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, 2019 Or ☐ 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 na ...

Vornado Realty Trust (NYSE:VNO) Q2 2019 Earnings Conference Call July 30, 2019 10:00 AM ET Company Participants Cathy Creswell - Director, Investor Relations Michael Franco - President Steven Roth - Chairman & Chief Executive Officer Joe Macnow - Executive Vice President, Chief Financial Officer & Chief Administrative Officer David Greenbaum - Vice Chairman Conference Call Participants Manny Korchman - Citi Steve Sakwa - Evercore ISI James Feldman - Bank of America Merrill Lynch John Kim - BMO Capital Marke ...

PART I. Financial Information [Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Vornado Realty Trust and Vornado Realty L.P., including balance sheets, income, and cash flow statements, notably impacted by the Fifth Avenue and Times Square JV and ASC 842 adoption [Vornado Realty Trust Financial Statements](index=6&type=section&id=Vornado%20Realty%20Trust%20Financial%20Statements) Vornado Realty Trust reported a significant increase in net income for Q2 and H1 2019, primarily due to a $2.57 billion gain from the Fifth Avenue and Times Square JV, impacting assets and liabilities Vornado Realty Trust - Key Financial Highlights (Q2 & H1 2019 vs 2018) | Metric (in thousands, except per share) | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $463,103 | $541,818 | $997,771 | $1,078,255 | | **Net Gain on transfer to Fifth Avenue and Times Square JV** | $2,571,099 | $0 | $2,571,099 | $0 | | **Net Income attributable to common shareholders** | $2,400,195 | $111,534 | $2,581,683 | $93,693 | | **Diluted EPS** | $12.56 | $0.58 | $13.51 | $0.49 | Vornado Realty Trust - Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Real estate, net | $10,148,187 | $13,057,708 | | Total Assets | $17,913,857 | $17,180,794 | | Mortgages payable, net | $6,256,808 | $8,167,798 | | Total Liabilities | $9,555,651 | $11,289,349 | | Total Shareholders' Equity | $6,860,554 | $4,465,231 | - Cash and cash equivalents increased significantly to **$922.6 million** as of June 30, 2019, from **$570.9 million** at the end of 2018, reflecting proceeds from asset sales and joint ventures[17](index=17&type=chunk) [Vornado Realty L.P. Financial Statements](index=15&type=section&id=Vornado%20Realty%20L.P.%20Financial%20Statements) Vornado Realty L.P.'s financial statements are substantially identical to Vornado Realty Trust's, reflecting its role as the operating entity, with a similar net income increase driven by the Fifth Avenue and Times Square JV - The assets and liabilities on the Vornado Realty L.P. balance sheet are identical to those of Vornado Realty Trust, reflecting the UPREIT structure where the Operating Partnership holds substantially all assets and liabilities[41](index=41&type=chunk) Vornado Realty L.P. - Key Income Statement Highlights (Q2 & H1 2019 vs 2018) | Metric (in thousands, except per unit) | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $463,103 | $541,818 | $997,771 | $1,078,255 | | **Net Income attributable to Class A unitholders** | $2,562,669 | $118,931 | $2,756,318 | $99,917 | | **Diluted Income per Class A unit** | $12.54 | $0.58 | $13.50 | $0.48 | [Notes to Consolidated Financial Statements](index=24&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail accounting policies and significant transactions, including ASC 842 adoption, revenue recognition, the Fifth Avenue and Times Square JV, 220 Central Park South unit sales, debt refinancing, and 608 Fifth Avenue impairment - The company adopted the new lease accounting standard ASC 842 on January 1, 2019, resulting in the recognition of **$526.9 million** in Right-of-Use (ROU) assets and corresponding lease liabilities for its ground leases[68](index=68&type=chunk) - A major transaction was the formation of the Fifth Avenue and Times Square JV on April 18, 2019. Vornado transferred several properties into the JV, sold a 48.5% common interest, and recognized a financial statement net gain of **$2.57 billion**[97](index=97&type=chunk)[100](index=100&type=chunk) - During the first six months of 2019, the company closed on the sale of 23 condominium units at 220 Central Park South for net proceeds of **$690.7 million**, resulting in a financial statement net gain of **$269.6 million**[126](index=126&type=chunk) - The company recognized a **$93.9 million** non-cash impairment loss related to its retail property at 608 Fifth Avenue after the tenant, Topshop, filed for bankruptcy and closed its U.S. stores[183](index=183&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=55&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting a significant increase in Q2 2019 net income to $2.4 billion due to the Fifth Avenue and Times Square JV gain, alongside a decrease in FFO, and covers dispositions, financing, and liquidity [Overview](index=56&type=section&id=Overview) This overview summarizes Q2 2019 financial results, including a surge in net income to $2.4 billion from the Fifth Avenue and Times Square JV gain, a decrease in FFO, and details significant dispositions and leasing activity Q2 2019 vs Q2 2018 Financial Results Summary | Metric (per diluted share) | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | **Net Income** | $12.56 | $0.58 | | **FFO** | $0.86 | $1.02 | - The primary driver for the substantial increase in net income was the formation of the Fifth Avenue and Times Square JV, which resulted in a financial statement net gain of **$2.57 billion**[264](index=264&type=chunk) - Significant dispositions in H1 2019 included the sale of all common shares of Lexington Realty Trust for **$167.7 million** and all partnership units of Urban Edge Properties for **$108.5 million**[259](index=259&type=chunk)[260](index=260&type=chunk) Same Store NOI Growth (Q2 2019 vs Q2 2018) | Portfolio | Same Store NOI (GAAP) | Same Store NOI (Cash) | | :--- | :--- | :--- | | **Total** | 1.2% | 4.3% | | **New York** | (0.7)% | 2.5% | | **theMART** | 12.1% | 15.5% | | **555 California Street** | 13.0% | 12.9% | [Results of Operations](index=69&type=section&id=Results%20of%20Operations) This section details operational results for Q2 and H1 2019, showing a decrease in total revenues due to the Fifth Avenue JV deconsolidation, an increase in expenses from the 608 Fifth Avenue impairment, and a decrease in interest expense - Q2 2019 revenues decreased by **$78.7 million** year-over-year, with a **$62.6 million** reduction directly attributable to properties transferred to the Fifth Avenue and Times Square JV[300](index=300&type=chunk) - Q2 2019 expenses increased by **$90.2 million**, mainly due to a **$100.6 million** charge for transaction costs and impairment losses, substantially related to the 608 Fifth Avenue property[302](index=302&type=chunk) - Interest and debt expense for Q2 2019 decreased by **$24.6 million** compared to Q2 2018, driven by lower debt balances from the JV transaction and paydowns of the 220 CPS loan[312](index=312&type=chunk) - Income tax expense rose to **$26.9 million** in Q2 2019 from **$0.5 million** in Q2 2018, primarily due to **$22.8 million** in taxes on the sale of 220 CPS condominium units[315](index=315&type=chunk) [Liquidity and Capital Resources](index=88&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity strengthened in H1 2019, with cash increasing to $1.08 billion due to significant inflows from the Fifth Avenue JV and 220 CPS sales, largely offset by debt repayments, while outlining substantial ongoing development commitments Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $292,852 | $241,260 | | Net cash provided by (used in) investing activities | $2,113,511 | ($254,906) | | Net cash used in financing activities | ($2,046,358) | ($689,207) | - Major sources of cash in H1 2019 included **$1.26 billion** from the Fifth Avenue JV transaction and **$690.7 million** from 220 CPS