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:

September 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 September 30, 2009, 179,523,984 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 September 30, 2009 and December 31, 2008	3

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

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

		Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 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	72

	Item 4.	Controls and Procedures	73



PART II.		Other Information:

	Item 1.	Legal Proceedings	74

	Item 1A.	Risk Factors	75

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75

	Item 3.	Defaults Upon Senior Securities	75

	Item 4.	Submission of Matters to a Vote of Security Holders	75

	Item 5.	Other Information	75

	Item 6.	Exhibits	75

Signatures			76

Exhibit Index			77

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	September 30, 2009			December 31, 2008
Real estate, at cost:
Land	$	4,551,044		$	4,491,165
Buildings and improvements		12,567,415			12,134,943
Development costs and construction in progress		841,051			966,676
Leasehold improvements and equipment		125,931			118,603
Total		18,085,441			17,711,387
Less accumulated depreciation and amortization		(2,413,803	)		(2,167,403	)
Real estate, net		15,671,638			15,543,984
Cash and cash equivalents		2,560,011			1,526,853
Restricted cash		287,575			375,888
Marketable securities		313,218			334,322
Accounts receivable, net of allowance for doubtful accounts of $48,559 and $32,834		161,097			201,566
Investments in partially owned entities, including Alexander’s of $187,272 and $137,305		812,424			790,154
Investment in Toys “R” Us		422,165			293,096
Mezzanine loans receivable, net of a $122,738 allowance in 2009		269,976			472,539
Receivables arising from the straight-lining of rents, net of allowance of $4,139 and $5,773		661,074			592,432
Deferred leasing and financing costs, net of accumulated amortization of $187,937 and $168,714		301,339			304,125
Assets related to discontinued operations		108,151			281,110
Due from officers		13,148			13,185
Other assets		768,557			688,794
	$	22,350,373		$	21,418,048
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Notes and mortgages payable	$	8,895,328		$	8,761,640
Convertible senior debentures		1,989,955			2,221,743
Senior unsecured notes		711,604			617,816
Exchangeable senior debentures		482,875			478,256
Revolving credit facility debt		648,250			358,468
Accounts payable and accrued expenses		548,407			515,607
Deferred credit		701,637			764,774
Deferred compensation plan		76,777			69,945
Deferred tax liabilities		17,858			19,895
Liabilities related to discontinued operations		—			73,747
Other liabilities		97,009			143,527
Total liabilities		14,169,700			14,025,418
Commitments and contingencies
Redeemable noncontrolling interests:
Class A units – 14,245,103 and 14,627,005 units outstanding		917,527			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		1,212,765			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 179,523,984 and 155,285,903 shares		7,151			6,195
Additional capital		6,993,131			6,025,976
Earnings less than distributions		(1,278,727	)		(1,047,340	)
Accumulated other comprehensive income (loss)		16,489			(6,899	)
Total Vornado shareholders’ equity		6,561,762			5,801,739
Noncontrolling interests in consolidated subsidiaries		406,146			412,913
Total equity		6,967,908			6,214,652
	$	22,350,373		$	21,418,048

