Edgar Filing: VORNADO REALTY TRUST

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended:

June 30, 2009

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

For the transition period from:

Commission File Number:

001-11954

VORNADO REALTY TRUST

(Exact name of registrant as specified in its charter)

Maryland		22-1657560
(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. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

x Large Accelerated Filer		o Accelerated Filer
o Non-Accelerated Filer (Do not check if smaller reporting company)		o Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of June 30, 2009, 178,561,963 of the registrant’s common shares of beneficial interest are outstanding.

PART I.		Financial Information:	Page Number

	Item 1.	Financial Statements:

		Consolidated Balance Sheets (Unaudited) as of June 30, 2009 and December 31, 2008	3

		Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, 2009 and 2008	4

		Consolidated Statements of Changes in Equity (Unaudited) for the Six Months Ended June 30, 2009 and 2008	5

		Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2009 and 2008	6

		Notes to Consolidated Financial Statements (Unaudited)	8

		Report of Independent Registered Public Accounting Firm	34

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	69

	Item 4.	Controls and Procedures	70



PART II.		Other Information:

	Item 1.	Legal Proceedings	71

	Item 1A.	Risk Factors	72

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72

	Item 3.	Defaults Upon Senior Securities	72

	Item 4.	Submission of Matters to a Vote of Security Holders	72

	Item 5.	Other Information	72

	Item 6.	Exhibits	72

Signatures			73

Exhibit Index			74

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(Amounts in thousands, except share and per share amounts) ASSETS	June 30, 2009			December 31, 2008
Real estate, at cost:
Land	$	4,590,824		$	4,517,558
Buildings and improvements		12,415,435			12,154,857
Development costs and construction in progress		995,268			1,088,356
Leasehold improvements and equipment		121,952			118,603
Total		18,123,479			17,879,374
Less accumulated depreciation and amortization		(2,327,154	)		(2,168,997	)
Real estate, net		15,796,325			15,710,377
Cash and cash equivalents		2,068,498			1,526,853
Restricted cash		307,984			375,888
Marketable securities		326,671			334,322
Accounts receivable, net of allowance for doubtful accounts of $46,856 and $32,834		157,054			201,566
Investments in partially owned entities, including Alexander’s of $168,860 and $137,305		790,352			790,154
Investment in Toys “R” Us		374,534			293,096
Mezzanine loans receivable, net of a $122,738 allowance in 2009		291,270			472,539
Receivable arising from the straight-lining of rents, net of allowance of $5,905 and $5,773		644,696			592,903
Deferred leasing and financing costs, net of accumulated amortization of $179,646 and $168,714		306,188			306,847
Assets related to discontinued operations		108,292			108,292
Due from officers		13,151			13,185
Other assets		646,842			692,026
	$	21,831,857		$	21,418,048
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Notes and mortgages payable	$	8,833,435		$	8,835,387
Convertible senior debentures		2,059,397			2,221,743
Senior unsecured notes		363,358			617,816
Exchangeable senior debentures		481,314			478,256
Revolving credit facility debt		648,250			358,468
Accounts payable and accrued expenses		485,706			515,607
Deferred credit		724,193			764,774
Deferred compensation plan		70,391			69,945
Deferred tax liabilities		19,876			19,895
Other liabilities		87,663			143,527
Total liabilities		13,773,583			14,025,418
Commitments and contingencies
Redeemable noncontrolling interests:
Class A units – 14,231,867 and 14,627,005 units outstanding		640,861			882,740
Series D cumulative redeemable preferred units – 11,200,000 units outstanding		280,000			280,000
Series B convertible preferred units – 444,559 units outstanding		15,238			15,238
Total redeemable noncontrolling interests		936,099			1,177,978
Shareholders’ equity:
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 33,952,324 and 33,954,124 shares		823,718			823,807
Common shares of beneficial interest: $.04 par value per share; authorized, 250,000,000 shares; issued and outstanding 178,561,963 and 155,285,903 shares		7,113			6,195
Additional capital		7,210,977			6,025,976
Earnings less than distributions		(1,288,909	)		(1,047,340	)
Accumulated other comprehensive loss		(35,851	)		(6,899	)
Total Vornado shareholders’ equity		6,717,048			5,801,739
Noncontrolling interests in consolidated subsidiaries		405,127			412,913
Total equity		7,122,175			6,214,652
	$	21,831,857		$	21,418,048

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	For The Three Months Ended June 30,						For The Six Months Ended June 30,
(Amounts in thousands, except per share amounts)	2009			2008			2009			2008
REVENUES:
Property rentals	$	559,010		$	558,855		$	1,112,140		$	1,092,289
Tenant expense reimbursements		83,476			84,898			181,610			172,058
Fee and other income		35,899			30,612			66,649			59,300
Total revenues		678,385			674,365			1,360,399			1,323,647
EXPENSES:
Operating		270,297			256,358			549,673			517,609
Depreciation and amortization		137,317			130,948			269,436			261,558
General and administrative		49,632			50,285			128,701			99,670
Costs of acquisitions not consummated		—			726			—			3,009
Total expenses		457,246			438,317			947,810			881,846
Operating income		221,139			236,048			412,589			441,801
Income applicable to Alexander’s		6,614			15,351			24,747			23,280
(Loss) income applicable to Toys “R” Us		(327	)		(30,711	)		96,820			49,651
(Loss) income from partially owned entities		(22,797	)		4,285			(30,340	)		(26,068	)
Interest and other investment (loss) income, net		(97,706	)		23,793			(83,647	)		37,897
Interest and debt expense (including amortization of deferred financing costs of $4,313 and $4,654 in each three-month period, respectively, and $8,372 and $8,897 in each six-month period, respectively)		(159,525	)		(159,759	)		(317,196	)		(317,216	)
Net gains on early extinguishment of debt		17,684			—			23,589			—
Net gains on disposition of wholly owned and partially owned assets other than depreciable real estate		—			3,386			—			3,386
(Loss) income before income taxes		(34,918	)		92,393			126,562			212,731
Income tax (expense) benefit		(5,457	)		(4,915	)		(10,506	)		212,414
(Loss) income from continuing operations		(40,375	)		87,478			116,056			425,145
Income from discontinued operations		—			58,339			—			170,420
Net (loss) income		(40,375	)		145,817			116,056			595,565
Net loss (income) attributable to noncontrolling interests, including unit distributions		2,740			(14,685	)		(13,581	)		(60,595	)
Net (loss) income attributable to Vornado		(37,635	)		131,132			102,475			534,970
Preferred share dividends		(14,269	)		(14,274	)		(28,538	)		(28,549	)
NET (LOSS) INCOME attributable to common shareholders	$	(51,904	)	$	116,858		$	73,937		$	506,421