condo sales[392](index=392&type=chunk) - Major uses of cash in H1 2019 included **$1.94 billion** in debt repayments and **$407 million** for the purchase of marketable securities to defease a mortgage[393](index=393&type=chunk) - As of June 30, 2019, the company has construction commitments of approximately **$730 million** and expects to fund an additional **$15.4 million** to partially owned entities[419](index=419&type=chunk) [Funds From Operations (FFO)](index=93&type=section&id=Funds%20From%20Operations%20(FFO)) This section details the calculation and reconciliation of FFO, a non-GAAP measure, showing a decrease in Q2 2019 FFO to $164.3 million ($0.86/share) from $194.7 million ($1.02/share) in Q2 2018, with adjustments from net income FFO Reconciliation Summary (in thousands, except per share) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | **Net income attributable to common shareholders** | $2,400,195 | $111,534 | $2,581,683 | $93,693 | | **FFO adjustments, net** | ($2,235,880) | $83,103 | ($2,169,699) | $235,928 | | **FFO attributable to common shareholders** | $164,315 | $194,637 | $411,984 | $329,621 | | **FFO per diluted share** | $0.86 | $1.02 | $2.16 | $1.72 | - The company has elected to exclude mark-to-market adjustments of marketable equity securities from its FFO calculation, in line with the December 2018 NAREIT restated definition[422](index=422&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=95&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk, with a 1% rate increase potentially decreasing annual net income by $30.1 million, which it mitigates using interest rate swaps on variable-rate debt Interest Rate Sensitivity Analysis (as of June 30, 2019) | Debt Type | Balance (in thousands) | Weighted Avg. Rate | Effect of 1% Rate Change (in thousands) | | :--- | :--- | :--- | :--- | | **Consolidated Variable Rate** | $1,763,182 | 4.06% | $17,632 | | **Pro Rata Share of Non-Consolidated Variable Rate** | $1,475,815 | 4.04% | $14,758 | | **Total Annual Net Income Impact (Vornado)** | | | **$30,062** | - The company uses interest rate swaps to fix the rates on several large variable-rate loans, including its **$750 million** unsecured term loan (fixed at **3.87%**) and a **$700 million** mortgage on 770 Broadway (fixed at **2.56%**)[430](index=430&type=chunk) [Controls and Procedures](index=96&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - Both Vornado Realty Trust and Vornado Realty L.P. concluded that their disclosure controls and procedures were effective as of June 30, 2019[433](index=433&type=chunk)[435](index=435&type=chunk) - No material changes to internal control over financial reporting occurred during the second quarter of 2019[434](index=434&type=chunk)[436](index=436&type=chunk) PART II. Other Information [Legal Proceedings](index=97&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions, which management does not expect to have a material adverse effect on its financial position or operations - The company states that ongoing legal actions are not expected to have a material adverse effect on its financial condition[438](index=438&type=chunk) [Risk Factors](index=97&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors were reported for the period, consistent with disclosures in the prior annual report - No material changes to risk factors were reported for the period[439](index=439&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=97&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Vornado Realty Trust reported no unregistered equity sales, while Vornado Realty L.P. issued 641,103 Class A units for equity awards, exempt from registration under Section 4(2) - Vornado Realty L.P. issued **641,103** Class A units in Q2 2019 related to employee equity awards, exempt from registration[441](index=441&type=chunk) [Exhibits](index=97&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Crown Jewel Partner LLC Transaction Agreement, CEO/CFO certifications, and XBRL data files - Key exhibits filed include the Transaction Agreement with Crown Jewel Partner LLC, CEO/CFO certifications (Rule 13a-14 and Section 1350), and XBRL financial data[447](index=447&type=chunk)

Vornado Realty Trust (NYSE:VNO) Q1 2019 Earnings Conference Call April 30, 2019 10:00 AM ET Company Participants Catherine Creswell - Director, Investor Relations Steven Roth - Chairman and Chief Executive Officer David Greenbaum - President, New York Division Joseph Macnow - Executive Vice President, Chief Financial Officer, and Chief Administrative Officer Michael Franco - Executive Vice President and Chief Investment Officer Conference Call Participants Michael Bilerman - Citi Steve Sakwa - Evercore Jame ...

PART I. [Financial Information](index=7&type=section&id=PART%20I.%20Financial%20Information) This section presents the company's consolidated financial statements, management's discussion, and market risk disclosures [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Vornado Realty Trust and L.P., highlighting significant gains from asset sales and the adoption of ASC 842 [Vornado Realty Trust Consolidated Financial Statements](index=7&type=section&id=Vornado%20Realty%20Trust%20Consolidated%20Financial%20Statements) Vornado Realty Trust reported a significant increase in Q1 2019 net income to $194.0 million, primarily driven by gains on asset dispositions Vornado Realty Trust - Key Financial Highlights (Q1 2019 vs Q1 2018) | Metric | Q1 2019 (in thousands) | Q1 2018 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $534,668 | $536,437 | -0.3% | | Net Income Attributable to Vornado | $194,022 | $9,680 | +1904.4% | | Net Income (Loss) Attributable to Common Shareholders | $181,488 | $(17,841) | N/A | | Diluted EPS | $0.95 | $(0.09) | N/A | Vornado Realty Trust - Balance Sheet Summary (As of March 31, 2019) | Account | March 31, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :--- | :--- | :--- | | Real estate, net | $10,213,215 | $13,057,708 | | Assets held for sale | $3,027,058 | $0 | | Total Assets | $17,637,955 | $17,180,794 | | Mortgages payable, net | $6,519,189 | $8,167,798 | | Total Liabilities | $11,679,978 | $11,289,349 | | Total Shareholders' Equity | $4,443,992 | $4,465,231 | Vornado Realty Trust - Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $64,118 | $265,418 | | Net Cash from Investing Activities | $403,294 | $(190,620) | | Net Cash from Financing Activities | $(274,683) | $(571,542) | [Vornado Realty L.P. Consolidated Financial Statements](index=16&type=section&id=Vornado%20Realty%20L.P.%20Consolidated%20Financial%20Statements) Vornado Realty L.P.'s financial statements mirror the Trust's, showing a significant increase in Q1 2019 net income to $206.2 million Vornado Realty L.P. - Key Financial Highlights (Q1 2019 vs Q1 2018) | Metric | Q1 2019 (in thousands) | Q1 2018 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $534,668 | $536,437 | -0.3% | | Net Income Attributable to Vornado Realty L.P. | $206,224 | $8,556 | +2310.2% | | Net Income (Loss) Attributable to Class A Unitholders | $193,649 | $(19,014) | N/A | | Diluted EPS (per Class A unit) | $0.95 | $(0.10) | N/A | [Notes to Consolidated Financial Statements](index=25&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, the adoption of ASC 842, and significant transactions including asset sales and a major post-quarter-end joint venture - Effective January 1, 2019, the company adopted the new lease accounting standard ASC 842, resulting in the recording of **$526.9 million** of right-of-use assets and corresponding lease liabilities for its 12 ground leases[57](index=57&type=chunk) - During Q1 2019, the company closed on the sale of 12 condominium units at 220 Central Park South, generating net proceeds of **$425.5 million** and a financial statement net gain of **$157.9 million**[101](index=101&type=chunk) - On April 18, 2019, the company entered into a joint venture for its