Edgar Filing: VORNADO REALTY TRUST

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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:

March 31, 2010

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 x 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 the 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 March 31, 2010, 181,913,554 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 March 31, 2010 and December 31, 2009		3

		Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2010 and 2009		4

		Consolidated Statements of Changes in Equity (Unaudited) for the Three Months Ended March 31, 2010 and 2009		5

		Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2010 and 2009		6

		Notes to Consolidated Financial Statements (Unaudited)		8

		Report of Independent Registered Public Accounting Firm		31

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		54

	Item 4.	Controls and Procedures		55



PART II.		Other Information:

	Item 1.	Legal Proceedings		56

	Item 1A.	Risk Factors		57

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		57

	Item 3.	Defaults Upon Senior Securities		57

	Item 5.	Other Information		57

	Item 6.	Exhibits		57

Signatures			58

Exhibit Index			59

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	March 31, 2010			December 31, 2009
Real estate, at cost:
Land	$	4,610,165		$	4,606,065
Buildings and improvements		13,003,703			12,902,086
Development costs and construction in progress		244,486			313,310
Leasehold improvements and equipment		129,600			128,056
Total		17,987,954			17,949,517
Less accumulated depreciation and amortization		(2,597,709	)		(2,494,441	)
Real estate, net		15,390,245			15,455,076
Cash and cash equivalents		788,940			535,479
Short-term investments		15,000			40,000
Restricted cash		307,849			293,950
Marketable securities		413,954			380,652
Accounts receivable, net of allowance for doubtful accounts of $50,797 and $46,708		159,805			157,325
Investments in partially owned entities, including Alexander’s of $197,181 and $193,174		839,476			799,832
Investment in Toys “R” Us		517,497			409,453
Mezzanine loans receivable, net of allowance of $185,738 and $190,738		126,777			203,286
Receivable arising from the straight-lining of rents, net of allowance of $5,108 and $4,680		701,733			681,526
Deferred leasing and financing costs, net of accumulated amortization of $201,565 and $183,224		326,743			311,825
Due from officers		13,182			13,150
Other assets		818,492			903,918
	$	20,419,693		$	20,185,472
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Notes and mortgages payable	$	8,432,533		$	8,445,766
Senior unsecured notes		1,224,790			711,716
Exchangeable senior debentures		486,061			484,457
Convertible senior debentures		447,261			445,458
Revolving credit facility debt		500,217			852,218
Accounts payable and accrued expenses		491,464			475,242
Deferred credit		671,366			682,384
Deferred compensation plan		84,028			80,443
Deferred tax liabilities		17,789			17,842
Other liabilities		100,057			88,912
Total liabilities		12,455,566			12,284,438
Commitments and contingencies
Redeemable noncontrolling interests:
Class A units – 14,080,613 and 13,892,313 units outstanding		1,065,902			971,628
Series D cumulative redeemable preferred units – 10,953,847 and 11,200,000 units outstanding		273,846			280,000
Total redeemable noncontrolling interests		1,339,748			1,251,628
Vornado shareholders’ equity:
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 33,949,584 and 33,952,324 shares		823,549			823,686
Common shares of beneficial interest: $.04 par value per share; authorized, 250,000,000 shares; issued and outstanding 181,913,554 and 181,214,161 shares		7,247			7,218
Additional capital		6,877,529			6,961,007
Earnings less than distributions		(1,520,690	)		(1,577,591	)
Accumulated other comprehensive income		29,953			28,449
Total Vornado shareholders’ equity		6,217,588			6,242,769
Noncontrolling interests in consolidated subsidiaries		406,791			406,637
Total equity		6,624,379			6,649,406
	$	20,419,693		$	20,185,472