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
(Amounts in thousands, except per share amounts)	2009			2008			2009			2008
REVENUES:
Property rentals	$	550,054		$	547,498		$	1,654,357		$	1,637,831
Tenant expense reimbursements		89,530			97,815			270,934			269,646
Fee and other income		31,635			30,755			98,284			90,056
Total revenues		671,219			676,068			2,023,575			1,997,533
EXPENSES:
Operating		265,952			276,115			814,561			793,391
Depreciation and amortization		130,503			136,550			398,845			397,807
General and administrative		51,684			49,494			180,381			149,164
Impairment losses on development projects and costs of acquisitions not consummated		—			5,000			—			8,009
Total expenses		448,139			467,159			1,393,787			1,348,371
Operating income		223,080			208,909			629,788			649,162
Income (loss) applicable to Alexander’s		21,297			(6,876	)		46,044			16,404
Income (loss) applicable to Toys “R” Us		22,077			(8,141	)		118,897			41,510
Loss from partially owned entities		(18,784	)		(3,099	)		(49,124	)		(29,167	)
Interest and other investment (loss) income, net		20,486			9,638			(63,608	)		47,535
Interest and debt expense (including amortization of deferred financing costs of $4,350 and $4,257 in each three-month period, respectively, and $12,722 and $13,181 in each nine-month period, respectively)		(158,205	)		(157,646	)		(475,028	)		(474,862	)
Net gains on early extinguishment of debt		3,407			—			26,996			—
Net gains on disposition of wholly owned and partially owned assets other than depreciable real estate		4,432			5,160			4,432			8,546
Income before income taxes		117,790			47,945			238,397			259,128
Income tax (expense) benefit		(5,267	)		(5,244	)		(15,773	)		207,170
Income from continuing operations		112,523			42,701			222,624			466,298
Income from discontinued operations		43,321			846			49,276			172,814
Net income		155,844			43,547			271,900			639,112
Net income attributable to noncontrolling interests, including unit distributions		(15,227	)		(6,540	)		(28,808	)		(67,135	)
Net income attributable to Vornado		140,617			37,007			243,092			571,977
Preferred share dividends		(14,269	)		(14,271	)		(42,807	)		(42,820	)
NET INCOME attributable to common shareholders	$	126,348		$	22,736		$	200,285		$	529,157

INCOME PER COMMON SHARE – BASIC:
Income from continuing operations, net	$	0.48		$	0.14		$	0.90		$	2.34
Income from discontinued operations, net		0.22			—			0.27			0.98
Net income per common share	$	0.70		$	0.14		$	1.17		$	3.32

INCOME PER COMMON SHARE – DILUTED:
Income from continuing operations, net	$	0.47		$	0.14		$	0.89		$	2.27
Income from discontinued operations, net		0.22			—			0.27			0.95
Net income per common share	$	0.69		$	0.14		$	1.16		$	3.22


DIVIDENDS PER COMMON SHARE	$	0.65		$	0.90		$	2.55		$	2.70

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)		—			—			—			571,977			—			(2,767	)		569,210
Dividends paid on common shares		—			—			—			(415,169	)		—			—			(415,169	)
Dividends paid on preferred shares		—			—			—			(42,819	)		—			—			(42,819	)
Conversion of Series A preferred shares to common shares		(1,312	)		2			1,310			—			—			—			—
Deferred compensation shares and options		—			43			8,452			—			—			—			8,495
Common shares issued:
Under employee share option plan		—			22			20,256			—			—			—			20,278
Upon redemption of redeemable Class A Operating Partnership units, at redemption value		—			27			61,774			—			—			—			61,801
In connection with dividend reinvestment plan		—			—			1,755			—			—			—			1,755
Sale of securities available for sale		—			—			—			—			6,128			—			6,128
Change in unrealized net loss on securities available for sale		—			—			—			—			(22,057	)		—			(22,057	)
Adjustments to redeemable Class A Operating Partnership units		—			—			(26,393	)		—			—			—			(26,393	)
Other		—			—			(46	)		—			(22,518	)		(1,856	)		(24,420	)
Balance, September 30, 2008	$	823,783		$	6,234		$	5,558,220		$	(643,188	)	$	(8,675	)	$	411,675		$	6,148,049