Fifth Avenue and Times Square portfolio, valuing the properties at **$5.556 billion**. The transaction is expected to result in a financial statement net gain of approximately **$2.6 billion** and net cash proceeds of approximately **$1.2 billion**[103](index=103&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - The company sold its entire stake in Urban Edge Properties (UE) for net proceeds of **$108.5 million**, recognizing a net gain of **$62.4 million**[87](index=87&type=chunk) - On March 1, 2019, the company redeemed all of its **$400 million** 5.00% senior unsecured notes due 2022, incurring a debt prepayment cost of **$22.5 million**[118](index=118&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2019 financial results, highlighting increased net income and FFO per share driven by asset sales and solid leasing activity [Overview of Financial Results](index=58&type=section&id=Overview%20of%20Financial%20Results) Q1 2019 saw significant improvements in net income and FFO per share, primarily due to asset sales, with strong Same Store NOI growth Q1 2019 Financial Performance vs. Q1 2018 | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income (Loss) per Diluted Share | $0.95 | $(0.09) | | FFO per Diluted Share | $1.30 | $0.71 | Same Store NOI at Share % Change (Q1 2019 vs. Q1 2018) | Metric | Total | New York | theMART | 555 California Street | | :--- | :--- | :--- | :--- | :--- | | Same Store NOI at Share (GAAP) | (0.1)% | (0.1)% | (4.3)% | 7.3% | | Same Store NOI at Share (Cash) | 3.0% | 2.6% | 0.9% | 15.0% | - The company's portfolio occupancy remained high as of **March 31, 2019**, with the New York office portfolio at **97.0%** and 555 California Street at **99.4%**[246](index=246&type=chunk) [Results of Operations](index=68&type=section&id=Results%20of%20Operations) Total revenues slightly decreased while expenses rose, primarily due to G&A and debt prepayment costs, offset by significant net gains on dispositions - Total revenues decreased slightly by **$1.8 million** year-over-year, while total expenses increased by **$25.6 million**[261](index=261&type=chunk)[262](index=262&type=chunk) - General and administrative expenses increased by **$15.5 million**, primarily due to a **$16.2 million** non-cash charge for accelerated vesting of stock-based compensation[262](index=262&type=chunk)[263](index=263&type=chunk) - Interest and debt expense rose by **$14.3 million**, largely due to a **$22.5 million** prepayment cost related to the redemption of **$400 million** in senior unsecured notes[273](index=273&type=chunk) - Net gains on dispositions totaled **$220.3 million**, comprising a **$157.9 million** gain from 220 CPS condo sales and a **$62.4 million** gain from the sale of UE units[274](index=274&type=chunk) [Liquidity and Capital Resources](index=79&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and equivalents increased due to strong investing activities from asset sales, while significant capital commitments remain for ongoing development projects - Cash and cash equivalents and restricted cash increased by **$192.7 million** to end the quarter at **$909.6 million**[309](index=309&type=chunk) - Investing activities were a significant source of cash (**$403.3 million**), driven by proceeds from the sale of 220 CPS condominium units (**$425.5 million**) and marketable securities (**$167.8 million**)[310](index=310&type=chunk) - The company has construction commitments of approximately **$774 million** as of March 31, 2019, related to major development projects like the Farley Office Building and PENN1 redevelopment[192](index=192&type=chunk)[337](index=337&type=chunk) - The development of the 220 CPS residential tower is estimated to cost approximately **$1.4 billion** (excluding land), with **$1.3 billion** expended as of March 31, 2019[316](index=316&type=chunk) [Funds From Operations (FFO)](index=84&type=section&id=Funds%20From%20Operations%20(FFO)) FFO attributable to common shareholders significantly increased to $247.7 million ($1.30 per diluted share) in Q1 2019, reflecting adjustments to net income FFO Reconciliation (Q1 2019 vs Q1 2018) | Metric (in thousands, except per share) | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income (Loss) Attributable to Common Shareholders | $181,488 | $(17,841) | | FFO Adjustments, net | $66,181 | $152,825 | | FFO Attributable to Common Shareholders | $247,669 | $134,984 | | **FFO per Diluted Share** | **$1.30** | **$0.71** | [Quantitative and Qualitative Disclosures About Market Risk](index=86&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk from $2.48 billion in variable-rate debt, mitigated by interest rate swaps on key loans Interest Rate Risk Exposure (As of March 31, 2019) | Debt Type | Balance (in thousands) | Effect of 1% Rate Change on Annual Net Income (in thousands) | | :--- | :--- | :--- | | Consolidated Variable Rate Debt | $2,475,508 | $24,755 | | Pro Rata Share of Non-Consolidated Variable Rate Debt | $1,266,752 | $12,668 | | **Total Change in Annual Net Income Attributable to Vornado** | | **$34,809** | - The company uses interest rate swaps to fix the rates on several large loans, including a **$750 million** unsecured term loan, a **$700 million** mortgage on 770 Broadway, and a **$375 million** mortgage on 888 Seventh Avenue[345](index=345&type=chunk) [Controls and Procedures](index=87&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures for both Vornado Realty Trust and L.P. were effective as of March 31, 2019 - Management concluded that as of **March 31, 2019**, the disclosure controls and procedures for both Vornado Realty Trust and Vornado Realty L.P. were effective[348](index=348&type=chunk)[350](index=350&type=chunk) PART II. [Other Information](index=88&type=section&id=PART%20II.%20Other%20Information) This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits [Legal Proceedings](index=88&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary legal actions, but their outcomes are not expected to materially affect financial condition - The company states that the outcome of current legal actions is not expected to have a **material adverse effect** on its financial position[353](index=353&type=chunk) [Risk Factors](index=88&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors were reported during the quarter [Unregistered Sales of Equity Securities and Use of Proceeds](index=88&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Vornado Realty L.P. issued **762,145 Class A units** for equity awards in Q1 2019, generating **$11.7 million** in cash proceeds - In Q1 2019, Vornado Realty L.P. issued **762,145 Class A units** related to equity awards, raising **$11.7 million** in cash proceeds[356](index=356&type=chunk) [Exhibits](index=88&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including credit agreements, certification letters, and XBRL data

Vornado Realty Trust (NYSE:VNO) Q4 2018 Earnings Conference Call February 12, 2019 10:00 AM ET Executives Catherine Creswell - Director, Investor Relations Steven Roth - Chairman and Chief Executive Officer David Greenbaum - President, New York Division Joseph Macnow - Executive Vice President, Chief Financial Officer, and Chief Administrative Officer Michael Franco - Executive Vice President and Chief Investment Officer Analysts Stephen Sakwa - Evercore ISI Emmanuel Korchman - Citigroup Jamie Feldman - Ban ...

VORNADO REALTY TRUST SUPPLEMENTAL OPERATING AND FINANCIAL DATA For the Quarter and Year Ended December 31, 2018 INDEX | --- | --- | |---------------------------------------------------------------------------------|------------------| | BUSINESS DEVELOPMENTS | Page \n3 - 5 | | FINANCIAL INFORMATION | | | Financial Highlights | 6 | | Net Income Attributable to Common Shareholders (Consolidated and by Segment) | 7 - 10 | | Net Operating Income at Share (by Segment and by Subsegment) | 11 - 13 | | Same Store N ...