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(Amounts in thousands, except per share amounts)	For The Three Months Ended March 31,
	2010			2009
REVENUES:
Property rentals	$	560,950		$	549,787
Tenant expense reimbursements		92,921			98,029
Fee and other income		42,460			30,750
Total revenues		696,331			678,566
EXPENSES:
Operating		279,055			278,898
Depreciation and amortization		135,824			131,656
General and administrative		48,730			79,065
Litigation loss accrual		10,056			—
Total expenses		473,665			489,619
Operating income		222,666			188,947
Income applicable to Alexander’s		6,460			18,133
Income applicable to Toys “R” Us		125,870			97,147
Income (loss) from partially owned entities		4,884			(7,543	)
Interest and other investment income, net		14,708			14,059
Interest and debt expense (including amortization of deferred financing costs of $4,426 and $4,049)		(139,735	)		(157,760	)
Net gain on disposition of wholly owned and partially owned assets other than depreciable real estate		3,305			—
Net gain on early extinguishment of debt		—			5,905
Income before income taxes		238,158			158,888
Income tax expense		(5,614	)		(5,049	)
Income from continuing operations		232,544			153,839
Income from discontinued operations		—			2,592
Net income		232,544			156,431
Net income attributable to noncontrolling interests, including unit distributions		(17,992	)		(16,321	)
Net income attributable to Vornado		214,552			140,110
Preferred share dividends		(14,267	)		(14,269	)
NET INCOME attributable to common shareholders	$	200,285		$	125,841

INCOME PER COMMON SHARE – BASIC:
Income from continuing operations, net	$	1.10		$	0.79
Income from discontinued operations, net		—			0.02
Net income per common share	$	1.10		$	0.81
Weighted average shares		181,542			155,991

INCOME PER COMMON SHARE – DILUTED:
Income from continuing operations, net	$	1.09		$	0.78
Income from discontinued operations, net		—			0.02
Net income per common share	$	1.09		$	0.80
Weighted average shares		183,445			157,103

DIVIDENDS PER COMMON SHARE	$	0.65		$	0.95

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

Accumulated
Other
Comprehensive
Income (Loss)

(Amounts in thousands)

Earnings
Less Than
Distributions

Non-
controlling
Interests

Preferred Shares

Common Shares

Additional
Capital

Total
Equity

Shares

Amount

Shares

Amount

Balance, December 31, 2008

33,954

$

823,807

155,286

$

6,195

$

6,025,976

$

(1,047,340

)

$

(6,899

)

$

412,913

$

6,214,652

Net income (loss)

—

—

—

—

—

140,110

—

(463

)

139,647

Dividends paid on common shares

—

—

2,761

110

88,453

(147,678

)

—

—

(59,115

)

Dividends paid on preferred shares

—

—

—

—

—

(14,269

)

—

—

(14,269

)

Conversion of Series A preferred shares to
common shares

(2

)

(90)

3

—

90

—

—

—

—

Deferred compensation shares and options

—

—

—

2

23,288

—

—

—

23,290

Common shares issued:

Upon redemption of Class A Operating
Partnership units,at redemption value

—

—

221

8

10,938

—

—

—

10,946

Under employees’ share option plan

—

—

7

(14

)

505

(435

)

—

—

56

Change in unrealized net gain or loss
on securities available-for-sale

—

—

—

—

—

—

(39,305

)

—

(39,305

)

Voluntary surrender of equity awards on
March 31, 2009

—

—

—

—

13,722

—

—

—

13,722

Adjustments to redeemable Class A
Operating Partnership units

—

—

—

—

271,856

—

—

—

271,856

Other

—

—

—

—

(113

)

5

(593

)

—

(701

)

Balance, March 31, 2009

33,952

$

823,717

158,278

$

6,301

$

6,434,715

$

(1,069,607

)

$

(46,797

)

$

412,450

$

6,560,779

Balance, December 31, 2009

33,952

$

823,686

181,214

$

7,218

$

6,961,007

$

(1,577,591

)

$

28,449

$

406,637

$

6,649,406

Net income

—

—

—

—

—

214,552

—

213

214,765

Dividends paid on common shares

—

—

—

—

—

(117,958

)

—

—

(117,958

)

Dividends paid on preferred shares

—

—

—

—

—

(14,267

)

—

—

(14,267

)

Conversion of Series A preferred
shares to common shares

(2

)

(137

)

4

—

137

—

—

—

—

Deferred compensation shares
and options

—

—

17

2

1,644

—

—

—

1,646

Common shares issued:

Upon redemption of Class A Operating
Partnership units, at redemption value

—

—

268

11

18,117

—

—

—

18,128

Under employees’ share option plan

—

—

405

16

541

(25,428

)

—

—

(24,871

)

Under dividend reinvestment plan

—

—

6

—

390

—

—

—

390

Change in unrealized net gain
on securities available-for-sale

—

—

—

—

—

—

17,588

—

17,588

Our share of partially owned entities
OCI adjustments

—

—

—

—

—

—

(15,688

)