Balance, December 31, 2008	$	823,807		$	6,195		$	6,025,976		$	(1,047,340	)	$	(6,899	)	$	412,913		$	6,214,652
Net income (loss)		—			—			—			243,092			—			(3,442	)		239,650
Dividends paid on common shares		—			230			236,920			(431,237	)		—			—			(194,087	)
Dividends paid on preferred shares		—			—			—			(42,809	)		—			—			(42,809	)
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			11,527			—			—			—			11,529
Common shares issued:
Under employee share option plan		—			(14	)		1,219			(440	)		—			—			765
Upon redemption of redeemable Class A Operating Partnership units, at redemption value		—			48			53,043			—			—			—			53,091
Change in unrealized net loss on securities available for sale		—			—			—			—			4,099			—			4,099
Our share of partially owned entities’ OCI adjustments		—			—			—			—			11,846			—			11,846
Voluntary surrender of equity awards on March 31, 2009		—			—			32,588			—			—			—			32,588
Adjustments to redeemable Class A Operating Partnership units		—			—			(77,004	)		—			—			—			(77,004	)
Other		—			—			(763	)		7			7,443			(3,325	)		3,362
Balance, September 30, 2009	$	823,718		$	7,151		$	6,993,131		$	(1,278,727	)	$	16,489		$	406,146		$	6,967,908

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For The Nine Months Ended September 30,
(Amounts in thousands)	2009			2008
Cash flows from operating activities:
Net income	$	271,900		$	639,112
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of debt issuance costs)		413,697			437,567
Mezzanine loans loss accrual		122,738			—
Equity in income of partially owned entities, including Alexander’s and Toys		(115,817	)		(70,490	)
Straight-lining of rental income		(75,702	)		(63,184	)
Amortization of below market leases, net		(56,270	)		(73,655	)
Write-off of unamortized costs from the voluntary surrender of equity awards		32,588			—
Net gains on early extinguishment of debt		(26,996	)		—
Distributions of income from partially owned entities		21,484			12,021
Reversal of H Street deferred tax liability		—			(222,174	)
Net gain on sale of Americold Realty Trust		—			(112,690	)
Write-off of real estate joint ventures’ development costs		—			34,200
Net loss on derivative positions		—			25,812
Impairment losses – marketable securities		—			20,881
Net gains on sale of real estate		(42,655	)		(57,523	)
Net gains on dispositions of wholly owned and partially owned assets other than depreciable real estate		(4,432	)		(8,546	)
Impairment losses on development projects and costs of acquisitions not consummated		—			8,009
Amortization of discount on convertible and exchangeable senior debentures		29,106			28,328
Other non-cash adjustments		119			32,812
Changes in operating assets and liabilities:
Accounts receivable, net		11,611			(8,825	)
Prepaid assets		(119,608	)		(46,823	)
Other assets		(43,004	)		(26,706	)
Accounts payable and accrued expenses		70,511			88,973
Other liabilities		217			10,510
Net cash provided by operating activities		489,487			647,609
Cash flows from investing activities:
Development costs and construction in progress		(384,655)			(413,947	)
Additions to real estate		(145,981	)		(158,434	)
Restricted cash		81,195			(22,674	)
Investments in partially owned entities		(28,738	)		(115,250	)
Proceeds from sales of real estate and related investments		291,652			352,511
Proceeds received from repayment of notes and mortgage loans receivable		46,339			52,032
Distributions of capital from partially owned entities		13,112			182,090
Acquisitions of real estate and other		—			(36,566	)
Deposits in connection with real estate acquisitions		1,000			(10,616	)
Proceeds from sales of, and return of investment in, marketable securities		59,873			47,723
Investments in notes and mortgage loans receivable		—			(7,397	)
Purchases of marketable securities		(11,597	)		(8,035	)
Net cash used in investing activities		(77,800	)		(138,563	)

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

(Amounts in thousands)	For The Nine Months Ended September 30,
(Amounts in thousands)	2009			2008
Cash flows from financing activities:
Proceeds from issuance of common shares		710,226			—
Proceeds from borrowings		1,208,204			1,424,458
Repayments of borrowings		(996,218	)		(1,043,734	)
Dividends paid on common shares		(194,087	)		(415,169	)
Distributions to noncontrolling interests		(30,291	)		(65,925	)
Dividends paid on preferred shares		(42,809	)		(42,841	)
Debt issuance costs		(9,246	)		(13,399	)
Exercise of share options and other		22			21,981
Purchase of outstanding Series G Preferred Units		(24,330	)		—
Net cash provided by (used in) financing activities		621,471			(134,629	)
Net increase in cash and cash equivalents		1,033,158			374,417
Cash and cash equivalents at beginning of period		1,526,853			1,154,595
Cash and cash equivalents at end of period	$	2,560,011		$	1,529,012