[FORM 10-K Cover Page](index=1&type=section&id=FORM%2010-K) [Registrant Information](index=1&type=section&id=Registrant%20Information) Vornado Realty Trust and Vornado Realty L.P. are identified as registrants for the 2018 Form 10-K, detailing their corporate information and NYSE-registered securities - Vornado Realty Trust (Maryland) and Vornado Realty L.P. (Delaware) are the registrants for the fiscal year ended December 31, 2018[2](index=2&type=chunk) - Vornado Realty Trust is a well-known seasoned issuer and a large accelerated filer, while Vornado Realty L.P. is a non-accelerated filer[3](index=3&type=chunk)[4](index=4&type=chunk)[8](index=8&type=chunk) Registrant Information Table | Registrant | Title of Each Class | Name of Exchange on Which Registered | | :--- | :--- | :--- | | Vornado Realty Trust | Common Shares of beneficial interest, $.04 par value per share | New York Stock Exchange | | Vornado Realty Trust | Cumulative Redeemable Preferred Shares of beneficial interest, no par value: 5.70% Series K | New York Stock Exchange | | Vornado Realty Trust | 5.40% Series L | New York Stock Exchange | | Vornado Realty Trust | 5.25% Series M | New York Stock Exchange | | Vornado Realty L.P. | Class A Units of Limited Partnership Interest | N/A (no public market) | - The aggregate market value of voting and non-voting common shares held by non-affiliates of Vornado Realty Trust was **$12.88 billion** at June 30, 2018, with **190,535,499** common shares outstanding as of December 31, 2018[9](index=9&type=chunk)[10](index=10&type=chunk) [EXPLANATORY NOTE](index=3&type=section&id=EXPLANATORY%20NOTE) [Report Combination and Company Structure](index=3&type=section&id=Report%20Combination%20and%20Company%20Structure) The report combines Vornado Realty Trust and Vornado Realty L.P. filings, detailing the UPREIT structure and Vornado's 93.4% ownership in the Operating Partnership - The report combines the 10-K filings for Vornado Realty Trust (REIT) and Vornado Realty L.P. (Operating Partnership) to enhance investor understanding, eliminate duplicative disclosure, and improve efficiency[14](index=14&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk) - Vornado is the sole general partner and approximately **93.4%** limited partner of the Operating Partnership, which conducts substantially all business and holds assets[15](index=15&type=chunk) - The company operates under an UPREIT structure, allowing Class A unitholders to redeem units for cash or Vornado common shares on a one-for-one basis, with Vornado typically electing to issue common shares[16](index=16&type=chunk) - Specific financial disclosures for Vornado Realty Trust and Vornado Realty L.P. are separated in certain items (5, 6, 7, 8) to highlight differences within the consolidated company[19](index=19&type=chunk)[20](index=20&type=chunk) [INDEX](index=5&type=section&id=INDEX) [Report Contents](index=5&type=section&id=Report%20Contents) The comprehensive index outlines the Form 10-K report's structure, listing all parts and items with corresponding page numbers - The index outlines the report's structure, including Part I (Business, Risk Factors, Properties, Legal Proceedings), Part II (Market for Common Equity, Financial Data, MD&A, Financial Statements), Part III (Directors, Executive Compensation, Security Ownership), and Part IV (Exhibits, Schedules)[22](index=22&type=chunk) [FORWARD-LOOKING STATEMENTS](index=6&type=section&id=FORWARD-LOOKING%20STATEMENTS) [Disclaimer and Safe Harbor](index=6&type=section&id=Disclaimer%20and%20Safe%20Harbor) This section disclaims forward-looking statements on future performance, financial condition, and business, noting inherent risks and no commitment to updates - The report contains forward-looking statements about future performance, financial condition, and business, including estimates for development projects, capital expenditures, and dividends[24](index=24&type=chunk) - These statements are not guarantees of future performance and are subject to numerous assumptions, risks, and uncertainties, which could cause actual results to differ materially[24](index=24&type=chunk) - The company claims the protection of the safe harbor for forward-looking statements under the Private Securities Litigation Reform Act of 1995 and does not commit to publicly release revisions to these statements[25](index=25&type=chunk) [PART I](index=7&type=section&id=PART%20I) [ITEM 1. BUSINESS](index=7&type=section&id=ITEM%201.%20BUSINESS) Vornado, a fully-integrated REIT, focuses on maximizing shareholder value through strategic investments, acquisitions, and redevelopments, primarily in New York City - Vornado is a fully-integrated REIT, with approximately **93.4%** ownership in its Operating Partnership as of December 31, 2018, which holds substantially all property interests[27](index=27&type=chunk) - The company's primary business objective is to maximize shareholder value through a strategy of investing in select markets (e.g., New York City), acquiring quality properties at a discount, developing/redeveloping existing assets, and investing in operating companies with significant real estate components[30](index=30&type=chunk)[31](index=31&type=chunk) - Financing for growth, acquisitions, and investments is expected from internally generated funds, asset sales, and public/private capital markets[30](index=30&type=chunk) [Current Property Holdings](index=7&type=section&id=Current%20Property%20Holdings) Vornado's portfolio includes significant Manhattan office, retail, and residential properties, plus major assets in Chicago and San Francisco - - **New York Portfolio:** - **19.9 million sq ft** of Manhattan office in 36 properties - **2.6 million sq ft** of Manhattan street retail in 71 properties - **1,999 units** in eleven residential properties - The **1,700-room** Hotel Pennsylvania - **32.4% interest** in Alexander's, Inc. (seven properties in greater New York metropolitan area, including Bloomberg L.P. headquarters) - **Other Real Estate and Related Investments:** - **3.7 million sq ft** theMART in Chicago - **70% controlling interest** in 555 California Street (**1.8 million sq ft** office complex in San Francisco) - **25.0% interest** in Vornado Capital Partners[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk) [ACQUISITIONS](index=8&type=section&id=ACQUISITIONS) In 2018, Vornado acquired the 1535 Broadway retail condominium for **$442 million**, 537 West 26th Street for **$44 million**, and increased its Farley joint venture ownership to **95.0%** for **$42 million** - - **$442 million acquisition** of the retail condominium at 1535 Broadway - **$44 million acquisition** of 537 West 26th Street and **55,000 sq ft** of additional zoning air rights - **$42 million purchase** to increase ownership in the Farley Office and Retail Building joint venture to **95.0%** from **50.1%**[32](index=32&type=chunk) [DISPOSITIONS](index=8&type=section&id=DISPOSITIONS) Vornado completed several 2018 dispositions, including the **$120 million** sale of 666 Fifth Office Condominium interest, **$82 million** retail condominium sale, and **$45 million** sale of 27 Washington Square North, plus **$215 million** from 220 Central Park South units - - **$120 million sale** of **49.5%** interests in the 666 Fifth Office Condominium, yielding **$55.2 million** net proceeds from mortgage loan participation - **$82 million sale** of the retail condominium at 11 East 68th Street by the Fund (**25% interest**) - **$45 million sale** of 27 Washington Square North - **$215 million net proceeds** from the sale of **11** condominium units at 220 Central Park South[32](index=32&type=chunk)[33](index=33&type=chunk) [FINANCINGS](index=8&type=section&id=FINANCINGS) In 2018, Vornado extended a **$750 million** term loan, refinanced Independence Plaza for **$675 million**, redeemed **$470 million** in preferred shares, and completed other property refinancings - - **$750 million unsecured term loan** extended to February 2024, with interest rate lowered from LIBOR + **1.15%** to LIBOR + **1.00%** - **$675 million refinancing** of Independence Plaza (**$338 million** at **50.1% interest**) - **$470 million redemption** of all outstanding **6.625%** Series G and Series I cumulative redeemable preferred shares/units - **$255 million refinancing** of the Crowne Plaza Times Square Hotel (**$84 million** at **32.9% interest**) - **$205 million refinancing** of 150 West 34th Street, with a **$105 million** participation investment in the loan - **$120 million refinancing** of 4 Union Square South - **$100 million refinancing** of 33-00 Northern Boulevard (Center Building)[34](index=34&type=chunk) [DEVELOPMENT AND REDEVELOPMENT EXPENDITURES](index=9&type=section&id=DEVELOPMENT%20AND%20REDEVELOPMENT%20EXPENDITURES) Vornado is developing major projects like the **$1.4 billion** 220 Central Park South tower and the **$800 million** Farley Office and Retail Building, alongside other redevelopments - - **220 Central Park South (220 CPS):** Residential condominium tower (**397,000 salable sq ft**) with an estimated development cost of **~$1.4 billion**; **$1.2 billion** expended as of Dec 31, 2018 - **512 West 22nd Street:** Class A office building (**173,000 sq ft**) with an estimated development cost of **~$130 million**; **$95.46 million** expended (**$52.51 million** share) as of Dec 31, 2018 - **606 Broadway:** Office and retail building (**34,000 sq ft**) with an estimated development cost of **~$60 million**; **$51.20 million** expended (**$25.60 million** share) as of Dec 31, 2018 - **345 Montgomery Street:** Redevelopment of Class A office building (**78,000 sq ft**) with an estimated cost of **~$46 million**; **$21.83 million** expended (**$15.28 million** share) as of Dec 31, 2018 - **825 Seventh Avenue:** Redevelopment of office building (**165,000 sq ft**) with an estimated cost of **~$30 million**; **$8.97 million** expended (**$4.48 million** share) as of Dec 31, 2018 - **PENN1:** Redevelopment of office building (**2,545,000 sq ft**) with an estimated cost of over **$200 million**; **$9.73 million** expended as of Dec 31, 2018 - **Farley Office and Retail Building:** **95.0%** joint venture developing **850,000 rentable sq ft** commercial space, estimated total development cost **~$800 million** (exclusive of **$230 million** upfront contribution and net of tax credits); **$144.49 million** expended as of Dec 31, 2018 - **Moynihan Train Hall:** Adjacent development with estimated expenditures of **~$1.6 billion**, funded by governmental agencies; **$445.69 million** expended by Dec 31, 2018, recorded as 'Moynihan Train Hall development expenditures' and 'Moynihan Train Hall obligation' on balance sheets[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) [Operational Details](index=11&type=section&id=Operational%20Details) Vornado operates in New York and Other segments, facing seasonal expenses, with no single tenant exceeding **10%** of revenues, and **3,928** employees as of 2018 - Vornado operates in two reportable segments: New York and Other, with financial information detailed in Note 25[47](index=47&type=chunk) - Revenues and expenses are subject to seasonality, with higher utility costs in the New York segment during the first and third quarters[48](index=48&type=chunk) - No single tenant accounted for more than **10%** of total revenues in 2016, 2017, or 2018[49](index=49&type=chunk) - The company does not base acquisitions on specific property type allocations and historically holds properties for long-term investment, with policies reviewed by the Board of Trustees[50](index=50&type=chunk) - As of December 31, 2018, Vornado had approximately **3,928** employees, including **275** corporate staff and **3,476** in the New York segment (**2,838** in Building Maintenance Services LLC and **460** at Hotel Pennsylvania)[51](index=51&type=chunk) [ITEM 1A. RISK FACTORS](index=12&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section details material risks, including high concentration in New York City, real estate market fluctuations, capital market access, tax changes, environmental issues, cyber threats, and substantial indebtedness - Vornado's investments are highly concentrated in the New York City metropolitan area (**89%** of 2018 NOI), making it vulnerable to regional economic downturns, retail environment changes, and potential terrorist attacks[56](index=56&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) - Real estate values and income are subject to fluctuations due to general economic conditions, competition, local market dynamics, tenant financial health, and changes in consumer preferences, which can impact cash flow and debt servicing ability[62](index=62&type=chunk)[63](index=63&type=chunk)[70](index=70&type=chunk) - Risks include the inability to obtain capital, dependence on subsidiary distributions, substantial indebtedness (**$9.9 billion** as of Dec 31, 2018), potential credit rating downgrades, and non-compliance with debt covenants[103](index=103&type=chunk)[104](index=104&type=chunk)[107](index=107&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) - The company faces risks from environmental laws, natural disasters, climate change, cyber incidents, and potential losses not covered by insurance, which could lead to significant costs or business disruptions[61](index=61&type=chunk)[75](index=75&type=chunk)[81](index=81&type=chunk)[85](index=85&type=chunk)[87](index=87&type=chunk) - Acquisition and development activities carry risks of delays, budget overruns, and difficulties in integrating new properties or companies, while investments in non-controlled entities may lead to conflicts of interest[93](index=93&type=chunk)[99](index=99&type=chunk) - Vornado's REIT status is critical, and failure to qualify could result in corporate income taxes Changes in tax laws could also adversely affect the company[112](index=112&type=chunk)[113](index=113&type=chunk) - The trading price of Vornado's common shares has been volatile and may fluctuate due to various factors, including financial performance, market conditions, and analyst recommendations, potentially leading to substantial losses for equity holders[128](index=128&type=chunk)[129](index=129&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=25&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) As of the filing date, there are no unresolved comments from the Securities and Exchange Commission staff - There are no unresolved comments from the SEC staff as of the date of this Annual Report on Form 10-K[132](index=132&type=chunk) [ITEM 2. PROPERTIES](index=26&type=section&id=ITEM%202.