Edgar Filing: VORNADO REALTY TRUST

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)



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



	For the quarterly period ended:	September 30, 2018



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



For the transition period from:		to



Commission File Number:	001-11954 (Vornado Realty Trust)
Commission File Number:	001-34482 (Vornado Realty L.P.)



	Vornado Realty Trust Vornado Realty L.P.

(Exact name of registrants as specified in its charter)



Vornado Realty Trust	Maryland	22-1657560
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

Vornado Realty L.P.	Delaware	13-3925979
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

888 Seventh Avenue, New York, New York 10019

(Address of principal executive offices) (Zip Code)

(212) 894-7000

(Registrants’ 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.

Vornado Realty Trust: Yes ☑ No ☐ Vornado Realty L.P.: Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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).

Vornado Realty Trust: Yes ☑ No ☐ Vornado Realty L.P.: Yes ☑ No ☐

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



Vornado Realty Trust:
☑ Large Accelerated Filer		☐ Accelerated Filer
☐ Non-Accelerated Filer		☐ Smaller Reporting Company
		☐ Emerging Growth Company



Vornado Realty L.P.:
☐ Large Accelerated Filer		☐ Accelerated Filer
☑ Non-Accelerated Filer		☐ Smaller Reporting Company
		☐ Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Vornado Realty Trust: Yes ☐ No ☑ Vornado Realty L.P.: Yes ☐ No ☑

As of September 30, 2018, 190,285,799 of Vornado Realty Trust’s common shares of beneficial interest are outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2018 of Vornado Realty Trust and Vornado Realty L.P. Unless stated otherwise or the context otherwise requires, references to “Vornado” refer to Vornado Realty Trust, a Maryland real estate investment trust (“REIT”), and references to the “Operating Partnership” refer to Vornado Realty L.P., a Delaware limited partnership. References to the “Company,” “we,” “us” and “our” mean collectively Vornado, the Operating Partnership and those subsidiaries consolidated by Vornado.

The Operating Partnership is the entity through which we conduct substantially all of our business and own, either directly or through subsidiaries, substantially all of our assets. Vornado is the sole general partner and also a 93.5% limited partner of the Operating Partnership. As the sole general partner of the Operating Partnership, Vornado has exclusive control of the Operating Partnership’s day-to-day management.

Under the limited partnership agreement of the Operating Partnership, unitholders may present their Class A units for redemption at any time (subject to restrictions agreed upon at the time of issuance of the units that may restrict such right for a period of time). Class A units may be tendered for redemption to the Operating Partnership for cash; Vornado, at its option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis. Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder. This one-for-one exchange ratio is subject to specified adjustments to prevent dilution. Vornado generally expects that it will elect to issue its common shares in connection with each such presentation for redemption rather than having the Operating Partnership pay cash. With each such exchange or redemption, Vornado’s percentage ownership in the Operating Partnership will increase. In addition, whenever Vornado issues common shares other than to acquire Class A units of the Operating Partnership, Vornado must contribute any net proceeds it receives to the Operating Partnership and the Operating Partnership must issue to Vornado an equivalent number of Class A units of the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT.

The Company believes that combining the quarterly reports on Form 10-Q of Vornado and the Operating Partnership into this single report provides the following benefits:


•	enhances investors’ understanding of Vornado and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;


•	eliminates duplicative disclosure and provides a more streamlined and readable presentation because a substantial portion of the disclosure applies to both Vornado and the Operating Partnership; and


•	creates time and cost efficiencies in the preparation of one combined report instead of two separate reports.