—

(15,688

)

Adjustments to redeemable Class
A Operating Partnership units

—

—

—

—

(104,247

)

—

—

—

(104,247

)

Other

—

—

—

—

(60

)

2

(396

)

(59

)

(513

)

Balance, March 31, 2010

33,950

$

823,549

181,914

$

7,247

$

6,877,529

$

(1,520,690

)

$

29,953

$

406,791

$

6,624,379

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For The Three Months Ended March 31,
(Amounts in thousands)	2010			2009
Cash Flows from Operating Activities:
Net income	$	232,544		$	156,431
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of deferred financing costs)		140,250			136,178
Equity in income of partially owned entities, including Alexander’s and Toys “R” Us		(130,812	)		(107,737	)
Straight‑lining of rental income		(20,922	)		(27,138	)
Amortization of below market leases, net		(15,907	)		(17,982	)
Litigation loss accrual		10,056			—
Distributions of income from partially owned entities		7,123			8,381
Net gain resulting from Lexington Realty Trust’s March 2010 stock issuance		(5,998	)		—
Net gain on dispositions of assets other than depreciable real estate		(3,305	)		—
Other non-cash adjustments		1,848			19,522
Net gain on early extinguishment of debt		—			(5,905	)
Write-off of unamortized costs from the voluntary surrender of equity awards		—			32,588
Changes in operating assets and liabilities:
Accounts receivable, net		(2,480	)		7,469
Accounts payable and accrued expenses		26,137			14,887
Other assets		37,391			(40,320	)
Other liabilities		12,123			(6,562	)
Net cash provided by operating activities		288,048			169,812
Cash Flows from Investing Activities:
Proceeds received from repayment of mezzanine loans receivable		101,839			3,593
Proceeds from sales of real estate and related investments		38,879			20,858
Development costs and construction in progress		(37,598	)		(132,529	)
Investments in partially owned entities		(36,741	)		(9,582	)
Additions to real estate		(30,247	)		(38,916	)
Investments in mezzanine loans receivable and other		(28,873	)		—
Proceeds from maturing short-term investments		25,000			—
Purchases of marketable securities		(13,917	)		(9,882	)
Restricted cash		(13,899	)		(27,298	)
Distributions of capital from partially owned entities		7,617			7,504
Deposits in connection with real estate acquisitions		(5,003	)		(9	)
Proceeds from sales of, and return of investment in, marketable securities		285			7,835
Net cash provided by (used in) investing activities		7,342			(178,426	)

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

(Amounts in thousands)	For The Three Months Ended March 31,
(Amounts in thousands)	2010			2009
Cash Flows from Financing Activities:
Proceeds from borrowings		660,335			353,856
Repayments of borrowings		(525,246	)		(138,291	)
Dividends paid on common shares		(117,958	)		(59,115	)
Repurchase of shares related to stock compensation arrangements and related tax withholdings		(24,360	)		(32	)
Dividends paid on preferred shares		(14,267	)		(14,269	)
Distributions to noncontrolling interests		(13,082	)		(10,514	)
Purchase of outstanding preferred units		(4,000	)		(24,330	)
Debt issuance costs		(3,351	)		(94	)
Net cash (used in) provided by financing activities		(41,929	)		107,211
Net increase in cash and cash equivalents		253,461			98,597
Cash and cash equivalents at beginning of period		535,479			1,526,853
Cash and cash equivalents at end of period	$	788,940		$	1,625,450

Supplemental Disclosure of Cash Flow Information:
Cash payments for interest (including capitalized interest of $614 and $4,569)	$	121,573		$	132,208
Cash payments for income taxes	$	1,701		$	1,150

Non‑Cash Transactions:
Adjustments to redeemable Class A Operating Partnerships units	$	(104,247	)	$	271,856
Conversion of Class A Operating Partnership units to common shares, at redemption value		18,128			10,946
Dividends paid in common shares		—			88,563
Unit distributions paid in Class A units		—			8,213
Unrealized net gain (loss) on securities available for sale		17,588			(39,305	)

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 92.4% of the common limited partnership interest in the Operating Partnership at March 31, 2010. 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 and include the accounts of Vornado, and the Operating Partnership and its consolidated partially owned entities. All significant inter-company amounts have been eliminated. 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. 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.

