

 

47

%

Less than 60%

 

 

 

 

 

 

 

Secured Debt/Total Assets

 

42

%

Less than 55%

 

 

 

 

 

 

 

Interest coverage (Annualized Combined EBITDA to Annualized Interest Expense)

 

3.02

 

Greater than 1.50%

 

 

 

 

 

 

 

Unencumbered Assets/Unsecured Debt

 

513

%

Greater than 150%

 

 

The covenants and definitions of the Company’s senior unsecured notes due 2007 are described in Exhibit 4.2 to the quarterly report on Form 10-Q for the three months ended June 30, 2002.

 

The defined terms and amounts used to determine compliance with the above-referenced covenants differ from such terms and amounts determined in accordance with generally accepted accounting principles in the United States.  Management believes that presentation of its status under these covenants is important to an understanding of the Company’s financial and liquidity position and its ability to incur additional debt.

 

42



 

Leasing Activity

 

The following table sets forth certain information for the properties the Company owns directly or indirectly, including leasing activity:

 

 

 

Office

 

 

 

Merchandise Mart

 

Temperature Controlled

 

(Square feet and cubic feet in thousands)

 

New York

 

CESCR

 

Retail

 

Office

 

Showroom

 

Logistics

 

As of June 30, 2003:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

14,524

 

13,509

 

12,514

 

2,804

 

5,601

 

17,509

 

Cubic feet

 

 

 

 

 

 

441,500

 

Number of properties

 

21

 

61

 

62

 

9

 

9

 

88

 

Occupancy rate

 

95.9

%

94.0

%

89.2

%

93.2

%

95.4

%

70.6

%

Leasing Activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2003:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

124

 

1,125

 

555

 

76

 

264

 

 

Initial rent (1)

 

$

39.43

 

$

31.43

 

$

12.96

 

$

20.26

 

$

21.83

 

 

Rent per square foot on relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

68

 

1,061

 

555

 

76

 

264

 

 

Initial rent (1)

 

$

36.47

 

$

31.63

 

$

12.96

 

$

20.26

 

$

21.83

 

 

Prior escalated rent

 

$

37.07

 

$

31.08

 

$

10.69

 

$

20.02

 

$

22.24

 

 

Percentage increase (decrease)

 

(1.6

)%

1.8

%

21.2

%

1.2

%

(1.8

)%

 

Rent per square foot on space previously vacant:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

56

 

64

 

 

 

 

 

Initial rent (1)

 

$

42.08

 

$

28.21

 

 

 

 

 

Tenant improvements per square foot(2)

 

$

24.37

 

$

13.69

 

$

9.27

 

$

13.74

 

$

8.76

 

 

Leasing commissions per square foot (2)

 

$

9.44

 

$

2.91

 

$

1.35

 

$

4.74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months ended June 30, 2003:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

359

 

1,688

 

653

 

183

 

687

 

 

Initial rent (1)

 

$

42.82

 

$

31.31

 

$

15.29

 

$

21.92

 

$

22.32

 

 

Rent per square foot on relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

242

 

1,567

 

653

 

183

 

687

 

 

Initial rent (1)

 

$

42.20

 

$

31.51

 

$

15.29

 

$

21.92

 

$

22.32

 

 

Prior escalated rent

 

$

34.43

 

$

30.61

 

$

12.71

 

$

21.29

 

$

21.71

 

 

Percentage increase (decrease)

 

22.6

%

2.9

%

20.3

%

3.0

%

2.8

%

 

Rent per square foot on space previously vacant:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

117

 

121

 

 

 

 

 

Initial rent (1)

 

$

44.00

 

$

28.68

 

 

 

 

 

Tenant improvements per square foot(2)

 

$

27.24

 

$

11.27

 

$

7.99

 

$

40.46

 

$

16.14

 

 

Leasing commissions per square foot (2)

 

$

11.09

 

$

2.35

 

$

1.40

 

$

12.99

 

$

13.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2003:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

14,312

 

13,387

 

12,514

 

2,798

 

5,601

 

17,509

 

Cubic feet

 

 

 

 

 

 

441,500

 

Number of properties

 

21

 

55

 

62

 

9

 

9

 

88

 

Occupancy rate

 

95.9

%

93.2

%

87.5

%

92.7

%

95.3

%

73.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2002:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

