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:

September 30, 2015

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 September 30, 2015, 188,540,876 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, 2015 and December 31, 2014	3

		Consolidated Statements of Income (Unaudited) for the
		Three and Nine Months Ended September 30, 2015 and 2014	4

		Consolidated Statements of Comprehensive Income (Unaudited)
		for the Three and Nine Months Ended September 30, 2015 and 2014	5

		Consolidated Statements of Changes in Equity (Unaudited) for the
		Nine Months Ended September 30, 2015 and 2014	6

		Consolidated Statements of Cash Flows (Unaudited) for the
		Nine Months Ended September 30, 2015 and 2014	8

		Notes to Consolidated Financial Statements (Unaudited)	10

		Report of Independent Registered Public Accounting Firm	35

	Item 2.	Management's Discussion and Analysis of Financial Condition
		and Results of Operations	36

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	75

	Item 4.	Controls and Procedures	75


PART II.		Other Information:

	Item 1.	Legal Proceedings	76

	Item 1A.	Risk Factors	76

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76

	Item 3.	Defaults Upon Senior Securities	76

	Item 4.	Mine Safety Disclosures	76

	Item 5.	Other Information	76

	Item 6.	Exhibits	76

SIGNATURES			77

EXHIBIT INDEX			78

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(Amounts in thousands, except share and per share amounts)			September 30, 2015		December 31, 2014
ASSETS
Real estate, at cost:
	Land		$	4,045,042	$	3,861,913
	Buildings and improvements			12,278,443		11,705,749
	Development costs and construction in progress			1,389,471		1,128,037
	Leasehold improvements and equipment			131,760		126,659
		Total		17,844,716		16,822,358
	Less accumulated depreciation and amortization			(3,364,932)		(3,161,633)
Real estate, net				14,479,784		13,660,725
Cash and cash equivalents				788,137		1,198,477
Restricted cash				107,965		176,204
Marketable securities				152,927		206,323
Tenant and other receivables, net of allowance for doubtful accounts of $11,640 and $12,210				108,106		109,998
Investments in partially owned entities				1,460,178		1,240,489
Real estate fund investments				555,414		513,973
Receivable arising from the straight-lining of rents, net of allowance of $2,922 and $3,190				885,340		787,271
Deferred leasing and financing costs, net of accumulated amortization of $292,767 and $281,109				572,969		475,158
Identified intangible assets, net of accumulated amortization of $190,543 and $199,821				241,814		225,155
Assets related to discontinued operations				35,142		2,244,481
Other assets				584,150		410,066
			$	19,971,926	$	21,248,320

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgages payable			$	9,159,413	$	8,263,165
Senior unsecured notes				847,594		1,347,159
Accounts payable and accrued expenses				465,045		447,745
Deferred revenue				377,951		358,613
Deferred compensation plan				117,037		117,284
Liabilities related to discontinued operations				11,520		1,511,362
Other liabilities				434,980		375,830
	Total liabilities			11,413,540		12,421,158
Commitments and contingencies
Redeemable noncontrolling interests:
	Class A units - 12,258,987 and 11,356,550 units outstanding			1,108,457		1,336,780
	Series D cumulative redeemable preferred units - 177,101 and 1 units outstanding			5,428		1,000
		Total redeemable noncontrolling interests		1,113,885		1,337,780
Vornado shareholders' equity:
	Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
		shares; issued and outstanding 52,677,629 and 52,678,939 shares		1,276,985		1,277,026
	Common shares of beneficial interest: $.04 par value per share; authorized
		250,000,000 shares; issued and outstanding 188,540,876 and 187,887,498 shares		7,519		7,493
	Additional capital			7,232,766		6,873,025
	Earnings less than distributions			(1,878,716)		(1,505,385)
	Accumulated other comprehensive income			43,593		93,267
		Total Vornado shareholders' equity		6,682,147		6,745,426
Noncontrolling interests in consolidated subsidiaries				762,354		743,956
	Total equity			7,444,501		7,489,382
			$	19,971,926	$	21,248,320