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 Reports on Form 10-K and Form 10-K/A for the year ended December 31, 2009, as filed with the SEC. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the operating results for the full year.

3. Recently Issued Accounting Literature

On January 21, 2010, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, adding new requirements for disclosures about transfers into and out of Levels 1 and 2 fair value measurements and additional disclosures about the activity within Level 3 fair value measurements. The retrospective application of this guidance on January 1, 2010 did not have a material effect on our consolidated financial statements.

In June 2009, the FASB issued an update to ASC 810, Consolidation, which 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. The adoption of this guidance on January 1, 2010 did not have a material effect on our consolidated financial statements.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

4. Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

As of March 31, 2010, we own 32.7% of Toys. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. We account for our investment in Toys under the equity method and record our 32.7% share of Toys net income or loss on a lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. As of March 31, 2010, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of Toys on a purchase accounting basis.

Below is a summary of Toys’ latest available financial information on a purchase accounting basis:

(Amounts in thousands)	Balance as of
Balance Sheet:	January 30, 2010		October 31, 2009
Assets	$	11,770,000	$	12,589,000
Liabilities		10,138,000		11,198,000
Noncontrolling interests		32,000		112,000
Toys “R” Us, Inc. equity		1,600,000		1,279,000

	For the Three Months Ended
Income Statement:	January 30, 2010		January 31, 2009
Total revenue	$	5,857,000	$	5,461,000
Net income attributable to Toys		379,000		291,000

Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX)

As of March 31, 2010, 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 March 31, 2010, Alexander’s owed us $58,660,000 in fees under these agreements.

Based on Alexander’s March 31, 2010 closing share price of $299.13, the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s is $494,781,000, or $297,600,000 in excess of the March 31, 2010 carrying amount on our consolidated balance sheet. As of March 31, 2010, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $60,226,000. 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 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.

Below is a summary of Alexander’s latest available financial information:

(Amounts in thousands)	Balance as of
Balance Sheet:	March 31, 2010		December 30, 2009
Assets	$	1,696,000	$	1,704,000
Liabilities		1,366,000		1,389,000
Noncontrolling interests		2,000		2,000
Shareholders’ equity		328,000		313,000
	For the Three Months Ended
Income Statement:	March 31, 2010		March 31, 2009
Total revenue	$	59,000	$	53,000
Net income attributable to Alexander’s		15,000		46,000

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

4. Investments in Partially Owned Entities - continued

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

As of March 31, 2010, we own 18,468,969 Lexington common shares, or approximately 13.9% of Lexington’s common equity. We account for our investment in Lexington on 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 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.

Based on Lexington’s March 31, 2010 closing share price of $6.51, the market value (“fair value” pursuant to ASC 820) of our investment in Lexington was $120,233,000, or $60,833,000 in excess of the March 31, 2010 carrying amount on our consolidated balance sheet. As of March 31, 2010, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $63,000,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges we recognized during 2008. 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 an adjustment to 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.

Below is a summary of Lexington’s latest available financial information:

(Amounts in thousands)	Balance as of
Balance Sheet:	December 31, 2009			September 30, 2009
Assets	$	3,580,000		$	3,702,000
Liabilities		2,283,000			2,344,000
Noncontrolling interests		89,000			94,000
Shareholders’ equity		1,208,000			1,264,000

	For the Three Months Ended
Income Statement:	December 31, 2009			December 31, 2008
Total revenue	$	90,000		$	99,000
Net loss attributable to Lexington		(46,000	)		(14,000	)

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

4. 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:

(Amounts in thousands)	Balance as of
Investments:	March 31, 2010		December 31, 2009
Toys	$	517,497	$	409,453

Alexander’s	$	197,181	$	193,174
Partially owned office buildings		159,566		158,444
India real estate ventures		125,529		93,322
Lexington		59,400		55,106
Other equity method investments		297,800		299,786
	$	839,476	$	799,832

(Amounts in thousands)	For the Three Months Ended March 31,
Our Share of Net Income (Loss):	2010			2009
Toys:
32.7% share of:
Equity in net income, before income taxes	$	173,550		$	148,385
Income tax expense		(49,710	)		(53,091	)
Equity in net income		123,840			95,294
Interest and other income		2,030			1,853
	$	125,870		$	97,147
Alexander’s:
32.4% share of:
Equity in net income before stock appreciation rights	$	3,777		$	3,855
Reversal of stock appreciation rights compensation expense		—			11,105
Equity in net income		3,777			14,960
Management and leasing fees		2,078			1,893
Development fees		605			1,280
	$	6,460		$	18,133