(LOSS) INCOME PER COMMON SHARE – BASIC:
(Loss) income from continuing operations, net	$	(0.30	)	$	0.41		$	0.44		$	2.23
Income from discontinued operations, net		—			0.33			—			0.97
Net (loss) income per common share	$	(0.30	)	$	0.74		$	0.44		$	3.20

(LOSS) INCOME PER COMMON SHARE – DILUTED:
(Loss) income from continuing operations, net	$	(0.30	)	$	0.40		$	0.44		$	2.17
Income from discontinued operations, net		—			0.32			—			0.91
Net (loss) income per common share	$	(0.30	)	$	0.72		$	0.44		$	3.08


DIVIDENDS PER COMMON SHARE	$	0.95		$	0.90		$	1.90		$	1.80

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(Amounts in thousands)	Preferred Shares				Common Shares		Additional Capital				Earnings Less Than Distributions		Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests			Total Equity

Balance, December 31, 2007	$	825,095		$	6,140		$	5,278,717		$	(721,625	)	$	29,772		$	416,298		$	5,834,397
Cumulative effect of change in accounting principle		—			—			212,395			(35,552	)		—			—			176,843
Balance, January 1, 2008		825,095			6,140			5,491,112			(757,177	)		29,772			416,298			6,011,240
Net income (loss)		—			—			—			534,970			—			(5,107	)		529,863
Dividends paid on common shares		—			—			—			(276,478	)		—			—			(276,478	)
Dividends paid on preferred shares		—			—			—			(28,550	)		—			—			(28,550	)
Conversion of Series A preferred shares to common shares		(1,082	)		2			1,080			—			—			—			—
Deferred compensation shares and options		—			43			5,635			—			—			—			5,678
Common shares issued:
Under employee share option plan		—			11			10,973			—			—			—			10,984
Upon redemption of Class A Operating Partnership units, at redemption value		—			20			44,392			—			—			—			44,412
In connection with dividend reinvestment plan		—			—			1,171			—			—			—			1,171
Sale of securities available for sale		—			—			—			—			(1,025	)		—			(1,025	)
Change in unrealized net loss on securities available for sale		—			—			—			—			(33,776	)		—			(33,776	)
Adjustments to redeemable Class A Operating Partnership units		—			—			26,824			—			—			—			26,824
Other		—			—			(1,849	)		—			(23,303	)		—			(25,152	)
Balance, June 30, 2008	$	824,013		$	6,216		$	5,579,338		$	(527,235	)	$	(28,332	)	$	411,191		$	6,265,191


Balance, December 31, 2008	$	823,807		$	6,195		$	6,025,976		$	(1,047,340	)	$	(6,899	)	$	412,913		$	6,214,652
Net income (loss)		—			—			—			102,475			—			(3,700	)		98,775
Dividends paid on common shares		—			194			188,792			(315,159	)		—			—			(126,173	)
Dividends paid on preferred shares		—			—			—			(28,540	)		—			—			(28,540	)
Proceeds from the issuance of common shares		—			690			709,536			—			—			—			710,226
Conversion of Series A preferred shares to common shares		(89	)		—			89			—			—			—			—
Deferred compensation shares and options		—			2			9,967			—			—			—			9,969
Common shares issued:
Under employee share option plan		—			(14	)		548			(351	)		—			—			183
Upon redemption of Class A Operating Partnership units, at redemption value		—			46			49,944			—			—			—			49,990
Change in unrealized net loss on securities available for sale		—			—			—			—			(12,213	)		—			(12,213	)
Our share of partially owned entities’ OCI adjustments		—			—			—			—			(16,556	)		—			(16,556	)
Voluntary surrender of equity awards on March 31, 2009		—			—			32,588			—			—			—			32,588
Adjustments to redeemable Class A Operating Partnership Units		—			—			194,183			—			—			—			194,183
Other		—			—			(646	)		6			(183	)		(4,086	)		(4,909	)
Balance, June 30, 2009	$	823,718		$	7,113		$	7,210,977		$	(1,288,909	)	$	(35,851	)	$	405,127		$	7,122,175