%20PROPERTIES) Vornado's 2018 property portfolio, primarily in New York, totals **27.9 million sq ft** across **87** properties with **97.0%** occupancy, alongside key assets in Chicago and San Francisco - As of December 31, 2018, the New York segment consisted of **27.9 million square feet** in **87** properties, with an overall occupancy rate of **97.0%**[142](index=142&type=chunk)[144](index=144&type=chunk) New York Segment Property Overview (as of Dec 31, 2018) | Property Type | Square Feet (millions) | Number of Properties | Occupancy Rate | | :--- | :--- | :--- | :--- | | Office | 19.9 | 36 | 97.2% | | Retail | 2.6 | 71 | 97.3% | | Residential Units | 1,999 | 11 | 96.6% | | Hotel Pennsylvania | 1.4 | 1 | 86.4% (Avg. Occupancy) | New York Segment Weighted Average Annual Rent Per Square Foot (In Service) | Property Type | 2018 Rent Per Sq Ft | | :--- | :--- | | Office | $74.04 | | Retail | $228.43 | - Key tenants in the New York segment include Swatch Group USA (**3.4%** of revenues), IPG and affiliates (**3.3%**), Macy's (**2.3%**), and AXA Equitable Life Insurance (**2.3%**)[148](index=148&type=chunk) New York Segment Lease Expirations (Office) - 2019-2028 | Year | Square Feet of Expiring Leases (thousands) | Percentage of New York Square Feet | Weighted Average Annual Rent Per Square Foot | | :--- | :--- | :--- | :--- | | Month to month | 47 | 0.3% | $106.60 | | 2019 | 627 | 3.9% | $65.58 | | 2020 | 1,240 | 7.8% | $69.65 | | 2021 | 1,188 | 7.5% | $77.79 | | 2022 | 709 | 4.5% | $66.39 | | 2023 | 1,971 | 12.4% | $81.06 | | 2024 | 1,391 | 8.8% | $78.90 | | 2025 | 804 | 5.1% | $74.91 | | 2026 | 1,236 | 7.8% | $76.05 | | 2027 | 1,118 | 7.0% | $72.93 | | 2028 | 1,022 | 6.4% | $71.20 | New York Segment Lease Expirations (Retail) - 2019-2028 | Year | Square Feet of Expiring Leases (thousands) | Percentage of New York Square Feet | Weighted Average Annual Rent Per Square Foot | | :--- | :--- | :--- | :--- | | Month to month | 71 | 3.7% | $131.76 | | 2019 | 103 | 5.4% | $257.03 | | 2020 | 82 | 4.3% | $195.74 | | 2021 | 58 | 3.0% | $165.33 | | 2022 | 29 | 1.5% | $248.52 | | 2023 | 110 | 5.8% | $400.97 | | 2024 | 298 | 15.6% | $283.51 | | 2025 | 42 | 2.2% | $457.62 | | 2026 | 134 | 7.0% | $332.26 | | 2027 | 32 | 1.7% | $709.97 | | 2028 | 45 | 2.4% | $410.16 | Other Segment Property Overview (as of Dec 31, 2018) | Property | Ownership | Square Feet (millions) | Occupancy Rate | Weighted Average Annual Rent Per Sq Ft | | :--- | :--- | :--- | :--- | :--- | | theMART, Chicago | 100.0% | 3.7 | 94.7% | $48.16 | | 555 California Street, San Francisco | 70.0% | 1.8 | 99.4% | $75.60 | [ITEM 3. LEGAL PROCEEDINGS](index=33&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) Vornado is involved in routine legal actions, but management expects no material adverse effect on its financial position or operations - Vornado is involved in ordinary course legal actions, but the outcome is not expected to materially affect financial position, results of operations, or cash flows[157](index=157&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=33&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to Vornado Realty Trust - This item is not applicable[158](index=158&type=chunk) [PART II](index=34&type=section&id=PART%20II) [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=34&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Vornado Realty Trust common shares trade on NYSE, while Vornado Realty L.P. Class A units are redeemable, with no recent issuer purchases reported - Vornado Realty Trust's common shares trade on the NYSE under 'VNO', with **935** holders of record as of February 1, 2019[161](index=161&type=chunk) - Vornado Realty L.P.'s Class A units have no public market but are redeemable for cash or Vornado common shares on a one-for-one basis, with **984** unitholders of record as of February 1, 2019[162](index=162&type=chunk)[163](index=163&type=chunk) - In 2018, the Operating Partnership issued **915,834** Class A units for equity awards, receiving **$19.08 million** in cash proceeds, under a Section 4(2) exemption[164](index=164&type=chunk) - No recent issuer purchases of equity securities were reported[167](index=167&type=chunk) Five-Year Cumulative Return (Indexed to $100 at Dec 31, 2013) | Year | Vornado Realty Trust | S&P 500 Index | The NAREIT All Equity Index | | :--- | :--- | :--- | :--- | | 2013 | $100 | $100 | $100 | | 2014 | $136 | $114 | $128 | | 2015 | $131 | $115 | $132 | | 2016 | $141 | $129 | $143 | | 2017 | $135 | $157 | $155 | | 2018 | $111 | $150 | $149 | [ITEM 6. SELECTED FINANCIAL DATA](index=35&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides selected financial data for Vornado Realty Trust and Vornado Realty L.P. from 2014-2018, including operating, balance sheet, and FFO metrics Vornado Realty Trust - Selected Operating Data (Amounts in thousands, except per share amounts) | Operating Data | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $2,163,720 | $2,084,126 | $2,003,742 | $1,985,495 | $1,792,168 | | Total expenses | $1,580,759 | $1,475,475 | $1,423,896 | $1,365,918 | $1,280,172 | | Operating income | $582,961 | $608,651 | $579,846 | $619,577 | $511,996 | | Net income attributable to common shareholders | $384,832 | $162,017 | $823,606 | $679,856 | $783,388 | | Net income per common share - diluted | $2.01 | $0.85 | $4.34 | $3.59 | $4.15 | | Dividends per common share | $2.52 | $2.62 | $2.52 | $2.52 | $2.92 | Vornado Realty Trust - Selected Balance Sheet Data (Amounts in thousands) | Balance Sheet Data | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total assets | $17,180,794 | $17,397,934 | $20,814,847 | $21,143,293 | $21,157,980 | | Real estate, at cost | $16,237,883 | $14,756,295 | $14,187,820 | $13,545,295 | $12,438,940 | | Debt, net | $9,836,621 | $9,729,487 | $9,446,670 | $9,095,670 | $7,557,877 | | Total equity | $5,107,883 | $5,007,701 | $7,618,496 | $7,476,078 | $7,489,382 | Vornado Realty Trust - Funds From Operations (FFO) (Amounts in thousands) | FFO Data | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | FFO attributable to common shareholders plus assumed conversions | $729,740 | $717,805 | $1,457,583 | $1,039,035 | $911,130 | Vornado Realty L.P. - Selected Operating Data (Amounts in thousands, except per unit amounts) | Operating Data | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $2,163,720 | $2,084,126 | $2,003,742 | $1,985,495 | $1,792,168 | | Total expenses | $1,580,759 | $1,475,475 | $1,423,896 | $1,365,918 | $1,280,172 | | Operating income | $582,961 | $608,651 | $579,846 | $619,577 | $511,996 | | Net income attributable to Class A unitholders | $410,310 | $172,733 | $877,066 | $722,929 | $830,951 | | Net income per Class A unit - diluted | $2.00 | $0.83 | $4.32 | $3.57 | $4.14 | | Distributions per Class A unit | $2.52 | $2.62 | $2.52 | $2.52 | $2.92 | Vornado Realty L.P. - Selected Balance Sheet Data (Amounts in thousands) | Balance Sheet Data | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total assets | $17,180,794 | $17,397,934 | $20,814,847 | $21,143,293 | $21,157,980 | | Real estate, at cost | $16,237,883 | $14,756,295 | $14,187,820 | $13,545,295 | $12,438,940 | | Debt, net | $9,836,621 | $9,729,487 | $9,446,670 | $9,095,670 | $7,557,877 | | Total equity | $5,107,883 | $5,007,701 | $7,618,496 | $7,476,078 | $7,489,382 | [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=38&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes Vornado's financial condition and operations, covering revenue, expenses, debt, liquidity, and reconciliations of GAAP net income to non-GAAP NOI and FFO [Overview](index=39&type=section&id=Overview) Vornado, a REIT, aims to maximize shareholder value through strategic investments, reporting increased 2018 net income and FFO, with mixed same-store