Supplemental disclosure of cash flow information:
Cash payments for interest (including capitalized interest of $14,054 and $49,241)	$	461,802		$	463,458
Cash payments for income taxes	$	6,880		$	6,153

Non-cash transactions:
Adjustments to redeemable Class A Operating Partnership units	$	(77,004	)	$	(26,393	)
Conversion of redeemable Class A Operating Partnership units to common shares, at redemption value		53,091			61,801
Dividends paid in common shares		237,150			—
Unit distributions paid in redeemable Class A Operating Partnership units		20,072			—
Unrealized net (gain) loss on securities available for sale		(4,099	)		22,057

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 92.1% of the common limited partnership interest in the Operating Partnership at September 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 and 10-K/A for the year ended December 31, 2008, as filed with the SEC. The results of operations for the three and nine months ended September 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, as defined by GAAP, or (ii) when we are a general partner and meet certain criteria under GAAP. 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.

Effective July 1, 2009, the Financial Accounting Standards Board (“FASB”) established the Accounting Standards Codification (“ASC”) as the primary source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.

On January 1, 2009, we adopted the guidance in ASC 470-20, Debt with Conversion and Other Options. The guidance contained in ASC 470-20 was required to be applied retrospectively. Accordingly, net income for the three and nine months ended September 30, 2008 has been adjusted to include $8,700,000 and $25,600,000, respectively, of additional interest expense, net of amounts attributable to noncontrolling interests. In addition, in accordance with ASC 260, Earnings Per Share, we have included 5,736,000 additional common shares in the computation of income per share retroactively to the three and nine months ended September 30, 2008, as a result of the stock portion of our common dividends during 2009. Furthermore, certain prior year balances have been reclassified in order to conform to current year presentation as a result of an update to ASC 810, Consolidation.

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 an update to ASC 805, Business Combinations. The amended guidance contained in ASC 805 applies 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. The amended guidance also expands required disclosures to improve the ability to evaluate the nature and financial effects of business combinations. The amended guidance became effective for all transactions entered into on or after January 1, 2009. The adoption of this guidance 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 an update to ASC 810, Consolidation. The amended guidance contained in ASC 810 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. It 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. The amended guidance became effective on January 1, 2009 and 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 an update to ASC 815, Derivatives and Hedging. The amended guidance contained in ASC 815 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 and the impact of derivative instruments and related hedged items on an entity’s financial position, financial performance and cash flows. It also provided 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. The amended guidance became effective on January 1, 2009. The adoption of this guidance on January 1, 2009 did not have a material effect on our consolidated financial statements.

In June 2008, the FASB issued an update to ASC 260, Earnings Per Share. The amended guidance contained in ASC 260 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 ASC 260. The amended guidance became effective on January 1, 2009 and required all prior period earnings per share data presented, to be adjusted retroactively. The adoption of this guidance on January 1, 2009 did not have a material effect on our computation of income per share.

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(UNAUDITED)

3.	Recently Issued Accounting Literature - continued

On January 1, 2009, we adopted the provisions of ASC 470-20, which was required to be applied retrospectively. The adoption 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 $216,655,000 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 changes in 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 nine months ended September 30, 2008 has been adjusted to include $9,600,000 and $28,300,000 of amortization in the aggregate, or $8,700,000 and $25,600,000, net of amounts attributable to noncontrolling interests. Amortization for periods prior to December 31, 2007 (not presented herein) aggregating $35,552,000 has 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 the provisions of ASC 470-20 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:		September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
Principal amount of debt component	$	1,204,359	$	1,382,700	$	888,219	$	989,800	$	499,982	$	499,982
Unamortized discount		(72,664	)	(106,415	)	(29,959	)	(44,342	)	(17,107	)	(21,726	)
Carrying amount of debt component	$	1,131,695	$	1,276,285	$	858,260	$	945,458	$	482,875	$	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)

Pursuant to the provisions of ASC 470-20, 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 that upon conversion, the entire principal amount is 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 September 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 7,662 and 5,983 common shares, respectively.