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For The Six Months Ended June 30,
(Amounts in thousands)	2009			2008
Cash Flows from Operating Activities:
Net income	$	116,056		$	595,565
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of debt issuance costs)		277,806			291,689
Mezzanine loans loss accrual		122,738			—
Equity in income of partially owned entities, including Alexander’s and Toys		(91,227	)		(81,431	)
Straight-lining of rental income		(53,002	)		(40,710	)
Amortization of below market leases, net		(37,542	)		(49,129	)
Write-off of unamortized costs from the voluntary surrender of equity awards		32,588			—
Net gains on early extinguishment of debt		(23,589	)		—
Distributions of income from partially owned entities		15,131			20,051
Reversal of H Street deferred tax liability		—			(222,174	)
Net gain on sale of Americold		—			(112,690	)
Write-off of real estate joint ventures’ development costs		—			34,200
Net loss on derivative positions		—			21,830
Impairment loss – marketable securities		—			9,073
Net gains on sale of real estate		—			(57,411	)
Net gains on dispositions of wholly owned and partially owned assets other than depreciable real estate		—			(3,386	)
Costs of acquisitions not consummated		—			3,009
Other non-cash adjustments		25,069			31,140
Changes in operating assets and liabilities:
Accounts receivable, net		15,654			7,029
Other assets		(17,773	)		(17,542	)
Accounts payable and accrued expenses		7,715			10,304
Other liabilities		(10,185	)		14,099
Net cash provided by operating activities		379,439			453,516
Cash Flows from Investing Activities:
Development costs and construction in progress		(267,124	)		(253,159	)
Additions to real estate		(84,750	)		(97,804	)
Restricted cash		60,786			(16,340	)
Investments in partially owned entities		(25,712	)		(96,277	)
Proceeds from sales of real estate and related investments		43,873			350,591
Proceeds received from repayment of notes and mortgage loans receivable		45,472			50,951
Distributions of capital from partially owned entities		9,636			140,069
Acquisitions of real estate and other		—			(32,484	)
Deposits in connection with real estate acquisitions		991			(9,185	)
Proceeds from sales of, and return of investment in, marketable securities		9,115			8,338
Investments in notes and mortgage loans receivable		—			(7,397	)
Purchases of marketable securities		(11,597	)		(2,140	)
Net cash (used in) provided by investing activities		(219,310	)		35,163

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

(Amounts in thousands)	For The Six Months Ended June 30,
(Amounts in thousands)	2009			2008
Cash Flows from Financing Activities:
Proceeds from issuance of common shares		710,226			—
Proceeds from borrowings		520,137			1,215,500
Repayments of borrowings		(644,011	)		(793,599	)
Dividends paid on common shares		(126,174	)		(276,478	)
Distributions to noncontrolling interests		(20,931	)		(47,083	)
Dividends paid on preferred shares		(28,540	)		(28,567	)
Debt issuance costs		(4,338	)		(13,155	)
Exercise of share options and other		(522	)		12,140
Purchase of outstanding Series G Preferred Units		(24,331	)		—
Net cash provided by financing activities		381,516			68,758
Net increase in cash and cash equivalents		541,645			557,437
Cash and cash equivalents at beginning of period		1,526,853			1,154,595
Cash and cash equivalents at end of period	$	2,068,498		$	1,712,032

Supplemental Disclosure of Cash Flow Information:
Cash payments for interest (including capitalized interest of $10,078 and $31,817)	$	321,065		$	316,642
Cash payments for income taxes	$	3,840		$	4,078

Non-Cash Transactions:
Adjustments to redeemable Class A Operating Partnerships units	$	194,183		$	26,824
Conversion of Class A Operating Partnership units to common shares, at redemption value		49,990			44,412
Dividends paid in common shares		188,986			—
Unit distributions paid in Class A units		16,280			—
Unrealized net loss on securities available for sale		12,213			33,776

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	Organization

Vornado Realty Trust (“Vornado”) is a fully-integrated real estate investment trust (“REIT”) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Vornado is the sole general partner of, and owned approximately 91.9% of the common limited partnership interest in, the Operating Partnership at June 30, 2009. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

Substantially all of Vornado’s assets are held through subsidiaries of the Operating Partnership. Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors.

2.	Basis of Presentation

The accompanying consolidated financial statements are unaudited. In our opinion, 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 (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC. The results of operations for the three and six months ended June 30, 2009, are not necessarily indicative of the operating results for the full year.

The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership, as well as certain partially owned entities in which we own more than 50%, unless a partner has shared board and management representation and substantive participation rights on all significant business decisions, or 50% or less when (i) we are the primary beneficiary and the entity qualifies as a variable interest entity under Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities (“FIN 46R”), or (ii) when we are a general partner that meets the criteria under Emerging Issues Task Force (“EITF”) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity when the Limited Partners have certain rights. All significant inter-company amounts have been eliminated. Equity interests in partially owned entities are accounted for under the equity method of accounting if they do not meet the criteria for consolidation and we have the ability to exercise significant influence over the operating and financial policies of the company. Generally an ownership interest of 20% or more is sufficient to demonstrate the ability to exercise significant influence. When partially owned investments are in partnership form, the 20% threshold for equity method accounting is generally reduced to 3% to 5%, based on our ability to influence the operating and financial policies of the partnership. Investments accounted for under the equity method are initially recorded at cost and subsequently adjusted for our share of the net income or loss and cash contributions and distributions to or from these entities. Investments in partially owned entities that do not meet the criteria for consolidation or for equity method accounting are accounted for on the cost method.

We have 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.

On January 1, 2009, we adopted FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP 14-1”). FSP 14-1 was required to be applied retrospectively. Accordingly, net income for the three and six months ended June 30, 2008 has been adjusted to include $8,500,000 and $16,900,000, respectively, of additional interest expense, net of amounts attributable to noncontrolling interests. In addition, in accordance with FASB Statement No. 128, Earnings Per Share (“SFAS 128”), we have included 4,850,000 additional common shares in the computation of income per share retroactively to the three and six months ended June 30, 2008, as a result of our first and second quarter common share dividends in 2009. Furthermore, certain prior year balances have been reclassified in order to conform to current year presentation as a result of the adoption of FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS 160”).

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

2.	Basis of Presentation – continued

In connection with purchase accounting for H Street, in July 2005 and April 2007 we recorded an aggregate of $222,174,000 of deferred tax liabilities representing the differences between the tax basis and the book basis of the acquired assets and liabilities multiplied by the effective tax rate. We were required to record these deferred tax liabilities because H Street and its partially owned entities were operated as C Corporations at the time they were acquired. As of January 16, 2008, we had completed all of the actions necessary to enable these entities to elect REIT status effective for the tax year beginning on January 1, 2008. Consequently, in the first quarter of 2008, we reversed the deferred tax liabilities and recognized an income tax benefit of $222,174,000 in our consolidated statement of income.