The Company believes it is important to understand the few differences between Vornado and the Operating Partnership in the context of how Vornado and the Operating Partnership operate as a consolidated company. The financial results of the Operating Partnership are consolidated into the financial statements of Vornado. Vornado does not have any significant assets, liabilities or operations, other than its investment in the Operating Partnership. The Operating Partnership, not Vornado, generally executes all significant business relationships other than transactions involving the securities of Vornado. The Operating Partnership holds substantially all of the assets of Vornado. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by Vornado, which are contributed to the capital of the Operating Partnership in exchange for units of limited partnership in the Operating Partnership, as applicable, the Operating Partnership generates all remaining capital required by the Company’s business. These sources may include working capital, net cash provided by operating activities, borrowings under the revolving credit facility, the issuance of secured and unsecured debt and equity securities, and proceeds received from the disposition of certain properties.

To help investors better understand the key differences between Vornado and the Operating Partnership, certain information for Vornado and the Operating Partnership in this report has been separated, as set forth below:


•	Item 1. Financial Statements (unaudited), which includes the following specific disclosures for Vornado Realty Trust and Vornado Realty L.P.:


•	Note 13. Redeemable Noncontrolling Interests/Redeemable Partnership Units


•	Note 14. Shareholders' Equity/Partners' Capital


•	Note 21. Income (Loss) Per Share/Income (Loss) Per Class A Unit


•	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations includes information specific to each entity, where applicable.

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of Vornado and the Operating Partnership in order to establish that the requisite certifications have been made and that Vornado and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.



PART I.		Financial Information:	Page Number

	Item 1.	Financial Statements of Vornado Realty Trust:

		Consolidated Balance Sheets (Unaudited) as of September 30, 2018 and December 31, 2017	5

		Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017	6

		Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017	7

		Consolidated Statements of Changes in Equity (Unaudited) for the Nine Months Ended September 30, 2018 and 2017	8

		Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2018 and 2017	10

		Financial Statements of Vornado Realty L.P.:

		Consolidated Balance Sheets (Unaudited) as of September 30, 2018 and December 31, 2017	12

		Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017	13

		Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017	14

		Consolidated Statements of Changes in Equity (Unaudited) for the Nine Months Ended September 30, 2018 and 2017	15

		Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2018 and 2017	17

		Vornado Realty Trust and Vornado Realty L.P.:

		Notes to Consolidated Financial Statements (Unaudited)	19

		Reports of Independent Registered Public Accounting Firm	49

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	51

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	92

	Item 4.	Controls and Procedures	93

PART II.		Other Information:

	Item 1.	Legal Proceedings	94

	Item 1A.	Risk Factors	94

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94

	Item 3.	Defaults Upon Senior Securities	94

	Item 4.	Mine Safety Disclosures	94

	Item 5.	Other Information	94

	Item 6.	Exhibits	94

EXHIBIT INDEX			95

SIGNATURES			96

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



(Amounts in thousands, except unit, share, and per share amounts)	September 30, 2018			December 31, 2017
ASSETS
Real estate, at cost:
Land	$	3,306,264		$	3,143,648
Buildings and improvements	10,083,313			9,898,605
Development costs and construction in progress	1,579,628			1,615,101
Leasehold improvements and equipment	106,945			98,941
Total	15,076,150			14,756,295
Less accumulated depreciation and amortization	(3,109,361		)	(2,885,283		)
Real estate, net	11,966,789			11,871,012
Cash and cash equivalents	772,524			1,817,655
Restricted cash	147,286			97,157
Marketable securities	157,951			182,752
Tenant and other receivables, net of allowance for doubtful accounts of $3,935 and $5,526	69,796			58,700
Investments in partially owned entities	909,440			1,056,829
Real estate fund investments	369,767			354,804
220 Central Park South condominium units ready for sale	307,552			—
Receivable arising from the straight-lining of rents, net of allowance of $1,705 and $954	937,294			926,711
Deferred leasing costs, net of accumulated amortization of $202,480 and $191,827	443,350			403,492
Identified intangible assets, net of accumulated amortization of $167,861 and $150,837	139,994			159,260
Assets related to discontinued operations	74			1,357
Other assets	456,203			468,205
	$	16,678,020		$	17,397,934
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgages payable, net	$	8,119,075		$	8,137,139
Senior unsecured notes, net	843,710			843,614
Unsecured term loan, net	749,874			748,734
Unsecured revolving credit facilities	80,000			—
Accounts payable and accrued expenses	415,531			415,794
Deferred revenue	176,211			227,069
Deferred compensation plan	102,281			109,177
Liabilities related to discontinued operations	205			3,620
Preferred shares redeemed on January 4 and 11, 2018	—			455,514
Other liabilities	229,042			464,635
Total liabilities	10,715,929			11,405,296
Commitments and contingencies
Redeemable noncontrolling interests:
Class A units - 12,591,157 and 12,528,899 units outstanding	919,154			979,509
Series D cumulative redeemable preferred units - 177,101 units outstanding	5,428			5,428
Total redeemable noncontrolling interests	924,582			984,937
Vornado's shareholders' equity:
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 36,798,580 and 36,799,573 shares	891,294			891,988
Common shares of beneficial interest: $0.04 par value per share; authorized 250,000,000 shares; issued and outstanding 190,285,799 and 189,983,858 shares	7,589			7,577
Additional capital	7,580,463			7,492,658
Earnings less than distributions	(4,135,602		)	(4,183,253		)
Accumulated other comprehensive income	34,173			128,682
Total Vornado shareholders' equity	4,377,917			4,337,652
Noncontrolling interests in consolidated subsidiaries	659,592			670,049
Total equity	5,037,509			5,007,701
	$	16,678,020		$	17,397,934

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 September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
REVENUES:
Property rentals	$	437,560		$	432,062		$	1,322,265		$	1,275,597
Tenant expense reimbursements	66,387			63,401			185,009			174,091
Fee and other income	38,101			33,292			113,029			98,212
Total revenues	542,048			528,755			1,620,303			1,547,900
EXPENSES:
Operating	235,575			225,226			709,158			661,585
Depreciation and amortization	113,169			104,972			333,701			315,223
General and administrative	31,977			34,286			108,937			115,866
Expense from deferred compensation plan liability	1,861			1,975			3,534			5,233
Transaction related costs and other	2,510			61			16,683			1,073
Total expenses	385,092			366,520			1,172,013			1,098,980
Operating income	156,956			162,235			448,290			448,920
Income (loss) from partially owned entities	7,206			(41,801		)	6,059			5,578
Loss from real estate fund investments	(190		)	(6,308		)	(37,973		)	(1,649		)
Interest and other investment income, net	2,893			7,331			9,401			22,567
Income from deferred compensation plan assets	1,861			1,975			3,534			5,233
Interest and debt expense	(88,951		)	(85,068		)	(264,774		)	(252,581		)
Net gains on disposition of wholly owned and partially owned assets	141,269			—			164,828			501
Income before income taxes	221,044			38,364			329,365			228,569
Income tax expense	(1,943		)	(1,188		)	(4,964		)	(3,491		)
Income from continuing operations	219,101			37,176			324,401			225,078
Income (loss) from discontinued operations	61			(47,930		)	381			(14,501		)
Net income (loss)	219,162			(10,754		)	324,782			210,577
Less net (income) loss attributable to noncontrolling interests in:
Consolidated subsidiaries	(3,312		)	(4,022		)	31,137			(18,436		)
Operating Partnership	(12,671		)	1,878			(18,992		)	(9,057		)
Net income (loss) attributable to Vornado	203,179			(12,898		)	336,927			183,084
Preferred share dividends	(12,534		)	(16,128		)	(38,103		)	(48,386		)
Preferred share issuance costs	—			—			(14,486		)	—
NET INCOME (LOSS) attributable to common shareholders	$	190,645		$	(29,026	)	$	284,338		$	134,698

INCOME (LOSS) PER COMMON SHARE – BASIC:
Income from continuing operations, net	$	1.00		$	0.09		$	1.50		$	0.78
Loss from discontinued operations, net	—			(0.24		)	—			(0.07		)
Net income (loss) per common share	$	1.00		$	(0.15	)	$	1.50		$	0.71
Weighted average shares outstanding	190,245			189,593			190,176			189,401