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3.	Recently Issued Accounting Literature - continued

(Amounts in thousands)		Three Months Ended September 30,				Nine Months Ended September 30,
Income Statement:		2009		2008		2009		2008
$1.4 Billion Convertible Senior Debentures:
Coupon interest	$	8,693	$	9,975	$	28,204	$	29,925
Discount amortization – original issue		1,203		1,307		3,836		3,869
Discount amortization – ASC 470-20 implementation		5,631		6,121		17,958		18,116
	$	15,527	$	17,403	$	49,998	$	51,910

$1 Billion Convertible Senior Debentures:
Coupon interest	$	8,102	$	9,063	$	25,929	$	27,188
Discount amortization – original issue		908		962		2,846		2,848
Discount amortization – ASC 470-20 implementation		2,430		2,574		7,616		7,621
	$	11,440	$	12,599	$	36,391	$	37,657

$500 Million Exchangeable Senior Debentures:
Coupon interest	$	4,844	$	4,844	$	14,585	$	14,531
Discount amortization – original issue		369		350		1,091		1,035
Discount amortization – ASC 470-20 implementation		1,193		1,131		3,532		3,350
	$	6,406	$	6,325	$	19,208	$	18,916

On May 28, 2009, the FASB issued ASC 855, Subsequent Events. Although ASC 855 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. ASC 855 became effective on June 30, 2009. We have evaluated subsequent events through November 2, 2009, the date our consolidated financial statements were available to be issued for this Quarterly Report on Form 10-Q for the quarter ended September 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.

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(UNAUDITED)

4.	Fair Value Measurements

ASC 820, Fair Value Measurement and Disclosures 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). ASC 820 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 equity securities and (ii) the assets of our deferred compensation plan (primarily marketable equity 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 September 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	$	85,717	$	85,717	$	—	$	—
Deferred compensation plan assets		76,777		39,554		—		37,223
Total assets	$	162,494	$	125,271	$	—	$	37,223

Mandatorily redeemable instruments (included in other liabilities)	$	59,762	$	59,762	$	—	$	—

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 and nine months ended September 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 September 30, 2009	$	36,168	$	688	$	367	$	37,223

For the nine months ended September 30, 2009	$	34,176	$	1,998	$	1,049	$	37,223

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 September 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 September 30, 2009				As of December 31, 2008
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Mezzanine loans receivable	$	269,976	$	231,763	$	472,539	$	417,087
Debt:
Notes and mortgages payable	$	8,895,328	$	8,254,482	$	8,761,640	$	8,161,922
Convertible senior debentures		1,989,955		2,096,126		2,221,743		1,874,058
Senior unsecured notes		711,604		729,222		617,816		578,238
Exchangeable senior debentures		482,875		523,106		478,256		428,895
Revolving credit facility		648,250		648,250		358,468		358,468
	$	12,728,012	$	12,251,186	$	12,437,923	$	11,401,581

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(UNAUDITED)

5.	Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

As of September 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 September 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 August 1, 2009		As of November 1, 2008
Total assets	$	11,449	$	12,410
Total liabilities	$	9,999	$	11,393
Toys stockholders’ equity	$	1,341	$	929

	For the Three Months Ended					For the Nine Months Ended
Income Statement:	August 1, 2009		August 2, 2008			August 1, 2009		August 2, 2008
Total revenues	$	2,567	$	2,771		$	10,505	$	11,317
Net income (loss) attributable to Toys	$	62	$	(31	)	$	304	$	113

Alexander’s (NYSE: ALX)

As of September 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 September 30, 2009 and December 31, 2008, Alexander’s owed us $57,197,000 and $44,086,000, respectively, in fees under these agreements.