NOI performance - Vornado's business objective is to maximize shareholder value, measured by total return, through maintaining a superior team, investing in select markets like New York City, acquiring quality properties, developing/redeveloping assets, and investing in real estate-component operating companies[183](index=183&type=chunk)[184](index=184&type=chunk) - Net income attributable to common shareholders increased to **$384.83 million** (**$2.01** per diluted share) in 2018 from **$162.02 million** (**$0.85** per diluted share) in 2017[189](index=189&type=chunk) - FFO attributable to common shareholders plus assumed conversions increased to **$729.74 million** (**$3.82** per diluted share) in 2018 from **$717.81 million** (**$3.75** per diluted share) in 2017[190](index=190&type=chunk) Same Store NOI at Share % Increase (Decrease) | Segment | Year ended Dec 31, 2018 vs 2017 | Year ended Dec 31, 2017 vs 2016 | | :--- | :--- | :--- | | Total | 0.8% | 2.7% | | New York | 1.4% | 2.7% | | theMART | (12.2)% | 4.2% | | 555 California Street | 14.9% | 1.9% | Same Store NOI at Share - Cash Basis % Increase (Decrease) | Segment | Year ended Dec 31, 2018 vs 2017 | Year ended Dec 31, 2017 vs 2016 | | :--- | :--- | :--- | | Total | 3.9% | 11.8% | | New York | 4.3% | 11.3% | | theMART | (6.5)% | 7.6% | | 555 California Street | 18.1% | 36.0% | [Acquisitions](index=45&type=section&id=Acquisitions) In 2018, Vornado acquired 537 West 26th Street for **$44 million**, 1535 Broadway retail condominium for **$442 million**, and increased its Farley joint venture ownership to **95.0%** for **$41.5 million** - - **537 West 26th Street:** Acquired for **$44 million**, including **14,000 sq ft** commercial property and **55,000 sq ft** of additional zoning air rights (Feb 9, 2018) - **1535 Broadway:** Acquired retail condominium for **$442 million** (inclusive of **$240 million** capital lease liability), fulfilling a put/call arrangement (Sep 21, 2018) - **Farley Office and Retail Building:** Increased ownership to **95.0%** from **50.1%** for **$41.5 million**, plus **$33.03 million** reimbursement of costs (Oct 30, 2018) Recognized a net gain of **$44.06 million** and **$16.77 million** income tax expense due to this transaction[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) [Dispositions](index=45&type=section&id=Dispositions) Vornado's 2018 dispositions included the **$82 million** sale of 11 East 68th Street retail condominium, **$45 million** sale of 27 Washington Square North, and **$120 million** sale of 666 Fifth Avenue Office Condominium interest - - **11 East 68th Street:** Fund sold retail condominium for **$82 million**, realizing a **$46.26 million** net gain (Jan 17, 2018) - **27 Washington Square North:** Sold for **$45 million**, resulting in a **$23.56 million** net gain (June 21, 2018) - **666 Fifth Avenue Office Condominium:** Sold **49.5%** interests for **$120 million** net proceeds, recognizing a **$134.03 million** financial statement gain (Aug 3, 2018) Concurrently, received **$55.24 million** net proceeds from mortgage loan participation, with a **$7.31 million** financial statement gain[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) [Financings](index=45&type=section&id=Financings) In 2018, Vornado redeemed **$470 million** in preferred shares, extended a **$750 million** term loan, and completed multiple property refinancings totaling over **$1.3 billion** - - **Preferred Securities:** Redeemed all outstanding **6.625%** Series G and Series I cumulative redeemable preferred shares/units for **$470 million**, expensing **$14.49 million** of issuance costs (Jan 2018) - **Unsecured Term Loan:** Extended **$750 million** unsecured term loan to February 2024, lowering interest rate to LIBOR + **1.00%** and entering an interest rate swap to a fixed rate of **3.87%** (Oct 26, 2018) - **33-00 Northern Boulevard:** Completed **$100 million** refinancing at LIBOR + **1.80%** (swapped to **4.14%** fixed) with **$37.2 million** net proceeds (Jan 5, 2018) - **Crowne Plaza Times Square Hotel:** Joint venture completed **$255 million** refinancing at LIBOR + **3.53%** (**6.00%** at Dec 31, 2018) with an interest rate cap (Apr 19, 2018) - **Independence Plaza:** Joint venture completed **$675 million** refinancing at a fixed rate of **4.25%**, with Vornado's share of net proceeds at **$55.62 million** (June 11, 2018) - **4 Union Square South:** Completed **$120 million** refinancing at LIBOR + **1.40%** (**3.75%** at Dec 31, 2018) (Aug 9, 2018) - **150 West 34th Street:** Completed **$205 million** refinancing at LIBOR + **1.88%** (**4.26%** at Dec 31, 2018) and invested **$105 million** in a participation in the loan (Nov 16, 2018)[205](index=205&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk) [Other Activities](index=46&type=section&id=Other%20Activities) In Q4 2018, Vornado sold **11** 220 Central Park South units for **$214.78 million**, generating an **$81.22 million** net gain and a **$213 million** loan repayment - - **220 Central Park South (220 CPS):** Sold **11** condominium units for **$214.78 million** net proceeds, resulting in an **$81.22 million** net gain and **$13.89 million** income tax expense (Q4 2018) - **220 CPS Loan Repayment:** **$213 million** of the **$950 million** 220 CPS loan was repaid in connection with these sales[213](index=213&type=chunk) [Leasing Activity](index=47&type=section&id=Leasing%20Activity) In 2018, New York office leased **1.83 million sq ft** with **33.7%** GAAP rent increase, while retail saw a **(22.7)%** GAAP decrease, and other segments reported positive rent increases Leasing Activity - Year Ended December 31, 2018 (Square feet in thousands) | Segment | Total Square Feet Leased | Our Share of Square Feet Leased | Initial Rent (Cash Basis) | Weighted Average Lease Term (years) | | :--- | :--- | :--- | :--- | :--- | | New York Office | 1,827 | 1,627 | $79.03 | 9.6 | | New York Retail | 255 | 236 | $171.25 | 5.5 | | theMART | 243 | 243 | $53.47 | 5.8 | | 555 California Street | 249 | 174 | $89.28 | 10.3 | Second Generation Relet Space - Rent Changes (Year Ended December 31, 2018) | Segment | GAAP Basis % Increase (Decrease) | Cash Basis % Increase (Decrease) | | :--- | :--- | :--- | | New York Office | 33.7% | 22.7% | | New York Retail | (22.7)% | (1.0)% | | theMART | 20.9% | 12.7% | | 555 California Street | 34.3% | 13.4% | Tenant Improvements and Leasing Commissions (Year Ended December 31, 2018) | Segment | Per Square Foot | Per Square Foot Per Annum | Percentage of Initial Rent | | :--- | :--- | :--- | :--- | | New York Office | $92.69 | $9.66 | 12.2% | | New York Retail | $59.17 | $10.76 | 6.3% | | theMART | $17.63 | $3.04 | 5.7% | | 555 California Street | $94.98 | $9.22 | 10.3% | [Square footage (in service) and Occupancy](index=49&type=section&id=Square%20footage%20%28in%20service%29%20and%20Occupancy) As of 2018, Vornado's in-service portfolio totaled **35.8 million sq ft** (**28.1 million** Vornado share), with New York at **27.9 million sq ft** and **97.0%** occupancy Square Footage (in service) and Occupancy as of December 31, 2018 (Square feet in thousands) | Segment | Number of properties | Total Portfolio | Our Share | Occupancy % | | :--- | :--- | :--- | :--- | :--- | | New York Office | 36 | 19,858 | 16,632 | 97.2% | | New York Retail | 71 | 2,648 | 2,419 | 97.3% | | New York Residential (1,687 units) | 10 | 1,533 | 800 | 96.6% | | Alexander's (312 residential units) | 7 | 2,437 | 