INCOME (LOSS) PER COMMON SHARE – DILUTED:
Income from continuing operations, net	$	1.00		$	0.09		$	1.49		$	0.78
Loss from discontinued operations, net	—			(0.24		)	—			(0.07		)
Net income (loss) per common share	$	1.00		$	(0.15	)	$	1.49		$	0.71
Weighted average shares outstanding	191,327			190,847			191,292			191,257

DIVIDENDS PER COMMON SHARE	$	0.63		$	0.60		$	1.89		$	2.02

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



(Amounts in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018		2017
Net income (loss)	$	219,162		$	(10,754	)	$	324,782	$	210,577
Other comprehensive income (loss):
Pro rata share of other comprehensive income (loss) of nonconsolidated subsidiaries	253			(626		)	989		(1,657		)
Increase (reduction) in unrealized net gain on available-for-sale securities	—			5,656			—		(10,559		)
Pro rata share of amounts reclassified from accumulated other comprehensive (loss) income of a nonconsolidated subsidiary	—			(646		)	—		8,622
Increase in value of interest rate swaps and other	623			1,973			13,789		6,611
Comprehensive income (loss)	220,038			(4,397		)	339,560		213,594
Less comprehensive (income) loss attributable to noncontrolling interests	(16,037		)	(2,539		)	11,232		(27,681		)
Comprehensive income (loss) attributable to Vornado	$	204,001		$	(6,936	)	$	350,792	$	185,913

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			Non-controlling Interests in Consolidated Subsidiaries			Total Equity
	Shares		Amount			Shares	Amount		Additional Capital		Earnings Less Than Distributions			Accumulated Other Comprehensive Income			Non-controlling Interests in Consolidated Subsidiaries			Total Equity
Balance, December 31, 2017	36,800		$	891,988		189,984	$	7,577	$	7,492,658	$	(4,183,253	)	$	128,682		$	670,049		$	5,007,701
Cumulative effect of accounting change (see Note 3)	—		—			—	—		—		122,893			(108,374		)	—			14,519
Net income attributable to Vornado	—		—			—	—		—		336,927			—			—			336,927
Net loss attributable to noncontrolling interests in consolidated subsidiaries	—		—			—	—		—		—			—			(31,137		)	(31,137		)
Dividends on common shares	—		—			—	—		—		(359,456		)	—			—			(359,456		)
Dividends on preferred shares	—		—			—	—		—		(38,103		)	—			—			(38,103		)
Preferred share issuance costs	—		(663		)	—	—		—		(14,486		)	—			—			(15,149		)
Common shares issued:
Upon redemption of Class A units, at redemption value	—		—			201	8		14,081		—			—			—			14,089
Under employees' share option plan	—		—			77	3		4,223		—			—			—			4,226
Under dividend reinvestment plan	—		—			15	1		1,035		—			—			—			1,036
Contributions:
Real estate fund investments	—		—			—	—		—		—			—			46,942			46,942
Other	—		—			—	—		—		—			—			14,577			14,577
Distributions:
Real estate fund investments	—		—			—	—		—		—			—			(12,665		)	(12,665		)
Other	—		—			—	—		—		—			—			(28,173		)	(28,173		)
Conversion of Series A preferred shares to common shares	(1	)	(31		)	2	—		31		—			—			—			—
Deferred compensation shares and options	—		—			7	—		871		(121		)	—			—			750
Pro rata share of other comprehensive income of nonconsolidated subsidiaries	—		—			—	—		—		—			989			—			989
Increase in value of interest rate swaps	—		—			—	—		—		—			13,789			—			13,789
Unearned 2015 Out-Performance Plan awards acceleration	—		—			—	—		9,046		—			—			—			9,046
Adjustments to carry redeemable Class A units at redemption value	—		—			—	—		57,970		—			—			—			57,970
Redeemable noncontrolling interests' share of above adjustments	—		—			—	—		—		—			(913		)	—			(913		)
Other	—		—			—	—		548		(3		)	—			(1		)	544
Balance, September 30, 2018	36,799		$	891,294		190,286	$	7,589	$	7,580,463	$	(4,135,602	)	$	34,173		$	659,592		$	5,037,509