3.	Recently Issued Accounting Literature

In December 2007, the FASB issued Statement No. 141R, Business Combinations (“SFAS 141R”). SFAS 141R broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It also broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations; and acquisition related costs will generally be expensed rather than included as part of the basis of the acquisition. SFAS 141R expands required disclosures to improve the ability to evaluate the nature and financial effects of business combinations. SFAS 141R became effective for all transactions entered into on or after January 1, 2009. The adoption of SFAS 141R on January 1, 2009 did not have any effect on our consolidated financial statements because there have been no acquisitions during 2009.

In December 2007, the FASB issued SFAS 160, which requires a noncontrolling interest in a subsidiary to be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest to be identified in the consolidated financial statements. SFAS 160 also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. SFAS 160 became effective on January 1, 2009. The adoption of SFAS 160 on January 1, 2009, resulted in (i) the reclassification of minority interests in consolidated subsidiaries to noncontrolling interests in consolidated subsidiaries, a component of permanent equity on our consolidated balance sheets, (ii) the reclassification of minority interest expense to net income attributable to noncontrolling interests, on our consolidated statements of income, and (iii) additional disclosures, including a consolidated statement of changes in equity in quarterly reporting periods.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires enhanced disclosures related to derivative instruments and hedging activities, including disclosures regarding how an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), and the impact of derivative instruments and related hedged items on an entity’s financial position, financial performance and cash flows. SFAS 161 became effective on January 1, 2009. The adoption of SFAS 161 on January 1, 2009 did not have a material effect on our consolidated financial statements.

In June 2008, the FASB ratified EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”). Paragraph 11(a) of SFAS 133 specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. EITF 07-5 is effective on January 1, 2009. The adoption of this standard on January 1, 2009, did not have any effect on our consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Investments Granted in Share-Based Payment Transactions are Participating Securities (“FSP 03-6-1”). FSP 03-6-1 requires companies to treat unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” and include such securities in the computation of earnings per share pursuant to the two-class method as described in SFAS 128. FSP 03-6-1 became effective on January 1, 2009 and required all prior period earnings per share data presented, to be adjusted retroactively. The adoption of FSP 03-6-1 on January 1, 2009 did not have a material effect on our computation of income per share.

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3.	Recently Issued Accounting Literature - continued

On January 1, 2009, we adopted FSP 14-1, which was required to be applied retrospectively. The adoption of FSP 14-1 affected the accounting for our convertible and exchangeable senior debentures by requiring the initial proceeds from their sale to be allocated between a debt component and an equity component in a manner that results in interest expense on the debt component at our nonconvertible debt borrowing rate on the date of issue. The initial debt components of our $1.4 billion Convertible Senior Debentures, $1 billion Convertible Senior Debentures and $500 million Exchangeable Senior Debentures were $1,241,286,000, $926,361,000 and $457,699,000, respectively, based on the fair value of similar nonconvertible instruments issued at that time. The aggregate initial debt discount of $212,395,000 after original issuance costs allocated to the equity component was recorded in “additional capital” as a cumulative effect of change in accounting principle in our consolidated statement of shareholders’ equity. We are amortizing the discount using the effective interest method over the period the debt is expected to remain outstanding (i.e., the earliest date the holders may require us to repurchase the debentures), as additional interest expense. Accordingly, interest expense for the three and six months ended June 30, 2008 has been adjusted to include $9,400,000 and $18,700,000 of amortization in the aggregate, or $8,500,000 and $16,900,000, net of amounts attributable to noncontrolling interests. Amortization for periods prior to December 31, 2007 (not presented herein) aggregating $35,552,000 have been reflected as a cumulative effect of change in accounting principle in “earnings less than distributions” on our consolidated statement of changes in equity. Below is a summary of the financial statement effects of implementing FSP 14-1 and related disclosures.

		$1.4 Billion Convertible Senior Debentures				$1 Billion Convertible Senior Debentures				$500 Million Exchangeable Senior Debentures
(Amounts in thousands, except per share amounts) Balance Sheet:		June 30, 2009		December 31, 2008		June 30, 2009		December 31, 2008		June 30, 2009		December 31, 2008
Principal amount of debt component	$	1,263,759	$	1,382,700	$	913,219	$	989,800	$	499,982	$	499,982
Unamortized discount		(83,359	)	(106,415	)	(34,222	)	(44,342	)	(18,668	)	(21,726	)
Carrying amount of debt component	$	1,180,400	$	1,276,285	$	878,997	$	945,458	$	481,314	$	478,256

Carrying amount of equity component	$	130,714	$	130,714	$	53,640	$	53,640	$	32,301	$	32,301

Effective interest rate		5.45	%	5.45	%	5.32	%	5.32	%	5.32	%	5.32	%

Maturity date (period through which discount is being amortized)		4/1/12				11/15/11				4/15/12

Conversion price per share, as adjusted	$	157.18			$	148.46			$	87.17

Number of shares on which the aggregate consideration to be delivered upon conversion is determined		—	⁽¹⁾			—	⁽¹⁾			5,736

__________________

(1)

In accordance with FSP 14-1, we are required to disclose the conversion price and the number of shares on which the aggregate consideration to be delivered upon conversion is determined (principal plus excess value.) Our convertible senior debentures require the entire principal amount to be settled in cash, and at our option, any excess value above the principal amount may be settled in cash or common shares. Based on the June 30, 2009 closing share price of our common shares and the conversion prices in the table above, there was no excess value; accordingly, no common shares would be issued if these securities were settled on this date. The number of common shares on which the aggregate consideration to be delivered upon conversion is 8,040 and 6,151 common shares, respectively.