Based on Alexander’s September 30, 2009 closing share price of $295.88, the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s is $489,406,000, or $302,134,000 in excess of the carrying amount on our consolidated balance sheet.

As of September 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 $35,249,000. 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 real estate (land and buildings). 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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(UNAUDITED)

5.	Investments in Partially Owned Entities - continued

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

As of September 30, 2009, we own 18,468,969 Lexington common shares, or approximately 16.1% of Lexington’s common equity. 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 September 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 $93,668,000. 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 buildings) 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 September 30, 2009 closing share price of $5.10, the market value (“fair value” pursuant to ASC 820) of our investment in Lexington was $94,192,000, or $38,465,000 in excess of the carrying amount on our consolidated balance sheet. During the three months ended September 30, 2008, we concluded that our investment in Lexington was “other-than-temporarily” impaired and recognized a $7,175,000 non-cash impairment loss based on the difference between the fair value of our investment in Lexington and the carrying amount on our consolidated balance sheet.

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

(Amounts in millions)	As of		As of
Balance Sheet:	June 30, 2009		September 30, 2008
Total assets	$	3,791	$	4,294
Total liabilities	$	2,419	$	2,745
Lexington shareholders’ equity	$	1,278	$	924

	For the Three Months Ended June 30,					For the Nine Months Ended June 30,
Income Statement:	2009			2008		2009			2008
Total revenues	$	99		$	125	$	305		$	349
(Loss) income from continuing operations	$	(79	)	$	2	$	(150	)	$	17
Net (loss) income attributable to Lexington	$	(77	)	$	15	$	(153	)	$	52

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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:	Balance as of
(Amounts in thousands)	September 30, 2009		December 31, 2008
Toys	$	422,165	$	293,096
Alexander’s	$	187,272	$	137,305
Partially owned office buildings		159,041		157,468
India Real Estate Ventures		83,531		88,858
Lexington		55,727		80,748
Other equity method investments		326,853		325,775
	$	812,424	$	790,154

Our Share of Net Income (Loss): (Amounts in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
Toys:	2009			2008			2009			2008
32.7% share of:
Equity in net (loss) income, before income taxes	$	(15,985	)⁽¹⁾	$	(21,051	)	$	106,545	⁽¹⁾	$	133,228
Income tax benefit (expense)		36,122			10,944			(7,335	)		(82,778	)
Equity in net income (loss)		20,137			(10,107	)		99,210			50,450
Non-cash purchase price accounting adjustments		—			—			13,946			(14,900	)
Interest and other income		1,940			1,966			5,741			5,960
	$	22,077		$	(8,141	)	$	118,897		$	41,510
Alexander’s:
32.4% share in 2009 and 32.6% share in 2008:
Equity in net income before stock appreciation rights	$	18,756	⁽²⁾	$	4,294		$	26,574	⁽²⁾	$	14,752
Stock appreciation rights compensation (expense) income		—	⁽³⁾		(14,557	)		11,105			(7,605	)
Equity in net income (loss)		18,756			(10,263	)		37,679			7,147
Management and leasing fees		2,084			2,054			5,980			6,160
Development fees		457			1,333			2,385			3,097
	$	21,297		$	(6,876	)	$	46,044		$	16,404

Lexington – 16.1% share in 2009 and 7.7% share in 2008 of equity in net loss ⁽⁴⁾	$	(15,054	)	$	(6,040	)	$	(24,969	)	$	(4,153	)

India Real Estate Ventures – 4% to 36.5% share of equity in net loss		(465	)		(835	)		(1,386	)		(1,863	)

Other, net ⁽⁵⁾		(3,265	)		3,776			(22,769	)⁽⁶⁾		(23,151	)⁽⁷⁾
	$	(18,784	)	$	(3,099	)	$	(49,124	)	$	(29,167	)

_________________________

(1)

Includes $10,200 for our share of income from a litigation settlement.