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED

(UNAUDITED)



(Amounts in thousands)	Preferred Shares					Common Shares			Additional Capital			Earnings Less Than Distributions			Accumulated Other Comprehensive Income			Non- controlling Interests in Consolidated Subsidiaries			Total Equity
	Shares		Amount			Shares	Amount		Additional Capital			Earnings Less Than Distributions			Accumulated Other Comprehensive Income			Non- controlling Interests in Consolidated Subsidiaries			Total Equity
Balance, December 31, 2016	42,825		$	1,038,055		189,101	$	7,542	$	7,153,332		$	(1,419,382	)	$	118,972		$	719,977		$	7,618,496
Net income attributable to Vornado	—		—			—	—		—			183,084			—			—			183,084
Net income attributable to noncontrolling interests in consolidated subsidiaries	—		—			—	—		—			—			—			18,436			18,436
Dividends on common shares	—		—			—	—		—			(382,552		)	—			—			(382,552		)
Dividends on preferred shares	—		—			—	—		—			(48,386		)	—			—			(48,386		)
Common shares issued:
Upon redemption of Class A units, at redemption value	—		—			349	14		34,550			—			—			—			34,564
Under employees' share option plan	—		—			409	15		23,877			—			—			—			23,892
Under dividend reinvestment plan	—		—			12	—		1,119			—			—			—			1,119
Contributions	—		—			—	—		—			—			—			1,044			1,044
Distributions:
JBG SMITH Properties	—		—			—	—		—			(2,430,427		)	—			—			(2,430,427		)
Real estate fund investments	—		—			—	—		—			—			—			(20,851		)	(20,851		)
Other	—		—			—	—		—			—			—			(1,815		)	(1,815		)
Conversion of Series A preferred shares to common shares	(2	)	(44		)	2	—		44			—			—			—			—
Deferred compensation shares and options	—		—			1	—		1,975			(418		)	—			—			1,557
Reduction in unrealized net gain on available-for-sale securities	—		—			—	—		—			—			(10,559		)	—			(10,559		)
Pro rata share of amounts reclassified related to a nonconsolidated subsidiary	—		—			—	—		—			—			8,622			—			8,622
Pro rata share of other comprehensive loss of nonconsolidated subsidiaries	—		—			—	—		—			—			(1,657		)	—			(1,657		)
Increase in value of interest rate swaps	—		—			—	—		—			—			6,611			—			6,611
Adjustments to carry redeemable Class A units at redemption value	—		—			—	—		286,928			—			—			—			286,928
Redeemable noncontrolling interests' share of above adjustments	—		—			—	—		—			—			(188		)	—			(188		)
Other	—		—			4	—		(2		)	(46		)	—			(297		)	(345		)
Balance, September 30, 2017	42,823		$	1,038,011		189,878	$	7,571	$	7,501,823		$	(4,098,127	)	$	121,801		$	716,494		$	5,287,573