14,304

 

13,395

 

12,528

 

2,838

 

5,528

 

17,509

 

Cubic feet

 

 

 

 

 

 

441,500

 

Number of properties

 

21

 

55

 

62

 

9

 

9

 

88

 

Occupancy rate

 

95.9

%

93.6

%

88.3

%

91.7

%

95.2

%

78.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2002:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

14,325

 

13,008

 

11,301

 

2,831

 

5,497

 

17,509

 

Cubic feet

 

 

 

 

 

 

441,500

 

Number of properties

 

22

 

51

 

55

 

9

 

9

 

88

 

Occupancy rate

 

96.1

%

94.7

%

88.5

%

89.8

%

94.9

%

78.6

%

 


(1)                                  Most leases include periodic step-ups in rent, which are not reflected in the initial rent per square foot leased.

(2)                                  May not be indicative of the amounts for the full year.

 

In addition to the above, 1,000 square feet and 10,000 square feet of retail space included in the NYC office properties was leased for the quarter and the six months ended June 30, 2003, respectively, at an initial rent of $57.76 per square foot and $249.91 per square foot.

 

43



 

Financings

 

On June 9, 2003, the Company completed a $170,000,000 mortgage financing of its 770 Broadway property.  The loan bears interest at LIBOR plus 1.05%, is prepayable after one year without penalty and matures in June 2006 with two-one year extension options.  The proceeds of the new loan were used primarily to repay (i) a $18,926,000 mortgage loan on 33 North Dearborn, (ii) a $69,507,000 mortgage loan on Tysons Dulles Plaza and (iii) $40,000,000 of borrowings under the Company’s unsecured revolving credit facility.  In connection with the closing of the 770 Broadway loan, the Company purchased an interest rate cap, and simultaneously sold an interest rate cap with the same terms. Since these instruments do not reduce the Company’s net interest rate risk exposure, they do not qualify as hedges and changes in their respective values are charged to earnings. As the significant terms of these arrangements are the same, the effects of a revaluation of these instruments is expected to substantially offset one another.

 

Simultaneously with the completion of the 770 Broadway loan, the Company used cash from its mortgage escrow account to repay $133,659,000 of the $153,659,000 of debt previously cross-collateralized by its 770 Broadway and 595 Madison Avenue properties.

 

On July 3, 2003, the Company entered into a new $600 million unsecured revolving credit facility which has replaced its $1 billion unsecured revolving credit facility due to mature in July, 2003.  The Company has reduced the capacity because historically it has not utilized this additional capacity and to reduce costs.  The new facility has a three-year term with a one-year extension option and bears interest at LIBOR plus .65%.  The Company also has the ability under the new facility to seek up to $800 million of commitments during the facility’s term.  The new facility contains financial covenants similar to the prior facility.

 

On July 31, 2003, the Company replaced the mortgage on the Commerce Executive property with (i) a new $43,000,000 non-recourse mortgage loan at LIBOR plus 1.50% with a two-year term and a one-year extension option and (ii) a $10,000,000 unsecured loan for three years at LIBOR plus .65% with a one-year extension option.

 

On August 4, 2003, the Company completed a refinancing of its 909 Third Avenue property.  The new $125,000,000 mortgage loan is for a term of three years and bears interest at LIBOR plus .70% and has two one-year extension options.  Simultaneously with the completion of the 909 Third Avenue loan, the Company used cash from its mortgage escrow account to repay the balance of $20,000,000 of debt previously cross-collateralized by its 770 Broadway and 595 Madison Avenue properties.

 

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 would require funding from borrowings or equity offerings.

 

44



 

Item 3.   Quantitative and Qualitative Disclosures About Market Risks

 

The Company has exposure to fluctuations in market interest rates.  Market interest rates are highly sensitive to many factors that are beyond the control of the Company.  Various financial instruments exist which would allow management to mitigate the impact of interest rate fluctuations on the Company’s cash flows and earnings.