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3.	Recently Issued Accounting Literature - continued

(Amounts in thousands)		Three Months Ended June 30,				Six Months Ended June 30,
Income Statement:		2009		2008		2009		2008
$1.4 Billion Convertible Senior Debentures:
Coupon interest	$	9,660	$	9,975	$	19,512	$	19,950
Discount amortization – original issue		1,320		1,400		2,671		2,800
Discount amortization – FSP 14-1 implementation		6,096		5,920		12,276		11,743
	$	17,076	$	17,295	$	34,459	$	34,493

$1 Billion Convertible Senior Debentures:
Coupon interest	$	8,856	$	9,062	$	17,826	$	18,125
Discount amortization – original issue		959		1,013		1,940		2,025
Discount amortization – FSP 14-1 implementation		2,567		2,474		5,176		4,901
	$	12,382	$	12,549	$	24,942	$	25,051

$500 Million Exchangeable Senior Debentures:
Coupon interest	$	4,844	$	4,844		9,688	$	9,688
Discount amortization – original issue		415		410		774		821
Discount amortization – FSP 14-1 implementation		1,175		1,048	$	2,334		2,076
	$	6,434	$	6,302	$	12,796	$	12,585

On May 28, 2009, the FASB issued Statement No. 165, Subsequent Events (“SFAS 165”). Although SFAS 165 does not significantly change current practice surrounding the disclosure of subsequent events, it provides guidance on management’s assessment of subsequent events and the requirement to disclose the date through which subsequent events have been evaluated. SFAS 165 became effective on June 30, 2009. We have evaluated subsequent events through August 3, 2009, the date our consolidated financial statements were available to be issued, for this Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.

On June 12, 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 modifies the existing quantitative guidance used in determining the primary beneficiary of a variable interest entity (“VIE”) by requiring entities to qualitatively assess whether an enterprise is a primary beneficiary, based on whether the entity has (i) power over the significant activities of the VIE, and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. SFAS 167 becomes effective for all new and existing VIEs on January 1, 2010. We are currently evaluating the impact SFAS 167 will have on our consolidated financial statements.

On June 29, 2009 the FASB issued Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162 (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (the “Codification”) as the primary source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC are also sources of authoritative GAAP for SEC registrants. SFAS 168 and the Codification become effective on September 30, 2009. When effective, the Codification will supersede all existing non-SEC accounting and reporting standards and the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the basis for conclusions on the change(s) in the Codification. The adoption of SFAS 168 and the Codification on September 30, 2009 will not have a material effect on our consolidated financial statements.

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(UNAUDITED)

4.	Fair Value Measurements

FASB Statement No. 157, Fair Value Measurements (“SFAS 157”) defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). SFAS 157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Financial assets and liabilities measured at fair value in our consolidated financial statements consist primarily of (i) marketable securities and (ii) the assets of our deferred compensation plan (primarily marketable securities and equity investments in limited partnerships), for which there is a corresponding liability on our consolidated balance sheets. Financial assets and liabilities measured at fair value as of June 30, 2009 are presented in the table below based on their level in the fair value hierarchy.

				Fair Value Hierarchy
(Amounts in thousands)		Total		Level 1	Level 2		Level 3
Marketable equity securities	$	107,938	$	107,938	$	—	$	—
Deferred compensation plan assets		70,391		34,223		—		36,168
Total assets	$	178,329	$	142,161	$	—	$	36,168

Mandatorily redeemable instruments (included in other liabilities)	$	57,038	$	57,038	$	—	$	—
Deferred compensation plan liabilities		70,391		34,223		—		36,168
Total liabilities	$	127,429	$	91,261	$	—	$	36,168

The fair value of Level 3 “deferred compensation plan assets” represents equity investments in certain limited partnerships, for which there is a corresponding Level 3 liability to the plan’s participants. The following is a summary of changes in Level 3 deferred compensation plan assets and liabilities, for the three months ended June 30, 2009.

(Amounts in thousands)		Beginning Balance		Total Realized/ Unrealized Gains	Purchases, Sales, Other Settlements and Issuances, net		Ending Balance
For the three months ended June 30, 2009	$	32,426	$	2,806	$	936	$	36,168

For the six months ended June 30, 2009	$	34,176	$	1,310	$	682	$	36,168

We have estimated the fair value of all financial instruments reflected in the accompanying consolidated balance sheets at amounts which are based upon an interpretation of available market information and valuation methodologies (including discounted cash flow analyses with respect to our mezzanine loans and debt). Below is a table that sets forth the carrying amounts and fair values of our financial instruments as of June 30, 2009 and December 31, 2008. These fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition of our financial instruments.

	As of June 30, 2009				As of December 31, 2008
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Mezzanine loans receivable	$	291,270	$	252,537	$	472,539	$	417,087
Debt:
Notes and mortgages payable	$	8,833,435	$	8,117,832	$	8,835,387	$	8,231,621
Convertible senior debentures		2,059,397		1,925,934		2,221,743		1,874,058
Senior unsecured notes		363,358		359,268		617,816		578,238
Exchangeable senior debentures		481,314		478,733		478,256		428,895
Revolving credit facility		648,250		648,250		358,468		358,468
	$	12,385,754	$	11,530,017	$	12,511,670	$	11,471,280

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(UNAUDITED)

5.	Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

As of June 30, 2009, we own 32.7% of Toys. We account for our investment in Toys under the equity method and record our 32.7% share of Toys income or loss on a one-quarter lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. As of June 30, 2009, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of the parent company.

Below is a summary of Toys’ latest available financial information on a “purchase accounting” basis.

(Amounts in millions)
Balance Sheet:	As of May 2, 2009		As of November 1, 2008
Total assets	$	11,469	$	12,410
Total liabilities	$	10,166	$	11,393
Toys stockholders’ equity	$	1,197	$	929

	For the Three Months Ended						For the Six Months Ended
Income Statement:	May 2, 2009			May 3, 2008			May 2, 2009		May 3, 2008
Total revenues	$	2,477		$	2,719		$	7,938	$	8,546
Net (loss) income attributable to Toys	$	(50	)	$	(95	)	$	242	$	144

Alexander’s (NYSE: ALX)

As of June 30, 2009, we own 32.4% of the outstanding common stock of Alexander’s. We manage, lease and develop Alexander’s properties pursuant to agreements, which expire in March of each year and are automatically renewable. As of June 30, 2009 and December 31, 2008, Alexander’s owed us $57,516,000 and $44,086,000, respectively, in fees under these agreements.