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



(Amounts in thousands)	For the Nine Months Ended September 30,
	2018			2017
Cash Flows from Operating Activities:
Net income	$	324,782		$	210,577
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of deferred financing costs)	353,761			407,539
Net gains on disposition of wholly owned and partially owned assets	(164,828		)	(501		)
Distributions of income from partially owned entities	61,782			65,097
Net realized and unrealized losses on real estate fund investments	33,709			18,537
Amortization of below-market leases, net	(31,480		)	(35,446		)
Other non-cash adjustments	28,432			43,921
Decrease in fair value of marketable securities	24,801			—
Return of capital from real estate fund investments	20,291			80,294
Straight-lining of rents	(10,279		)	(37,752		)
Equity in net income of partially owned entities	(6,059		)	(6,013		)
Net gains on sale of real estate and other	—			(3,797		)
Changes in operating assets and liabilities:
Real estate fund investments	(68,950		)	—
Tenant and other receivables, net	(11,662		)	5,485
Prepaid assets	74,322			(70,949		)
Other assets	(122,925		)	(27,065		)
Accounts payable and accrued expenses	(3,810		)	27,609
Other liabilities	(13,849		)	(15,911		)
Net cash provided by operating activities	488,038			661,625

Cash Flows from Investing Activities:
Acquisitions of real estate and other	(500,225		)	(11,841		)
Development costs and construction in progress	(274,147		)	(274,716		)
Proceeds from sales of real estate and related investments	219,731			9,543
Additions to real estate	(163,546		)	(207,759		)
Distributions of capital from partially owned entities	98,609			347,776
Investments in partially owned entities	(32,728		)	(33,578		)
Repayment of JBG SMITH Properties loan receivable	—			115,630
Proceeds from repayments of mortgage loans receivable	—			650
Net cash used in investing activities	(652,306		)	(54,295		)

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,
	2018			2017
Cash Flows from Financing Activities:
Redemption of preferred shares	$	(470,000	)	$	—
Dividends paid on common shares	(359,456		)	(382,552		)
Proceeds from borrowings	312,763			229,042
Repayments of borrowings	(264,482		)	(177,109		)
Distributions to noncontrolling interests	(63,110		)	(48,329		)
Contributions from noncontrolling interests	59,924			1,044
Dividends paid on preferred shares	(42,582		)	(48,386		)
Debt issuance costs	(7,451		)	(2,944		)
Proceeds received from exercise of employee share options and other	5,262			25,011
Debt prepayment and extinguishment costs	(818		)	—
Repurchase of shares related to stock compensation agreements and related tax withholdings and other	(784		)	(418		)
Cash and cash equivalents and restricted cash included in the spin-off of JBG SMITH Properties ($275,000 plus The Bartlett financing proceeds less transaction costs and other mortgage items)	—			(416,237		)
Net cash used in financing activities	(830,734		)	(820,878		)
Net decrease in cash and cash equivalents and restricted cash	(995,002		)	(213,548		)
Cash and cash equivalents and restricted cash at beginning of period	1,914,812			1,599,331
Cash and cash equivalents and restricted cash at end of period	$	919,810		$	1,385,783

Reconciliation of Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents at beginning of period	$	1,817,655		$	1,501,027
Restricted cash at beginning of period	97,157			95,032
Restricted cash included in discontinued operations at beginning of period	—			3,272
Cash and cash equivalents and restricted cash at beginning of period	$	1,914,812		$	1,599,331

Cash and cash equivalents at end of period	$	772,524		$	1,282,230
Restricted cash at end of period	147,286			103,553
Restricted cash included in discontinued operations at end of period	—			—
Cash and cash equivalents and restricted cash at end of period	$	919,810		$	1,385,783

Supplemental Disclosure of Cash Flow Information:
Cash payments for interest, excluding capitalized interest of $45,292 and $31,243	$	245,628		$	257,173
Cash payments for income taxes	$	61,047		$	5,292

Non-Cash Investing and Financing Activities:
Reclassification of condominium units from "development costs and construction in progress" to "220 Central Park South condominium units ready for sale"	$	307,552		$	—
Accrued capital expenditures included in accounts payable and accrued expenses	74,185			69,033
Write-off of fully depreciated assets	(61,120		)	(41,458		)
Adjustments to carry redeemable Class A units at redemption value	57,970			286,928
Non-cash distribution to JBG SMITH Properties:
Assets	—			3,432,738
Liabilities	—			(1,414,186		)
Equity	—			(2,018,552		)
Loan receivable established upon the spin-off of JBG SMITH Properties	—			115,630
Reduction in unrealized net gain on available-for-sale securities	—			(10,559		)