 

The Company’s exposure to a change in interest rates on its wholly-owned and partially-owned debt (all of which arises out of non-trading activity) is as follows:

 

(Amounts in thousands, except per unit amounts)

 

 

 

As at June 30, 2003

 

As at December 31, 2002

 

 

 

Balance

 

Weighted
Average
Interest Rate

 

Effect of 1%
Change In
Base Rates

 

Balance

 

Weighted
Average
Interest Rate

 

Wholly-owned debt:

 

 

 

 

 

 

 

 

 

 

 

Variable rate

 

$

1,265,456

(1)

2.25

%

$

12,455

(2)

$

1,358,126

 

2.69

%

Fixed rate

 

2,739,138

 

7.36

%

 

2,713,194

 

7.17

%

 

 

$

4,004,594

 

5.75

%

12,455

 

$

4,071,320

 

5.61

%

 

 

 

 

 

 

 

 

 

 

 

 

Partially-owned debt:

 

 

 

 

 

 

 

 

 

 

 

Variable rate

 

$

120,412

 

3.71

%

1,204

 

$

131,100

 

4.54

%

Fixed rate

 

815,113

 

8.26

%

 

917,008

 

8.41

%

 

 

$

935,525

 

7.68

%

1,204

 

$

1,048,108

 

7.92

%

 

 

 

 

 

 

 

 

 

 

 

 

Total decrease in the Company’s annual net income

 

 

 

 

 

$

13,659

 

 

 

 

 

Per Class A unit -diluted

 

 

 

 

 

$

.10

 

 

 

 

 

 


(1)                                  Includes $542,880 for the Company’s senior unsecured notes due 2007, as the Company entered into interest rate swap agreements that effectively converted the interest rate from a fixed rate of 5.625% to a floating rate of LIBOR plus ..7725%, based upon the trailing 3 month LIBOR rate (1.96% if set on June 30, 2003).  In accordance with SFAS 133, as amended, the Company is required to fair value the debt at each reporting period.  At June 30, 2003, the fair value adjustment was $43,454, and is included in the balance of the senior unsecured notes above.

(2)                                  The effect of a 1% change in wholly-owned debt base rates shown above excludes $20,000 of variable rate mortgage financing, collateralized by the Company’s 595 Madison Avenue office property, as the proceeds are held in a restricted mortgage escrow account which bears interest at the same rate as the loans.

 

The fair value of the Company’s debt, based on discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt, exceeds the aggregate carrying amount by approximately $170,003,000 at June 30, 2003.

 

Item 4.   Controls and Procedures

 

Disclosure Controls and Procedures:  The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.  Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

 

Internal Control Over Financial Reporting:  There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this reports relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

45



 

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, including in respect of the matters referred to below, is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

The following supplements and amends our discussion set forth under Item 3 “Legal Proceedings” in our annual report on Form 10-K for the fiscal year ended December 31, 2002, as updated by our quarterly report on Form 10-Q for the quarter ended March 31, 2003.

 

Primestone

 

As previously disclosed, Primestone filed an amended counterclaim against the Company in Delaware Chancery Court, alleging, among other things, that Vornado’s April 30, 2002 foreclosure on the collateral pledged by Primestone did not comply with the Uniform Commercial Code and that Vornado had tortiously interfered with Primestone’s business relations.  On December 19, 2002, the Delaware Chancery Court dismissed all of Primestone’s counterclaims.  Primestone appealed to the Delaware Supreme Court.  On April 16, 2003, the Delaware Supreme Court unanimously affirmed the Chancery Court’s decision.  On May 1, 2003, Primestone filed motion papers seeking to reargue the appeal and that motion was subsequently denied.  On June 13, 2003, the matters were settled pursuant to a settlement agreement and all complaints and counterclaims against the Company and its affiliates were discontinued with prejudice.

 

Stop & Shop

 

As previously disclosed, on January 8, 2003, Stop & Shop filed a complaint with the United States District Court for the District of New Jersey claiming the Company has no right to reallocate and therefore continue to collect the $5,000,000 of annual rent from Stop & Shop pursuant to the Master Agreement and Guaranty, because of the expiration of the East Brunswick, Jersey City, Middletown, Union and Woodbridge leases to which the $5,000,000 of additional rent was previously allocated.  Stop & Shop asserted that a prior order of the Bankruptcy Court for the Southern District of New York dated February 6, 2001, as modified on appeal to the District Court for the Southern District of New York on February 13, 2001, terminated the Company’s right to reallocate.  On March 3, 2003, after the Company moved to dismiss for lack of jurisdiction, Stop & Shop voluntarily withdrew its complaint.