Lexington – 13.9% share in 2010 and 16.1% share in 2009 of equity in net income (loss)	$	6,045	⁽¹⁾	$	(3,039	)

India real estate ventures – 4% to 36.5% share of equity in net income (loss)		1,651			(137	)

Other, net ⁽²⁾		(2,812	)		(4,367	)
	$	4,884		$	(7,543	)

_________________________

(1) Includes a $5,998 net gain resulting from Lexington’s March 2010 stock issuance.

(2) Represents equity in net income (loss) of partially owned office buildings in New York and Washington, DC, the Monmouth Mall, Verde Realty Operating Partnership, 85 10^th Avenue Associates and others.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

4. Investments in Partially Owned Entities - continued

Below is a summary of the debt of our partially owned entities as of March 31, 2010 and December 31, 2009, none of which is recourse to us.

	100% of Partially Owned Entities’ Debt at
(Amounts in thousands)	March 31, 2010		December 31, 2009
Toys (32.7% interest) (as of January 30, 2010 and October 31, 2009, respectively):
10.75% senior unsecured notes, due 2017 (Face value – $950,000)	$	926,444	$	925,931
8.50% senior unsecured notes, due 2017 (Face value $725,000)		714,849		—
$2.0 billion credit facility, due 2012, LIBOR plus 1.00% – 4.25%		—		418,777
$804 million secured term loan facility, due 2012, LIBOR plus 4.25% (4.50% at March 31, 2010)		798,079		797,911
Senior U.K. real estate facility, due 2013, with interest at 5.02%		561,872		578,982
7.625% bonds, due 2011 (Face value – $500,000)		491,902		490,613
7.875% senior notes, due 2013 (Face value – $400,000)		382,469		381,293
7.375% senior notes, due 2018 (Face value – $400,000)		340,082		338,989
4.51% Spanish real estate facility, due 2013		179,835		191,436
$181 million unsecured term loan facility, due 2013, LIBOR plus 5.00% (5.25% at March 31, 2010)		180,492		180,456
Japan bank loans, due 2011 – 2014, 1.20% – 2.85%		172,489		172,902
6.84% Junior U.K. real estate facility, due 2013		98,719		101,861
4.51% French real estate facility, due 2013		86,755		92,353
8.750% debentures, due 2021 (Face value – $22,000)		21,030		21,022
Mortgage loan, due 2010, LIBOR plus 1.30%		—		800,000
Japan borrowings, due 2010 – 2011		—		168,720
European and Australian asset-based revolving credit facility, due 2012, LIBOR/EURIBOR plus 4.00%		—		102,760
Other		148,030		136,206
		5,103,047		5,900,212
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)		360,170		362,989
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% (1.45% at March 31, 2010)		272,302		266,411
Kings Plaza Regional Shopping Center mortgage note payable, due in June 2011, with interest at 7.46% (prepayable without penalty after December 2010)		154,651		183,319
Rego Park mortgage note payable, due in March 2012 (prepayable without penalty)		78,246		78,246
Paramus mortgage note payable, due in October 2011, with interest at 5.92% (prepayable without penalty)		68,000		68,000
		1,253,369		1,278,965
Lexington (13.9% interest) (as of December 31, 2009 and September 30, 2009, respectively) Mortgage loans collateralized by the trust’s real estate, due from 2010 to 2037, with a weighted average interest rate of 5.67% at December 31, 2009 (various prepayment terms)		2,077,849		2,132,253