(2)

Includes $13,668 for our share of an income tax benefit.

(3)

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

(4)

The three and nine months ended September 30, 2009, include $14,541 and $19,121, respectively, for our share of non-cash impairment losses recorded by Lexington related to its investment in Concord Debt Holdings LLC. The three and nine months ended September 30, 2008 includes a $7,175 non-cash impairment loss on our investment in Lexington.

(5)

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, 85 10th Avenue and others.

(6)

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

(7)

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

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(UNAUDITED)

5.	Investments in Partially Owned Entities - continued

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

	100% of Partially Owned Entities’ Debt at
(Amounts in thousands)	September 30, 2009		December 31, 2008
Toys (32.7% interest) (as of August 1, 2009 and November 1, 2008, respectively):
10.75% senior unsecured notes, due 2017 (Face value – $950,000) ⁽¹⁾	$	925,000	$	—
$1.3 billion senior credit facility, due 2010, ⁽¹⁾		—		1,300,000
$2.0 billion credit facility, due 2012, LIBOR plus 1.00% – 4.25% ⁽²⁾		23,000		367,000
Mortgage loan, due 2010, LIBOR plus 1.30% (1.55% at September 30, 2009)		800,000		800,000
$804 million secured term loan facility, due 2012, LIBOR plus 4.25% (4.50% at September 30, 2009)		798,000		797,000
Senior U.K. real estate facility, due 2013, with interest at 5.02%		588,900		568,000
7.625% bonds, due 2011 (Face value – $500,000)		489,400		486,000
7.875% senior notes, due 2013 (Face value – $400,000)		380,100		377,000
7.375% senior notes, due 2018 (Face value – $400,000)		337,900		335,000
4.51% Spanish real estate facility, due 2013		185,900		167,000
$181 million unsecured term loan facility, due 2013, LIBOR plus 5.00% (5.25% at September 30, 2009)		180,000		180,000
Japan bank loans, due 2011 – 2014, 1.20% – 2.80%		159,200		158,000
Japan borrowings, due 2010 – 2011 (weighted average rate of 0.96% at September 30, 2009)		248,000		289,000
6.84% Junior U.K. real estate facility, due 2013		103,700		101,000
4.51% French real estate facility, due 2013		89,700		81,000
8.750% debentures, due 2021 (Face value – $22,000)		21,000		21,000
Other		132,000		73,000
		5,461,800		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)		365,718		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% (1.46% at September 30, 2009)		237,968		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)		196,374		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
		1,266,306		1,221,255
Lexington (16.1% interest) (as of June 30, 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 5.45% at June 30, 2009 (various prepayment terms)		2,203,951		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 $1.3 billion 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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(UNAUDITED)

5.	Investments in Partially Owned Entities - continued

(Amounts in thousands)	100% of Partially Owned Entities’ Debt at
Partially owned office buildings:	September 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 5.82% at September 30, 2009 (various prepayment terms)	$	141,905	$	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% (3.00% at September 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) $150,000 mortgage note payable, due in June 2015, LIBOR plus 1.50% (1.75% at September 30, 2009)		150,000		70,000
Fairfax Square (20% interest) mortgage note payable, due in November 2009, with interest at 7.50%		61,831		62,815
Rosslyn Plaza (46% interest) mortgage note payable, due in December 2011, LIBOR plus 1.0% (1.26% at September 30, 2009)		56,680		56,680
West 57^th Street (50% interest) mortgage note payable, due in December 2009⁽¹⁾, 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)		20,880		21,426
India Real Estate Ventures:
TCG Urban Infrastructure Holdings (25% interest) mortgage notes payable, collateralized by the entity’s real estate, due from 2010 to 2022, with a weighted average interest rate of 14.06% at September 30, 2009 (various prepayment terms)		159,803		148,792
India Property Fund L.P. (36.5% interest) $120 million secured revolving credit facility, due in December 2009, LIBOR plus 2.75% (3.00% at September 30, 2009)		98,000		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% - 3.50% (2.53% at September 30, 2009)		160,403		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 5.88% at September 30, 2009 (various prepayment terms)		601,201		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 5.10% at September 30, 2009 (various prepayment terms)		307,365		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% (2.86% at September 30, 2009)		132,570		132,128
Wells/Kinzie Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%		14,696		14,800
Orleans Hubbard Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%		10,128		10,200
Other		419,529		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 $3,012,310,000 and $3,196,585,000 as of September 30, 2009 and December 31, 2008, respectively.