 

On March 26, 2003 Stop & Shop filed a new complaint in New York Supreme Court, asserting substantially the same claims as in its District of New Jersey complaint.  On April 9, 2003, the Company moved the New York Supreme Court action to the United States District Court for the Southern District of New York.  On June 30, 2003, the District Court ordered that the case be place in suspension and ordered the parties to proceed in a related case that the Company commenced in the United States Bankruptcy Court for the Southern District of New York.  On July 24, 2003, the Bankruptcy Court referred the related case to mediation.  If this matter is not resolved through mediation, the hearing will reconvene on September 10, 2003.  The Company believes that the additional rent provision of the guaranty expires at the earliest in 2012 and will vigorously oppose Stop & Shop’s complaint.

 

Item 2.    Changes in Securities and Use of Proceeds

 

During the three months ended June 30, 2003, the Company issued 101,030 of its Class A units.   99,305 of these units (valued at $3,600,000) were issued in connection with the Kaempfer acquisition and were issued without registration under the Securities Act of 1933 in reliance on Regulation D of that Act.  1,725 of the units (valued at $62,704) were issued to H2K, L.L.C., for its minority share of the income recognized in connection with the Kinzle Park loan and were issued without registration under Section 4(2) of that Act.

 

46



 

Item 6.    Exhibits and Reports on Form 8-K

 

(a)                                  Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.

(b)                                 Reports on Form 8-K:

 

                During the quarter ended June 30, 2003, the Company did not file any reports on Form 8-K.

 

47



 

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 L.P.

 

 

 

 

(Registrant)

 

 

 

 

 

 

 

 

 

 

Date:  August 13, 2003

 

 

By:

/s/    Joseph Macnow

 

 

 

 

Joseph Macnow, Executive Vice President -

 

 

 

 

 

Finance and Administration and

 

 

 

 

 

Chief Financial Officer (duly authorized

 

 

 

 

 

officer and principal financial and accounting officer)

 

48



 

EXHIBIT INDEX

 

Exhibit
No.

 

 

 

 

 

 

 

 

 

 

 

 

 

3.1

 

 

Amended and Restated Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on April 16, 1993 – Incorporated by reference to Exhibit 3(a) of Vornado’s Registration Statement on Form S-4 (File No. 33-60286), filed on April 15, 1993

 

*

 

 

 

 

 

 

 

3.2

 

 

Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on May 23, 1996 - Incorporated by reference to Exhibit 3.2 of Vornado’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on March 11, 2002

 

*

 

 

 

 

 

 

 

3.3

 

 

Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on April 3, 1997 - Incorporated by reference to Exhibit 3.3 of Vornado’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on March 11, 2002

 

*

 

 

 

 

 

 

 

3.4

 

 

Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on October 14, 1997 - Incorporated by reference to Exhibit 3.2 of Vornado’s Registration Statement on Form S-3 (File No. 333-36080), filed on May 2, 2000

 

*

 

 

 

 

 

 

 

3.5

 

 

Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on April 22, 1998 - Incorporated by reference to Exhibit 3.5 of Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

 

*

 

 

 

 

 

 

 

3.6

 

 

Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on November 24, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado’s Registration Statement on Form S-3 (File No. 333-36080), filed on May 2, 2000

 

*

 

 

 

 

 

 

 

3.7

 

 

Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on April 20, 2000 - Incorporated by reference to Exhibit 3.5 of Vornado’s Registration Statement on Form S-3 (File No. 333-36080), filed on May 2, 2000

 

*

 

 

 

 

 

 

 

3.8

 

 

Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on September 14, 2000 - Incorporated by reference to Exhibit 4.6 of Vornado’s Registration Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001

 

*

 

 

 

 

 

 

 

3.9

 

 

Articles of Amendment of Declaration of Trust of Vornado dated May 31, 2002, as filed with the Department of Assessments and Taxation of the State of Maryland on June 13, 2002 - incorporated by reference to Exhibit 3.9 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954)

 

*

 


*              Incorporated by reference.

 

49



 

 

Exhibit
No.