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				For the Nine Months Ended
		September 30,				September 30,
		2015		2014		2015		2014
REVENUES:
	Property rentals	$	526,337	$	474,978	$	1,541,454	$	1,420,608
	Tenant expense reimbursements		67,098		65,953		196,234		180,364
	Fee and other income		34,161		37,779		112,998		114,530
Total revenues			627,596		578,710		1,850,686		1,715,502
EXPENSES:
	Operating		256,561		240,088		753,744		707,047
	Depreciation and amortization		141,920		114,822		402,999		359,814
	General and administrative		36,157		40,384		133,838		128,364
	Acquisition and transaction related costs		1,518		1,277		7,560		3,629
Total expenses			436,156		396,571		1,298,141		1,198,854
Operating income			191,440		182,139		552,545		516,648
Loss from partially owned entities			(325)		(26,034)		(8,709)		(78,676)
Income from real estate fund investments			1,665		24,160		52,122		142,418
Interest and other investment income, net			3,160		7,568		19,618		28,814
Interest and debt expense			(95,344)		(100,817)		(279,110)		(301,042)
Net gain on disposition of wholly owned and partially owned assets			103,037		2,665		104,897		13,205
Income before income taxes			203,633		89,681		441,363		321,367
Income tax (expense) benefit			(2,856)		(2,652)		84,245		(6,783)
Income from continuing operations			200,777		87,029		525,608		314,584
Income from discontinued operations			34,463		82,168		50,278		118,456
Net income			235,240		169,197		575,886		433,040
Less net income attributable to noncontrolling interests in:
	Consolidated subsidiaries		(3,302)		(9,685)		(38,370)		(85,239)
	Operating Partnership		(12,704)		(7,988)		(28,189)		(16,552)
Net income attributable to Vornado			219,234		151,524		509,327		331,249
Preferred share dividends			(20,364)		(20,365)		(60,213)		(61,099)
NET INCOME attributable to common shareholders		$	198,870	$	131,159	$	449,114	$	270,150

INCOME PER COMMON SHARE - BASIC:
	Income from continuing operations, net	$	0.88	$	0.29	$	2.13	$	0.84
	Income from discontinued operations, net		0.17		0.41		0.25		0.60
	Net income per common share	$	1.05	$	0.70	$	2.38	$	1.44
	Weighted average shares outstanding		188,504		187,671		188,291		187,503

INCOME PER COMMON SHARE - DILUTED:
	Income from continuing operations, net	$	0.88	$	0.28	$	2.12	$	0.84
	Income from discontinued operations, net		0.17		0.41		0.25		0.59
	Net income per common share	$	1.05	$	0.69	$	2.37	$	1.43
	Weighted average shares outstanding		189,581		188,812		189,789		188,592

DIVIDENDS PER COMMON SHARE		$	0.63	$	0.73	$	1.89	$	2.19


See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)


(Amounts in thousands)			For the Three Months Ended				For the Nine Months Ended
			September 30,				September 30,
			2015		2014		2015		2014
Net income			$	235,240	$	169,197	$	575,886	$	433,040
Other comprehensive income (loss):
	Reduction in unrealized net gain on available-for-sale securities			(7,064)		(22,764)		(53,396)		(7,761)
	Pro rata share of other comprehensive loss of
		nonconsolidated subsidiaries		(114)		(6,028)		(1,148)		(151)
	(Reduction) increase in value of interest rate swap and other			(289)		4,782		1,788		5,846
Comprehensive income				227,773		145,187		523,130		430,974
Less comprehensive income attributable to noncontrolling interests				(15,559)		(16,304)		(63,477)		(101,682)
Comprehensive income attributable to Vornado			$	212,214	$	128,883	$	459,653	$	329,292


See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)