See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



(Amounts in thousands, except unit amounts)	September 30, 2018			December 31, 2017
ASSETS
Real estate, at cost:
Land	$	3,306,264		$	3,143,648
Buildings and improvements	10,083,313			9,898,605
Development costs and construction in progress	1,579,628			1,615,101
Leasehold improvements and equipment	106,945			98,941
Total	15,076,150			14,756,295
Less accumulated depreciation and amortization	(3,109,361		)	(2,885,283		)
Real estate, net	11,966,789			11,871,012
Cash and cash equivalents	772,524			1,817,655
Restricted cash	147,286			97,157
Marketable securities	157,951			182,752
Tenant and other receivables, net of allowance for doubtful accounts of $3,935 and $5,526	69,796			58,700
Investments in partially owned entities	909,440			1,056,829
Real estate fund investments	369,767			354,804
220 Central Park South condominium units ready for sale	307,552			—
Receivable arising from the straight-lining of rents, net of allowance of $1,705 and $954	937,294			926,711
Deferred leasing costs, net of accumulated amortization of $202,480 and $191,827	443,350			403,492
Identified intangible assets, net of accumulated amortization of $167,861 and $150,837	139,994			159,260
Assets related to discontinued operations	74			1,357
Other assets	456,203			468,205
	$	16,678,020		$	17,397,934
LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY
Mortgages payable, net	$	8,119,075		$	8,137,139
Senior unsecured notes, net	843,710			843,614
Unsecured term loan, net	749,874			748,734
Unsecured revolving credit facilities	80,000			—
Accounts payable and accrued expenses	415,531			415,794
Deferred revenue	176,211			227,069
Deferred compensation plan	102,281			109,177
Liabilities related to discontinued operations	205			3,620
Preferred units redeemed on January 4 and 11, 2018	—			455,514
Other liabilities	229,042			464,635
Total liabilities	10,715,929			11,405,296
Commitments and contingencies
Redeemable partnership units:
Class A units - 12,591,157 and 12,528,899 units outstanding	919,154			979,509
Series D cumulative redeemable preferred units - 177,101 units outstanding	5,428			5,428
Total redeemable partnership units	924,582			984,937
Equity:
Partners' capital	8,479,346			8,392,223
Earnings less than distributions	(4,135,602		)	(4,183,253		)
Accumulated other comprehensive income	34,173			128,682
Total Vornado Realty L.P. equity	4,377,917			4,337,652
Noncontrolling interests in consolidated subsidiaries	659,592			670,049
Total equity	5,037,509			5,007,701
	$	16,678,020		$	17,397,934