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

4. Investments in Partially Owned Entities - continued

	100% of Partially Owned Entities’ Debt at
(Amounts in thousands)	March 31, 2010		December 31, 2009
Partially owned office buildings:
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 5.84% at March 31, 2010 (various prepayment terms)	$	140,989	$	141,547
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 March 31, 2010) 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 March 31, 2010)		150,000		150,000
Fairfax Square (20% interest) mortgage note payable, due in December 2014, with interest at 7.00% (prepayable without penalty after July 2014)		72,321		72,500
Rosslyn Plaza (46% interest) mortgage note payable, due in December 2011, LIBOR plus 1.0% (1.25% at March 31, 2010)		56,680		56,680
West 57^th Street (50% interest) mortgage note payable, due in February 2014,with interest at 4.94% (prepayable without penalty)		23,165		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)		20,670		20,773
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 13.54% at March 31, 2010 (various prepayment terms)		184,488		178,553
India Property Fund L.P. (36.5% interest) revolving credit facility, repaid upon maturity in March 2010		—		77,000
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% (2.47% at March 31, 2010)		206,500		183,742
Verde Realty Operating Partnership (8.3% interest) mortgage notes payable, collateralized by the partnerships’ real estate, due from 2010 to 2025, with a weighted average interest rate of 5.89% at March 31, 2010 (various prepayment terms)		607,474		607,089
Green Courte Real Estate Partners, LLC (8.3% interest) (as of December 31, 2009 and September 30, 2009), mortgage notes payable, collateralized by the partnerships’ real estate, due from 2010 to 2018, with a weighted average interest rate of 5.29% at March 31, 2010 (various prepayment terms)		302,927		304,481
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 2013, LIBOR plus 4.00% (4.25% at March 31, 2010)		132,008		132,570
Wells/Kinzie Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%		14,614		14,657
Orleans Hubbard Garage (50% interest) mortgage note payable, due in December 2013, with interest at 6.87%		10,072		10,101
Other		430,979		425,717

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $2,822,363,000 and $3,149,640,000 as of March 31, 2010 and December 31, 2009, respectively.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

5. Marketable Securities

The carrying amount of marketable securities on our consolidated balance sheets and their corresponding fair values at March 31, 2010 and December 31, 2009 are as follows:

	As of March 31, 2010				As of December 31, 2009
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Marketable equity securities	$	111,023	$	111,023	$	79,925	$	79,925
Debt securities held-to-maturity		302,931		324,946		300,727		319,393
	$	413,954	$	435,969	$	380,652	$	399,318

At March 31, 2010, aggregate unrealized gains and losses were $30,177,000 and $922,000, respectively. At December 31, 2009, aggregate unrealized gains and losses were $13,026,000 and $1,223,000, respectively.

6. Mezzanine Loans Receivable

The following is a summary of our investments in mezzanine loans as of March 31, 2010 and December 31, 2009.

(Amounts in thousands)		Interest Rate as of	Carrying Amount as of
Mezzanine Loans Receivable:	Maturity	March 31, 2010	March 31, 2010			December 31, 2009
Riley HoldCo Corp.	02/15	10.00%	$	74,437		$	74,437
Tharaldson Lodging Companies	04/11	4.47%		73,839			74,701
280 Park Avenue	06/16	10.25%		72,282			73,750
Equinox	(1)	(1)		—	⁽¹⁾		97,968
Other, net	11/11-8/15	1.35% - 8.95%		91,957			73,168
				312,515			394,024
Valuation allowance (2)				(185,738	)		(190,738	)
			$	126,777		$	203,286

_____________________

(1) In January 2010, Equinox pre-paid the entire balance of this loan which was scheduled to mature in February 2013. We received $99,314, including accrued interest, for our 50% interest in the loan which we acquired in 2006 for $57,500.

(2) Represents loan loss accruals on certain 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 income, net” in our consolidated statement of income.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7. 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 March 31, 2010 and December 31, 2009.

	Balance as of
(Amounts in thousands)	March 31, 2010			December 31, 2009
Identified intangible assets (included in other assets):
Gross amount	$	755,075		$	755,467
Accumulated amortization		(330,693	)		(312,957	)
Net	$	424,382		$	442,510
Identified intangible liabilities (included in deferred credit):
Gross amount	$	942,917		$	942,968
Accumulated amortization		(327,505	)		(309,476	)
Net	$	615,412		$	633,492

Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of $15,907,000 and $17,982,000 for the three months ended March 31, 2010 and 2009, 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, 2011 is as follows:

(Amounts in thousands)
2011	$	58,723
2012		54,430
2013		46,496
2014		40,537
2015		37,686

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $14,914,000 and $15,786,000 for the three months ended March 31, 2010 and 2009, 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, 2011 is as follows:

(Amounts in thousands)
2011	$	51,775
2012		46,446
2013		38,957
2014		20,149
2015		15,043