(Amounts in thousands)																	Non-
															Accumulated		controlling
													Earnings		Other		Interests in
			Preferred Shares				Common Shares				Additional		Less Than		Comprehensive		Consolidated		Total
			Shares		Amount		Shares		Amount		Capital		Distributions		Income (Loss)		Subsidiaries		Equity
Balance, December 31, 2014				52,679	$	1,277,026		187,887	$	7,493	$	6,873,025	$	(1,505,385)	$	93,267	$	743,956	$	7,489,382
Net income attributable to Vornado				-		-		-		-		-		509,327		-		-		509,327
Net income attributable to
	noncontrolling interests in
	consolidated subsidiaries			-		-		-		-		-		-		-		38,370		38,370
Distribution of Urban Edge
	Properties			-		-		-		-		-		(464,262)		-		(341)		(464,603)
Dividends on common shares				-		-		-		-		-		(355,945)		-		-		(355,945)
Dividends on preferred shares				-		-		-		-		-		(60,213)		-		-		(60,213)
Common shares issued:
	Upon redemption of Class A
		units, at redemption value		-		-		437		17		46,676		-		-		-		46,693
	Under employees' share
		option plan		-		-		198		8		14,197		(2,579)		-		-		11,626
	Under dividend reinvestment plan			-		-		11		-		1,068		-		-		-		1,068
Contributions:
	Real estate fund investments			-		-		-		-		-		-		-		51,725		51,725
Distributions:
	Real estate fund investments			-		-		-		-		-		-		-		(70,875)		(70,875)
	Other			-		-		-		-		-		-		-		(397)		(397)
Conversion of Series A preferred
	shares to common shares			(1)		(41)		2		-		41		-		-		-		-
Deferred compensation shares
	and options			-		-		6		1		2,046		(359)		-		-		1,688
Reduction in unrealized net gain on
	available-for-sale securities			-		-		-		-		-		-		(53,396)		-		(53,396)
Pro rata share of other
	comprehensive loss of
	nonconsolidated subsidiaries			-		-		-		-		-		-		(1,148)		-		(1,148)
Increase in value of interest
	rate swap			-		-		-		-		-		-		1,783		-		1,783
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		-		295,713		-		-		-		295,713
Redeemable noncontrolling interests'
	share of above adjustments			-		-		-		-		-		-		3,082		-		3,082
Other				-		-		-		-		-		700		5		(84)		621
Balance, September 30, 2015				52,678	$	1,276,985		188,541	$	7,519	$	7,232,766	$	(1,878,716)	$	43,593	$	762,354	$	7,444,501



See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
(UNAUDITED)


(Amounts in thousands)																	Non-
															Accumulated		controlling
													Earnings		Other		Interests in
			Preferred Shares				Common Shares				Additional		Less Than		Comprehensive		Consolidated		Total
			Shares		Amount		Shares		Amount		Capital		Distributions		Income (Loss)		Subsidiaries		Equity
Balance, December 31, 2013				52,683	$	1,277,225		187,285	$	7,469	$	7,143,840	$	(1,734,839)	$	71,537	$	829,512	$	7,594,744
Net income attributable to Vornado				-		-		-		-		-		331,249		-		-		331,249
Net income attributable to
	noncontrolling interests in
	consolidated subsidiaries			-		-		-		-		-		-		-		85,239		85,239
Dividends on common shares				-		-		-		-		-		(410,724)		-		-		(410,724)
Dividends on preferred shares				-		-		-		-		-		(61,099)		-		-		(61,099)
Common shares issued:
	Upon redemption of Class A
		units, at redemption value		-		-		227		9		22,659		-		-		-		22,668
	Under employees' share
		option plan		-		-		199		8		12,342		-		-		-		12,350
	Under dividend reinvestment plan			-		-		13		-		1,387		-		-		-		1,387
Contributions:
	Real estate fund investments			-		-		-		-		-		-		-		5,297		5,297
	Other			-		-		-		-		-		-		-		5,000		5,000
Distributions:
	Real estate fund investments			-		-		-		-		-		-		-		(182,964)		(182,964)
	Other			-		-		-		-		-		-		-		(643)		(643)
Transfer of noncontrolling interest
	in real estate fund investments			-		-		-		-		-		-		-		(33,028)		(33,028)
Conversion of Series A preferred
	shares to common shares			(4)		(193)		6		-		193		-		-		-		-
Deferred compensation shares
	and options			-		-		5		1		4,645		(340)		-		-		4,306
Reduction in unrealized net gain
	on available-for-sale securities			-		-		-		-		-		-		(7,761)		-		(7,761)
Pro rata share of other
	comprehensive loss of
	nonconsolidated subsidiaries			-		-		-		-		-		-		(151)		-		(151)
Increase in value of interest
	rate swap			-		-		-