Based on Alexander’s June 30, 2009 closing share price of $269.60, the market value (“fair value” pursuant to SFAS 157) of our investment in Alexander’s is $445,937,000, or $277,077,000 in excess of the carrying amount on our consolidated balance sheet.

As of June 30, 2009, the carrying amount of our investment in Alexander’s exceeds our share of the equity in the net assets of Alexander’s by approximately $35,314,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to their real estate (land and building). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income or loss. The basis difference related to the land will be recognized upon disposition of our investment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

5.	Investments in Partially Owned Entities - continued

Lexington Realty Trust (“Lexington”) (NYSE: LXP)

As of June 30, 2009, we own 17,058,005 Lexington common shares, or approximately 16.1% of Lexington common equity. Pursuant to the guidance in APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, we account for our investment in Lexington under the equity method because we believe we have the ability to exercise significant influence over Lexington’s operating and financial policies, based on, among other factors, our representation on Lexington’s Board of Trustees and the level of our ownership in Lexington as compared to that of other shareholders. We record our pro rata share of Lexington’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements.

As of June 30, 2009, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $89,026,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges we recognized in 2008 based on our conclusion that the decline in the value of Lexington’s common shares was “other-than-temporary.” The remainder of the basis difference related to purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington’s real estate (land and building) as compared to their carrying amounts in Lexington’s consolidated financial statements. We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Lexington’s net income or loss. The basis difference attributable to the land will be recognized upon disposition of our investment.

Based on Lexington’s June 30, 2009 closing share price of $3.40, the market value (“fair value” pursuant to SFAS 157) of our investment in Lexington was $57,997,000, or $10,253,000 below the carrying amount on our consolidated balance sheet. We have concluded that, as of June 30, 2009, the decline in the value of our investment in Lexington is not “other-than-temporary.”

The following is a summary of Lexington’s financial information as of March 31, 2009 and September 30, 2008 and for the three and six months ended March 31, 2009 and 2008.

(Amounts in millions)	As of		As of
Balance Sheet:	March 31, 2009		September 30, 2008
Total assets	$	3,961	$	4,294
Total liabilities	$	2,534	$	2,745
Lexington shareholders’ equity	$	1,334	$	924

	For the Three Months Ended March 31,					For the Six Months Ended March 31,
Income Statement:	2009			2008		2009			2008
Total revenues	$	101		$	105	$	206		$	224
(Loss) income from continuing operations	$	(67	)	$	13	$	(71	)	$	15
Net (loss) income attributable to Lexington	$	(65	)	$	6	$	(83	)	$	37

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(UNAUDITED)

5.	Investments in Partially Owned Entities - continued

The carrying amount of our investments in partially owned entities and income (loss) recognized from such investments are as follows:

Investments: (Amounts in thousands)	Balance as of
	June 30, 2009		December 31, 2008
Toys	$	374,534	$	293,096
Alexander’s	$	168,860	$	137,305
Partially owned office buildings		159,348		157,468
India Real Estate Ventures		84,052		88,858
Lexington		68,250		80,748
Other equity method investments		309,842		325,775
	$	790,352	$	790,154

Our Share of Net (Loss) Income: (Amounts in thousands)	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Toys:	2009			2008			2009			2008
32.7% share of equity in net (loss) income	$	(16,220	)	$	(17,798	)	$	79,074		$	60,557
Non-cash purchase price accounting adjustments		13,946			(14,900	)		13,946			(14,900	)
Interest and other income		1,947			1,987			3,800			3,994
	$	(327	)	$	(30,711	)	$	96,820		$	49,651
Alexander’s:
32.4% share in 2009 and 32.6% share in 2008:
Equity in net income before reversal of stock appreciation rights compensation expense	$	3,767		$	5,331		$	7,622		$	10,458
Reversal of stock appreciation rights compensation expense		—	⁽¹⁾		7,157			11,105			6,952
Equity in net income		3,767			12,488			18,727			17,410
Management and leasing fees		2,199			1,979			4,092			4,106
Development fees		648			884			1,928			1,764
	$	6,614		$	15,351		$	24,747		$	23,280

Lexington – 16.1% share in 2009 and 7.7% share in 2008 of equity in net (loss) income	$	(6,876	)⁽²⁾	$	60		$	(9,915	)⁽²⁾	$	1,887

India Real Estate Ventures – 4% to 36.5% share of equity in net loss		(784	)		(614	)		(921	)		(1,028	)

Other ⁽³⁾		(15,137	)⁽⁴⁾		4,839			(19,504	)⁽⁴⁾		(26,927	)⁽⁵⁾
	$	(22,797	)	$	4,285		$	(30,340	)	$	(26,068	)

_________________________

(1)

During the first quarter of 2009, all of the remaining stock appreciation rights were exercised.

(2)

Includes $4,580 for our share of impairment losses recorded by Lexington.

(3)

Includes our equity in net earnings of partially owned entities including partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Dune Capital LP, Verde Realty MLP and others.

(4)

Includes $7,650 of expense for our share of the Filene’s, Boston lease termination payment.

(5)

Includes $34,200 of non-cash charges for the write-off of our share of certain partially owned entities’ development costs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

5.	Investments in Partially Owned Entities - continued

Below is a summary of the debt of partially owned entities as of June 30, 2009 and December 31, 2008, none of which is guaranteed by us.