 

 

 

 

 

 

3.10

 

 

Articles of Amendment of Declaration of Trust of Vornado dated June 6, 2002, as filed with the Department of Assessments and Taxation of the State of Maryland on June 13, 2002 - incorporated by reference to Exhibit 3.10 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954)

 

*

 

 

 

 

 

 

 

3.11

 

 

Articles Supplementary Classifying Vornado’s $3.25 Series A Preferred Shares of Beneficial Interest, liquidation preference $50.00 per share - Incorporated by reference to Exhibit 3.11 of Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

 

*

 

 

 

 

 

 

 

3.12

 

 

Articles Supplementary Classifying Vornado’s $3.25 Series A Convertible Preferred Shares of Beneficial Interest, as filed with the State Department of Assessments and Taxation of Maryland on December 15, 1997 - Incorporated by reference to Exhibit 3.10 to Vornado’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-11954), filed on March 31, 2002

 

*

 

 

 

 

 

 

 

3.13

 

 

Articles Supplementary Classifying Vornado’s Series D-1 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest, no par value (the “Series D-1 Preferred Shares”) - Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K, dated November 12, 1998 (File No. 001-11954), filed on November 30, 1998

 

*

 

 

 

 

 

 

 

3.14

 

 

Articles Supplementary Classifying Additional Series D-1 8.5% Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 3.2 of Vornado’s Current Report on Form 8-K/A, dated November 12, 1998 (File No. 001-11954), filed on February 9, 1999

 

*

 

 

 

 

 

 

 

3.15

 

 

Articles Supplementary Classifying 8.5% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 3.3 of Vornado’s Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999

 

*

 

 

 

 

 

 

 

3.16

 

 

Articles Supplementary Classifying Vornado’s Series C 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 3.7 of Vornado’s Registration Statement on Form 8-A (File No. 001-11954), filed on May 19, 1999

 

*

 

 

 

 

 

 

 

3.17

 

 

Articles Supplementary Classifying Vornado Realty Trust’s Series D-2 8.375% Cumulative Redeemable Preferred Shares, dated as of May 27, 1999, as filed with the State Department of Assessments and Taxation of Maryland on May 27, 1999  - Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999

 

*

 

 

 

 

 

 

 

3.18

 

 

Articles Supplementary Classifying Vornado’s Series D-3 8.25% Cumulative Redeemable Preferred Shares, dated September 3, 1999, as filed with the State Department of Assessments and Taxation of Maryland on September 3, 1999 - Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on October 25, 1999

 

*

 


*              Incorporated by reference.

 

50



 

Exhibit
No.

 

 

 

 

 

 

3.19

 

 

Articles Supplementary Classifying Vornado’s Series D-4 8.25% Cumulative Redeemable Preferred Shares, dated September 3, 1999, as filed with the State Department of Assessments and Taxation of Maryland on September 3, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado’s Current Report on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on October 25, 1999

 

*

 

 

 

 

 

 

 

3.20

 

 

Articles Supplementary Classifying Vornado’s Series D-5 8.25% Cumulative Redeemable Preferred Shares – Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K, dated November 24, 1999 (File No. 001-11954), filed on December 23, 1999

 

*

 

 

 

 

 

 

 

3.21

 

 

Articles Supplementary Classifying Vornado’s Series D-6 8.25% Cumulative Redeemable Preferred Shares, dated May 1, 2000, as filed with the State Department of Assessments and Taxation of Maryland on May 1, 2000 - Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K, dated May 1, 2000 (File No. 001-11954), filed May 19, 2000

 

*

 

 

 

 

 

 

 

3.22

 

 

Articles Supplementary Classifying Vornado’s Series D-7 8.25% Cumulative Redeemable Preferred Shares, dated May 25, 2000, as filed with the State Department of Assessments and Taxation of Maryland on June 1, 2000 - Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K, dated May 25, 2000 (File No. 001-11954), filed on June 16, 2000

 

*

 

 

 

 

 

 

 

3.23

 

 

Articles Supplementary Classifying Vornado’s Series D-8 8.25% Cumulative Redeemable Preferred Shares - Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K, dated December 8, 2000 (File No. 001-11954), filed on December 28, 2000

 

*

 

 

 

 

 

 

 

3.24

 

 

Articles Supplementary Classifying Vornado’s Series D-9 8.75% Preferred Shares, dated September 21, 2001, as filed with the State Department of Assessments and Taxation of Maryland on September 25, 2001 – Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001

 

*

 

 

 

 

 

 

 

3.25

 

 

Amended and Restated Bylaws of Vornado, as amended on March 2, 2000 - Incorporated by reference to Exhibit 3.12 of Vornado’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000

 

*

 

 

 

 

 

 

 

3.26

 

 

Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of October 20, 1997 (the “Partnership Agreement”) - Incorporated by reference to Exhibit 3.26 of Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003.