We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases resulted in an increase to rent expense of $509,000 and $533,000 for the three months ended March 31, 2010 and 2009, respectively. Estimated annual amortization of these below-market leases for each of the five succeeding years commencing January 1, 2011 is as follows:

(Amounts in thousands)
2011	$	2,157
2012		2,157
2013		2,157
2014		2,157
2015		2,157

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8. Debt

The following is a summary of our debt:

(Amounts in thousands)			Balance at
Notes and mortgages payable:	Maturity (1)	Interest Rate at March 31, 2010	March 31, 2010		December 31, 2009
Fixed rate:
New York Office:
1290 avenue of the Americas	01/13	5.97%	$	431,976	$	434,643
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%		281,182		282,492
909 Third Avenue	04/15	5.64%		209,735		210,660
Eleven Penn Plaza	12/11	5.20%		202,211		203,198

Washington, DC Office:
Skyline Place	02/17	5.74%		678,000		678,000
Warner Building	05/16	6.26%		292,700

																	Accumulated Other Comprehensive Income (Loss)
(Amounts in thousands)														Earnings Less Than Distributions						Non- controlling Interests
	Preferred Shares					Common Shares					Additional Capital												Total Equity
	Shares			Amount		Shares		Amount			Additional Capital												Total Equity
Balance, December 31, 2008	33,954		$	823,807		155,286	$	6,195		$	6,025,976		$	(1,047,340	)	$	(6,899	)	$	412,913		$	6,214,652
Net income (loss)	—			—		—		—			—			140,110			—			(463	)		139,647
Dividends paid on common shares	—			—		2,761		110			88,453			(147,678	)		—			—			(59,115	)
Dividends paid on preferred shares	—			—		—		—			—			(14,269	)		—			—			(14,269	)
Conversion of Series A preferred shares to common shares	(2	)		(90)		3		—			90			—			—			—			—
Deferred compensation shares and options	—			—		—		2			23,288			—			—			—			23,290
Common shares issued:
Upon redemption of Class A Operating Partnership units,at redemption value	—			—		221		8			10,938			—			—			—			10,946
Under employees’ share option plan	—			—		7		(14	)		505			(435	)		—			—			56
Change in unrealized net gain or loss on securities available-for-sale	—			—		—		—			—			—			(39,305	)		—			(39,305	)
Voluntary surrender of equity awards on March 31, 2009	—			—		—		—			13,722			—			—			—			13,722
Adjustments to redeemable Class A Operating Partnership units	—			—		—		—			271,856			—			—			—			271,856
Other	—			—		—		—			(113	)		5			(593	)		—			(701	)
Balance, March 31, 2009	33,952		$	823,717		158,278	$	6,301		$	6,434,715		$	(1,069,607	)	$	(46,797	)	$	412,450		$	6,560,779


Balance, December 31, 2009	33,952		$	823,686		181,214	$	7,218		$	6,961,007		$	(1,577,591	)	$	28,449		$	406,637		$	6,649,406
Net income	—			—		—		—			—			214,552			—			213			214,765
Dividends paid on common shares	—			—		—		—			—			(117,958	)		—			—			(117,958	)
Dividends paid on preferred shares	—			—		—		—			—			(14,267	)		—			—			(14,267	)
Conversion of Series A preferred shares to common shares	(2	)		(137	)	4		—			137			—			—			—			—
Deferred compensation shares and options	—			—		17		2			1,644			—			—			—			1,646
Common shares issued:
Upon redemption of Class A Operating Partnership units, at redemption value	—			—		268		11			18,117			—			—			—			18,128
Under employees’ share option plan	—			—		405		16			541			(25,428	)		—			—			(24,871	)
Under dividend reinvestment plan	—			—		6		—			390			—			—			—			390
Change in unrealized net gain on securities available-for-sale	—			—		—		—			—			—			17,588			—			17,588
Our share of partially owned entities OCI adjustments	—			—		—		—			—			—			(15,688	)		—			(15,688	)
Adjustments to redeemable Class A Operating Partnership units	—			—		—		—			(104,247	)		—			—			—			(104,247	)
Other	—			—		—		—			(60	)		2			(396	)		(59	)		(513	)
Balance, March 31, 2010	33,950		$	823,549		181,914	$	7,247		$	6,877,529		$	(1,520,690	)	$	29,953		$	406,791		$	6,624,379