	100% of Partially Owned Entities’ Debt at
(Amounts in thousands)	June 30, 2009		December 31, 2008
Toys (32.7% interest) (as of May 2, 2009 and November 1, 2008, respectively):
$1.3 billion senior credit facility, due 2010, (6.14% at June 30, 2009) ⁽¹⁾	$	1,283,000	$	1,300,000
$2.0 billion credit facility, due 2012, LIBOR plus 1.00% – 4.25% ($102,000 reserved for outstanding letters of credit) ⁽²⁾		—		367,000
Mortgage loan, due 2010, LIBOR plus 1.30% (1.62% at June 30, 2009)		800,000		800,000
$804 million secured term loan facility, due 2012, LIBOR plus 4.25% (4.57% at June 30, 2009)		798,000		797,000
Senior U.K. real estate facility, due 2013, with interest at 5.02%		526,000		568,000
7.625% bonds, due 2011 (Face value – $500,000)		488,000		486,000
7.875% senior notes, due 2013 (Face value – $400,000)		379,000		377,000
7.375% senior notes, due 2018 (Face value – $400,000)		337,000		335,000
4.51% Spanish real estate facility, due 2013		173,000		167,000
$181 million unsecured term loan facility, due 2013, LIBOR plus 5.00% (5.32% at June 30, 2009)		180,000		180,000
Japan bank loans, due 2011 – 2014, 1.20% – 2.80%		152,000		158,000
Japan borrowings, due 2010 – 2011 (weighted average rate of 0.97% at June 30, 2009)		227,000		289,000
6.84% Junior U.K. real estate facility, due 2013		93,000		101,000
4.51% French real estate facility, due 2013		84,000		81,000
8.750% debentures, due 2021 (Face value – $22,000)		21,000		21,000
Other		119,000		73,000
		5,660,000		6,100,000
Alexander’s (32.4% interest):
731 Lexington Avenue mortgage note payable collateralized by the office space, due in February 2014, with interest at 5.33% (prepayable without penalty after December 2013)		368,357		373,637
731 Lexington Avenue mortgage note payable, collateralized by the retail space, due in July 2015, with interest at 4.93% (prepayable without penalty after December 2013)		320,000		320,000
Rego Park construction loan payable, due in December 2010, LIBOR plus 1.20% (1.52% at June 30, 2009)		217,054		181,695
Kings Plaza Regional Shopping Center mortgage note payable, due in June 2011, with interest at 7.46% (prepayable without penalty after December 2013)		197,422		199,537
Rego Park mortgage note payable, due in March 2012 (prepayable without penalty) ⁽³⁾		78,246		78,386
Paramus mortgage note payable, due in October 2011, with interest at 5.92% (prepayable without penalty)		68,000		68,000
		1,249,079		1,221,255
Lexington (16.1% interest) (as of March 31, 2009 and September 30, 2008, respectively) Mortgage loans collateralized by the trust’s real estate, due from 2009 to 2037, with a weighted average interest rate of 5.90% at March 31, 2009 (various prepayment terms)		2,330,791		2,486,370

_____________________________

(1) On July 9, 2009, Toys issued $950 million aggregate principal amount of 10.75% Senior Unsecured Notes due 2017 at 97.399%. The proceeds from the issuance, along with existing cash, were used to repay the outstanding balance under its senior credit facility, which was subsequently terminated.

(2) On June 24, 2009, Toys extended this credit facility, which was to expire in July 2010, to May 2012. The borrowing capacity under the amended facility will remain at $2.0 billion through the original maturity date in July 2010 and will continue at $1.5 billion thereafter. The interest rate will be LIBOR plus 3.20%, which may vary based on availability, through July 2010 and LIBOR plus 4.00%, subject to usage, thereafter.

(3) On March 10, 2009, the $78,246 outstanding balance of the Rego Park I mortgage loan, which was scheduled to mature in June 2009, was repaid and simultaneously refinanced in the same amount. The new loan bears interest at 75 basis points, is secured by the property and is 100% cash collateralized. The proceeds of the new loan were placed in a non-interest bearing restricted mortgage escrow account.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

5.	Investments in Partially Owned Entities - continued

(Amounts in thousands)	100% of Partially Owned Entities’ Debt at
Partially owned office buildings:	June 30, 2009		December 31, 2008
Kaempfer Properties (2.5% and 5.0% interests in two partnerships) mortgage notes payable, collateralized by the partnerships’ real estate, due 2011, with a weighted average interest rate of 5.63% at June 30, 2009 (various prepayment terms)	$	142,254	$	143,000
100 Van Ness, San Francisco office complex (9% interest) up to $132 million construction loan payable, due in July 2013, LIBOR plus 2.75% (3.06% at June 30, 2009) with an interest rate floor of 6.50% and interest rate cap of 7.00%		85,249		85,249
330 Madison Avenue (25% interest) up to $150,000 mortgage note payable, due in June 2015, LIBOR plus 1.50% (1.82% at June 30, 2009)		70,000		70,000
Fairfax Square (20% interest) mortgage note payable, due in November 2009, with interest at 7.50%		62,165		62,815
Rosslyn Plaza (46% interest) mortgage note payable, due in December 2011, LIBOR plus 1.0% (1.32% at June 30, 2009)		56,680		56,680
West 57^th Street (50% interest) mortgage note payable, due in October 2009, with interest at 4.94% (prepayable without penalty after July 2009)		29,000		29,000
825 Seventh Avenue (50% interest) mortgage note payable, due in October 2014, with interest at 8.07% (prepayable without penalty after April 2014)		20,958		21,426
India Real Estate Ventures:
TCG Urban Infrastructure Holdings (25% interest) mortgage notes payable, collateralized by the entity’s real estate, due from 2009 to 2022, with a weighted average interest rate of 14.38% at June 30, 2009 (various prepayment terms)		163,355		148,792
India Property Fund L.P. (36.5% interest) $120 million secured revolving credit facility, due in December 2009, LIBOR plus 2.75% (3.07% at June 30, 2009)		93,000		90,500
Waterfront Associates, LLC (2.5% interest) construction and land loan up to $250 million payable, due in September 2011 with a six month extension option, LIBOR plus 2.00% - 3.00% (3.51% at June 30, 2009)		130,720		57,600
Verde Realty Master Limited Partnership (8.5% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2009 to 2025, with a weighted average interest rate of 5.93% at June 30, 2009 (various prepayment terms)		588,092		559,840
Green Courte Real Estate Partners, LLC (8.3% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2009 to 2017, with a weighted average interest rate of 5.11% at June 30, 2009 (various prepayment terms)		299,945		307,098
Monmouth Mall (50% interest) mortgage note payable, due in September 2015, with interest at 5.44% (prepayable without penalty after July 2015)		165,000		165,000
San Jose, California Ground-up Development (45% interest) construction loan, due in March 2010, $100 million fixed at 3.30%, balance at LIBOR plus 2.54% (2.92% at June 30, 2009)		132,570		132,128
Wells/Kinzie Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%		14,732		14,800
Orleans Hubbard Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%		10,153		10,200
Other		438,277		468,559

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $3,068,868,000 and $3,196,585,000 as of June 30, 2009 and December 31, 2008, respectively.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

6.	Mezzanine Loans Receivable

The following is a summary of our investments in mezzanine loans as of June 30, 2009 and December 31, 2008.