 

*

 

 

 

 

 

 

 

3.27

 

 

Amendment to the Partnership Agreement, dated as of December 16, 1997 - Incorporated by reference to Exhibit 3.27 of Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

 

*

 

 

 

 

 

 

 

3.28

 

 

Second Amendment to the Partnership Agreement, dated as of April 1, 1998 - Incorporated by reference to Exhibit 3.5 of Vornado’s Registration Statement on Form S-3 (File No. 333-50095), filed on April 14, 1998

 

*

 

 

 

 

 

 

 

3.29

 

 

Third Amendment to the Partnership Agreement, dated as of November 12, 1998 - Incorporated by reference to Exhibit 3.2 of Vornado’s Current Report on Form 8-K, dated November 12, 1998 (File No. 001-11954), filed on November 30, 1998

 

*

 


*              Incorporated by reference.

 

51



 

Exhibit
No.

 

 

 

 

 

 

3.30

 

 

Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 - Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K, dated December 1, 1998 (File No. 001-11954), filed on February 9, 1999

 

*

 

 

 

 

 

 

 

3.31

 

 

Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 -Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999

 

*

 

 

 

 

 

 

 

3.32

 

 

Sixth Amendment to the Partnership Agreement, dated as of March 17, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado’s Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999

 

*

 

 

 

 

 

 

 

3.33

 

 

Seventh Amendment to the Partnership Agreement, dated as of May 20, 1999 - Incorporated by reference to Exhibit 3.3 of Vornado’s Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999

 

*

 

 

 

 

 

 

 

3.34

 

 

Eighth Amendment to the Partnership Agreement, dated as of May 27, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado’s Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999

 

*

 

 

 

 

 

 

 

3.35

 

 

Ninth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.3 of Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999

 

*

 

 

 

 

 

 

 

3.36

 

 

Tenth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado’s Current Report on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed on October 25, 1999

 

*

 

 

 

 

 

 

 

3.37

 

 

Eleventh Amendment to the Partnership Agreement, dated as of November 24, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado’s Current Report on Form 8-K, dated November 24, 1999 (File No. 001-11954), filed on December 23, 1999

 

*

 

 

 

 

 

 

 

3.38

 

 

Twelfth Amendment to the Partnership Agreement, dated as of May 1, 2000 - Incorporated by reference to Exhibit 3.2 of Vornado’s Current Report on Form 8-K, dated May 1, 2000 (File No. 001-11954), filed on May 19, 2000

 

*

 

 

 

 

 

 

 

3.39

 

 

Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 - Incorporated by reference to Exhibit 3.2 of Vornado’s Current Report on Form 8-K, dated May 25, 2000 (File No. 001-11954), filed on June 16, 2000

 

*

 

 

 

 

 

 

 

3.40

 

 

Fourteenth Amendment to the Partnership Agreement, dated as of December 8, 2000 - Incorporated by reference to Exhibit 3.2 of Vornado’s Current Report on Form 8-K, dated December 8, 2000 (File No. 001-11954), filed on December 28, 2000

 

*

 

 

 

 

 

 

 

3.41

 

 

Fifteenth Amendment to the Partnership Agreement, dated as of December 15, 2000 – Incorporated by reference to Exhibit 4.35 of Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001

 

*

 


*              Incorporated by reference.

 

52



 

Exhibit
No.