_________________________

(1)	Result of a forbearance agreement while in negotiation with the lender for an extension or refinancing.

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 September 30, 2009 and December 31, 2008.

(Amounts in thousands)		Interest Rate as of	Carrying Amount as of
Mezzanine Loans Receivable:	Maturity	September 30, 2009	September 30, 2009			December 31, 2008
Equinox	02/13	14.00%	$	95,325		$	85,796
Tharaldson Lodging Companies	04/10 ⁽¹⁾	4.49%		75,573			76,341
Riley HoldCo Corp	02/15	10.00%		74,438			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	5.86%-12.00%		73,628			120,475
				392,714			472,539
Valuation allowance (3)				(122,738	)		—
			$	269,976		$	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

On September 1, 2009, we sold 1999 K Street, a newly developed 250,000 square foot office building, in Washington’s Central Business District, for $207,800,000 in cash, which resulted in a net gain of $41,211,000. Accordingly, during the third quarter of 2009, we classified this property as a discontinued operation. In addition, we have classified the revenues and expenses of other properties sold or to be sold as “income from discontinued operations” and the related assets and liabilities as “assets related to discontinued operations” and “liabilities related to discontinued operations” for all periods presented in the accompanying consolidated financial statements. The tables below set forth the assets and liabilities related to discontinued operations at September 30, 2009 and December 31, 2008, and the combined results of operations related to discontinued operations for the three and nine months ended September 30, 2009 and 2008.

(Amounts in thousands)	Assets Related to Discontinued Operations as of				Liabilities Related to Discontinued Operations as of
	September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
H Street – land under sales contract	$	108,151	$	108,292	$	—	$	—
1999 K Street		—		124,402		—		73,747
Retail properties		—		48,416		—		—
Total	$	108,151	$	281,110	$	—	$	73,747

(Amounts in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2009		2008		2009		2008
Revenues	$	1,356	$	1,077	$	9,846	$	225,620
Expenses		690		343		3,225		223,019
Net income		666		734		6,621		2,601
Net gain on sale of 1999 K Street		41,211		—		41,211		—
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
Net gains on sale of other real estate		1,444		112		1,444		692
Income from discontinued operations	$	43,321	$	846	$	49,276	$	172,814

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 September 30, 2009 and December 31, 2008.

	Balance as of
(Amounts in thousands)	September 30, 2009			December 31, 2008
Identified intangible assets (included in other assets):
Gross amount	$	768,364		$	780,476
Accumulated amortization		(304,309	)		(257,757	)
Net	$	464,055		$	522,719
Identified intangible liabilities (included in deferred credit):
Gross amount	$	955,651		$	998,179
Accumulated amortization		(303,350	)		(278,357	)
Net	$	652,301		$	719,822

Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of $18,728,000 and $24,526,000 for the three months ended September 30, 2009 and 2008, respectively, and $56,270,000 and $73,655,000 for the nine months ended September 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	$	63,104
2011		58,966
2012		54,771
2013		46,798
2014		40,995

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $15,698,000 and $21,207,000 for the three months ended September 30, 2009 and 2008, respectively, and $49,262,000 and $65,417,000 for the nine months ended September 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	$	55,898
2011		53,264
2012		48,828
2013		41,651
2014		23,577

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 $1,599,000 in each of the three-month and nine-month periods ended September 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