(Amounts in thousands)		Interest Rate as of	Carrying Amount as of
Mezzanine Loans Receivable:	Maturity	June 30, 2009	June 30, 2009			December 31, 2008
Equinox	02/13	14.00%	$	92,003		$	85,796
Tharaldson Lodging Companies	04/10 ⁽¹⁾	4.62%		76,253			76,341
Riley HoldCo Corp	02/15	10.00%		74,437			74,381
280 Park Avenue	06/16	10.25%		73,750			73,750
Charles Square Hotel, Cambridge	(2)	(2)		—			41,796
Other, net	01/14-12/18	4.75%-12.00%		97,565			120,475
				414,008			472,539
Valuation allowance (3)				(122,738	)		—
			$	291,270		$	472,539

__________________

(1)

The borrower has a one-year extension option.

(2)

On June 1, 2009, this loan, which was scheduled to mature in September 2009, was repaid.

(3)

Represents loan loss accruals on mezzanine loans based on our estimate of the net realizable value of each loan. Our estimates are based on the present value of expected cash flows, discounted at each loan’s effective interest rate, or if a loan is collateralized, based on the fair value of the underlying collateral, adjusted for estimated costs to sell. The excess of the carrying amount over the net realizable value of a loan is recognized as a reduction of “interest and other investment (loss) income, net” in our consolidated statement of income.

7.	Discontinued Operations

In accordance with the provisions of FASB Statement No. 144, Accounting for the Impairment and Disposal of Long- Lived Assets, we have classified the revenues and expenses of properties and businesses sold or to be sold to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all periods presented in the accompanying consolidated financial statements.

The following table sets forth the assets and liabilities related to discontinued operations at June 30, 2009 and December 31, 2008.

(Amounts in thousands)	Assets related to Discontinued Operations as of				Liabilities related to Discontinued Operations as of
	June 30, 2009		December 31, 2008		June 30, 2009		December 31, 2008
H Street – land under sales contract	$	108,292	$	108,292	$	—	$	—

The following table sets forth the combined results of operations related to discontinued operations for the three and six months ended June 30, 2009 and 2008.

(Amounts in thousands)	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2009		2008		2009		2008
Revenues	$	—	$	2,940	$	—	$	222,361
Expenses		—		1,432		—		222,042
Net income		—		1,508		—		319
Net gain on sale of our 47.6% interest in Americold Realty Trust		—		—		—		112,690
Net gain on sale of Tysons Dulles Plaza		—		56,831		—		56,831
Net gain on sale of other real estate		—		—		—		580
Income from discontinued operations	$	—	$	58,339	$	—	$	170,420

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8.	Identified Intangible Assets and Intangible Liabilities

The following summarizes our identified intangible assets (primarily acquired above-market leases) and intangible liabilities (primarily acquired below-market leases) as of June 30, 2009 and December 31, 2008.

	Balance as of
(Amounts in thousands)	June 30, 2009			December 31, 2008

Identified intangible assets (included in other assets):
Gross amount	$	770,633		$	784,192
Accumulated amortization		(286,754	)		(258,242	)
Net	$	483,879		$	525,950
Identified intangible liabilities (included in deferred credit):
Gross amount	$	964,621		$	998,179
Accumulated amortization		(291,072	)		(278,357	)
Net	$	673,549		$	719,822

Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of $19,560,000 and $25,858,000 for the three months ended June 30, 2009 and 2008, respectively, and $37,542,000 and $49,129,000 for the six months ended June 30, 2009 and 2008, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases for each of the five succeeding years, commencing January 1, 2010 is as follows:

(Amounts in thousands)
2010	$	62,324
2011		59,163
2012		55,022
2013		47,081
2014		41,252

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $17,778,000 and $19,404,000 for the three months ended June 30, 2009 and 2008, respectively, and $33,564,000 and $44,358,000 for the six months ended June 30, 2009 and 2008, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years, commencing January 1, 2010 is as follows:

(Amounts in thousands)
2010	$	55,923
2011		53,273
2012		48,928
2013		41,746
2014		23,660

We are a tenant under ground leases for certain of our properties. Amortization of these acquired below-market leases resulted in an increase to rent expense of $533,000 and $1,066,000 in each of the three-month and six-month periods ended June 30, 2009 and 2008, respectively. Estimated annual amortization of these below market leases for each of the five succeeding years, commencing January 1, 2010 is as follows:

(Amounts in thousands)
2010	$	2,133
2011		2,133
2012		2,133
2013		2,133
2014		2,133

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Debt

The following is a summary of our debt:

(Amounts in thousands)			Balance at
Notes and Mortgages Payable:	Maturity (1)	Interest Rate at June 30, 2009	June 30, 2009		December 31, 2008
Fixed Rate:
New York Office:
1290 Avenue of the Americas	01/13	5.97%	$	439,678	$	444,667
350 Park Avenue	01/12	5.48%		430,000		430,000
770 Broadway	03/16	5.65%		353,000		353,000
888 Seventh Avenue	01/16	5.71%		318,554		318,554
Two Penn Plaza	02/11	4.97%		284,950		287,386
909 Third Avenue