 

 

 

 

 

 

3.42

 

 

Sixteenth Amendment to the Partnership Agreement, dated as of July 25, 2001 – Incorporated by reference to Exhibit 3.3 of Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001

 

*

 

 

 

 

 

 

 

3.43

 

 

Seventeenth Amendment to the Partnership Agreement, dated as of September 21, 2001 – Incorporated by reference to Exhibit 3.4 of Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 12, 2001

 

*

 

 

 

 

 

 

 

3.44

 

 

Eighteenth Amendment to the Partnership Agreement, dated as of January 1, 2002 – Incorporated by reference to Exhibit 3.1 of Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on March 18, 2002

 

*

 

 

 

 

 

 

 

3.45

 

 

Nineteenth Amendment to the Partnership Agreement, dated as of July 1, 2002 – Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954)

 

*

 

 

 

 

 

 

 

3.46

 

 

Twentieth Amendment to the Partnership Agreement, dated April 9, 2003 - Incorporated by reference to Exhibit 3.27 of Vornado’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

 

*

 

 

 

 

 

 

 

4.1

 

 

Instruments defining the rights of security holders (see Exhibits 3.1 through 3.24 of this Quarterly Report on Form 10-Q)

 

*

 

 

 

 

 

 

 

4.2

 

 

Specimen certificate representing Vornado’s Common Shares of Beneficial Interest, par value $0.04 per share - Incorporated by reference to Exhibit 4.1 of Amendment No. 1 to Vornado’s Registration Statement on Form S-3 (File No. 33-62395), filed on October 26, 1995

 

*

 

 

 

 

 

 

 

4.3

 

 

Specimen certificate representing Vornado’s $3.25 Series A Preferred Shares of Beneficial Interest, liquidation preference $50.00 per share, no par value - Incorporated by reference to Exhibit 4.3 of Vornado’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003

 

*

 

 

 

 

 

 

 

4.4

 

 

Specimen certificate evidencing Vornado’s Series B 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 4.2 of Vornado’s Registration Statement on Form 8-A (File No. 001-11954), filed on March 15, 1999

 

*

 

 

 

 

 

 

 

4.5

 

 

Specimen certificate evidencing Vornado’s 8.5% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preferences $25.00 per share, no par value - Incorporated by reference to Exhibit 4.2 of Vornado’s Registration Statement on Form 8-A (File No. 001-11954), filed May 19, 1999

 

*

 

 

 

 

 

 

 

4.6

 

 

Indenture and Servicing Agreement, dated as of March 1, 2000, among Vornado, LaSalle Bank National Association, ABN Amro Bank N.V. and Midland Loan Services, Inc. - Incorporated by reference to Exhibit 10.48 of Vornado’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000

 

*

 


*              Incorporated by reference.

53



 

Exhibit
No.

 

 

 

 

 

 

4.7

 

 

Indenture, dated as of June 24, 2002, between Vornado Realty L.P. and The Bank of New York, as Trustee – Incorporated by reference to Exhibit 4.1 to Vornado Realty L.P.’s Current Report on Form 8-K dated June 19, 2002 (File No. 000-22685), filed on June 24, 2002

 

*

 

 

 

 

 

 

 

4.8

 

 

Officer’s Certificate pursuant to Sections 102 and 301 of the Indenture, dated June 24, 2002 – Incorporated by reference to Exhibit 4.2 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002

 

*

 

 

 

 

 

 

 

10.1**

 

 

Employment agreement between Vornado Realty Trust and Mitchell N. Schear, dated April 9, 2003 - Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (File No. 001-11954), filed on August 8, 2003

 

*

 

 

 

 

 

 

 

10.2

 

 

Revolving Credit Agreement, dated as of July 2, 2003 among Vornado Realty L.P., as borrower, Vornado Realty Trust, as general partner, and JPMorgan Chase Bank (as Administrative Agent), Bank of America, N.A. and Citicorp North American, Inc., Deutsche Bank Trust Company Americas and Fleet National Bank, and JPMorgan Chase Bank (in its individual capacity) - Incorporated by reference to Exhibit 10.2 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (File No. 001-11954), filed on August 8, 2003.

 

*

 

 

 

 

 

 

 

10.3

 

 

Guaranty of Payment, made as of July 2, 2003, by Vornado Realty Trust, for the benefit of JPMorgan Chase Bank  - Incorporated by reference to Exhibit 10.3 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (File No. 001-11954), filed on August 8, 2003.

 

*

 

 

 

 

 

 

 

15.1

 

 

Letter regarding Unaudited Interim Financial Information

 

 

 

 

 

 

 

 

 

31.1

 

 

Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

 

 

 

 

 

 

 

 

 

31.2

 

 

Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

 

 

 

 

 

 

 

 

 

32.1

 

 

Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

32.2

 

 

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 


*              Incorporated by reference.

**           Management contract or compensatory plan.

 

54