See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



(Amounts in thousands, except per unit amounts)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
REVENUES:
Property rentals	$	437,560		$	432,062		$	1,322,265		$	1,275,597
Tenant expense reimbursements	66,387			63,401			185,009			174,091
Fee and other income	38,101			33,292			113,029			98,212
Total revenues	542,048			528,755			1,620,303			1,547,900
EXPENSES:
Operating	235,575			225,226			709,158			661,585
Depreciation and amortization	113,169			104,972			333,701			315,223
General and administrative	31,977			34,286			108,937			115,866
Expense from deferred compensation plan liability	1,861			1,975			3,534			5,233
Transaction related costs and other	2,510			61			16,683			1,073
Total expenses	385,092			366,520			1,172,013			1,098,980
Operating income	156,956			162,235			448,290			448,920
Income (loss) from partially owned entities	7,206			(41,801		)	6,059			5,578
Loss from real estate fund investments	(190		)	(6,308		)	(37,973		)	(1,649		)
Interest and other investment income, net	2,893			7,331			9,401			22,567
Income from deferred compensation plan assets	1,861			1,975			3,534			5,233
Interest and debt expense	(88,951		)	(85,068		)	(264,774		)	(252,581		)
Net gains on disposition of wholly owned and partially owned assets	141,269			—			164,828			501
Income before income taxes	221,044			38,364			329,365			228,569
Income tax expense	(1,943		)	(1,188		)	(4,964		)	(3,491		)
Income from continuing operations	219,101			37,176			324,401			225,078
Income (loss) from discontinued operations	61			(47,930		)	381			(14,501		)
Net income (loss)	219,162			(10,754		)	324,782			210,577
Less net (income) loss attributable to noncontrolling interests in consolidated subsidiaries	(3,312		)	(4,022		)	31,137			(18,436		)
Net income (loss) attributable to Vornado Realty L.P.	215,850			(14,776		)	355,919			192,141
Preferred unit distributions	(12,582		)	(16,176		)	(38,248		)	(48,531		)
Preferred unit issuance costs	—			—			(14,486		)	—
NET INCOME (LOSS) attributable to Class A unitholders	$	203,268		$	(30,952	)	$	303,185		$	143,610

INCOME (LOSS) PER CLASS A UNIT – BASIC:
Income from continuing operations, net	$	1.00		$	0.08		$	1.49		$	0.77
Loss from discontinued operations, net	—			(0.24		)	—			(0.07		)
Net income (loss) per Class A unit	$	1.00		$	(0.16	)	$	1.49		$	0.70
Weighted average units outstanding	202,103			201,300			202,033			201,093

INCOME (LOSS) PER CLASS A UNIT – DILUTED:
Income from continuing operations, net	$	0.99		$	0.08		$	1.48		$	0.76
Loss from discontinued operations, net	—			(0.24		)	—			(0.07		)
Net income (loss) per Class A unit	$	0.99		$	(0.16	)	$	1.48		$	0.69
Weighted average units outstanding	203,594			203,113			203,400			203,311

DISTRIBUTIONS PER CLASS A UNIT	$	0.63		$	0.60		$	1.89		$	2.02

See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



(Amounts in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018		2017
Net income (loss)	$	219,162		$	(10,754	)	$	324,782	$	210,577
Other comprehensive income (loss):
Pro rata share of other comprehensive income (loss) of nonconsolidated subsidiaries	253			(626		)	989		(1,657		)
Increase (reduction) in unrealized net gain on available-for-sale securities	—			5,656			—		(10,559		)
Pro rata share of amounts reclassified from accumulated other comprehensive (loss) income of a nonconsolidated subsidiary	—			(646		)	—		8,622
Increase in value of interest rate swaps and other	623			1,973			13,789		6,611
Comprehensive income (loss)	220,038			(4,397		)	339,560		213,594
Less comprehensive (income) loss attributable to noncontrolling interests in consolidated subsidiaries	(3,312		)	(4,022		)	31,137		(18,436		)
Comprehensive income (loss) attributable to Vornado	$	216,726		$	(8,419	)	$	370,697	$	195,158

See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)



(Amounts in thousands)	Preferred Units			Class A Units Owned by Vornado			Earnings Less Than Distributions			Accumulated Other Comprehensive Income			Non- controlling Interests in Consolidated Subsidiaries		Total Equity
	Units	Amount		Units	Amount		Earnings Less Than Distributions			Accumulated Other Comprehensive Income			Non- controlling Interests in Consolidated Subsidiaries		Total Equity
Balance, December 31, 2017	36,800	$	891,988	189,984	$	7,500,235	$	(4,183,253	)	$	128,682		$	670,049	$	5,007,701
Cumulative effect of accounting change (see Note 3)	—	—		—	—		122,893			(108,374		)	—		14,519
Net income attributable to Vornado Realty L.P.	—	—		—	—		355,919			—			—		355,919
Net income attributable to redeemable partnership units	—	—		—	—		(18,992		)	—			—