790 | 91.4% | | Hotel Pennsylvania | 1 | 1,400 | 1,400 | N/A | | **Total New York** | | **27,876** | **22,041** | **97.0%** | | theMART | 3 | 3,694 | 3,685 | 94.7% | | 555 California Street | 3 | 1,743 | 1,220 | 99.4% | | Other | 10 | 2,522 | 1,187 | 92.8% | | **Total Other** | | **7,959** | **6,092** | N/A | | **Total Portfolio** | | **35,835** | **28,133** | N/A | [Critical Accounting Policies](index=50&type=section&id=Critical%20Accounting%20Policies) Vornado's critical accounting policies involve real estate valuation, impairment, revenue recognition, and accounting for partially owned entities, while maintaining REIT status to minimize federal income taxes - Real estate is carried at cost, net of accumulated depreciation, with betterments and certain improvement/leasing costs capitalized Redevelopment costs are capitalized up to the estimated fair value of the redeveloped property[224](index=224&type=chunk) - Upon acquisition, purchase price is allocated to acquired assets (land, buildings, intangibles like above/below-market leases) and liabilities based on fair value, using cash flow projections and market information[225](index=225&type=chunk) - Properties are reviewed for impairment when circumstances indicate carrying amount may not be recoverable, with impairment loss measured as the excess of carrying amount over estimated fair value[227](index=227&type=chunk) - Investments in partially owned entities are consolidated if Vornado has a controlling financial interest (primary beneficiary of a VIE or majority voting interest); otherwise, they are accounted for under the equity method or cost method[229](index=229&type=chunk) - - **Base rent:** Recognized straight-line over non-cancelable lease term, including rent steps and abatements - **Hotel revenue:** Recognized when rooms are occupied or services transferred - **Trade shows revenue:** Recognized upon occurrence of trade shows - **Operating expense reimbursements:** Recognized in the same period as related expenses - **Tenant services:** Recognized as services are transferred - **Fee and other income:** Recognized as services are transferred; lease termination fees recognized immediately or straight-line over shortened term[232](index=232&type=chunk)[233](index=233&type=chunk) - Vornado aims to qualify as a REIT, distributing **100%** of its taxable income to shareholders to avoid federal income tax Taxable REIT subsidiaries are subject to federal and state corporate income tax[234](index=234&type=chunk)[236](index=236&type=chunk) [Net Operating Income At Share by Segment for the Years Ended December 31, 2018, 2017 and 2016](index=53&type=section&id=Net%20Operating%20Income%20At%20Share%20by%20Segment%20for%20the%20Years%20Ended%20December%2031%2C%202018%2C%202017%20and%202016) Total NOI at share for 2018 was **$1.38 billion**, with New York contributing **$1.18 billion**, and the New York City metropolitan area consistently generating **89%** of total NOI - NOI is a primary non-GAAP financial measure used for decision-making and assessing unlevered segment performance, not a substitute for net income[237](index=237&type=chunk) NOI at Share by Segment (Amounts in thousands) | Segment | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total NOI at share | $1,382,620 | $1,401,383 | $1,364,108 | | New York | $1,176,990 | $1,166,065 | $1,108,526 | | Other | $205,630 | $235,318 | $255,582 | | Total NOI at share - cash basis | $1,337,916 | $1,314,541 | $1,193,631 | | New York - cash basis | $1,131,563 | $1,086,863 | $965,287 | | Other - cash basis | $206,353 | $227,678 | $228,344 | NOI at Share by Geographic Region (Percentage) | Region | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | New York City metropolitan area | 89% | 89% | 89% | | Chicago, IL | 7% | 8% | 8% | | San Francisco, CA | 4% | 3% | 3% | [Reconciliation of Net Income to Net Operating Income At Share and Net Operating Income At Share - Cash Basis for the Years Ended December 31, 2018, 2017 and 2016](index=55&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Net%20Operating%20Income%20At%20Share%20and%20Net%20Operating%20Income%20At%20Share%20-%20Cash%20Basis%20for%20the%20Years%20Ended%20December%2031%2C%202018%2C%202017%20and%202016) This section reconciles GAAP net income to non-GAAP NOI at share and cash basis NOI for 2016-2018, detailing key adjustments for various expenses and gains Reconciliation of Net Income to NOI at Share and NOI at Share - Cash Basis (Amounts in thousands) | Item | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net income | $422,603 | $264,128 | $981,922 | | Deductions (selected) | | | | | Income from partially owned entities | $(9,149) | $(15,200) | $(168,948) | | Net gains on disposition of assets | $(246,031) | $(501) | $(160,433) | | Additions (selected) | | | | | Depreciation and amortization expense | $446,570 | $429,389 | $421,023 | | General and administrative expense | $141,871 | $150,782 | $143,643 | | Interest and debt expense | $347,949 | $345,654 | $330,240 | | Income tax expense | $37,633 | $42,375 | $7,923 | | **NOI at share** | **$1,382,620** | **$1,401,383** | **$1,364,108** | | Non-cash adjustments | $(44,704) | $(86,842) | $(170,477) | | **NOI at share - cash basis** | **$1,337,916** | **$1,314,541** | **$1,193,631** | [Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017](index=56&type=section&id=Results%20of%20Operations%20%E2%80%93%20Year%20Ended%20December%2031%2C%202018%20Compared%20to%20December%2031%2C%202017) In 2018, Vornado's total revenues increased by **$79.6 million**, while expenses rose by **$105.3 million**, with significant net gains from asset dispositions and decreased income tax expense - Total revenues increased by **$79.59 million** in 2018 compared to 2017, primarily from same store operations (**$44.76 million**) and BMS cleaning fees (**$16.21 million**)[251](index=251&type=chunk) - Total expenses increased by **$105.28 million** in 2018 compared to 2017, mainly due to higher operating expenses (**$76.88 million**, including **$15.15 million** additional real estate tax accrual for theMART) and transaction-related costs/impairment loss (**$29.54 million**)[253](index=253&type=chunk)[254](index=254&type=chunk) - Income from partially owned entities decreased to **$9.15 million** in 2018 from **$15.2 million** in 2017, impacted by Alexander's potential additional Transfer Tax and marketable securities fair value decrease[256](index=256&type=chunk)[257](index=257&type=chunk) - Real estate fund investments resulted in an **$89.23 million** loss in 2018, compared to a **$3.24 million** income in 2017, primarily due to net unrealized losses on held investments and Transfer Tax expenses[260](index=260&type=chunk)[261](index=261&type=chunk) - Interest and other investment income, net, decreased to **$17.06 million** in 2018 from **$30.86 million** in 2017, mainly due to a **$26.45 million** decrease in fair value of marketable securities (new GAAP standard)[263](index=263&type=chunk)[264](index=264&type=chunk) - Interest and debt expense increased by **$2.3 million** to **$347.95 million** in 2018, driven by higher variable interest rates and delayed draw term loan interest, partially offset by higher capitalized interest and lower capital lease interest[266](index=266&type=chunk) - A **$44.06 million** purchase price fair value adjustment was recognized in 2018 due to increased ownership in the Farley joint venture[267](index=267&type=chunk) - Net gains on disposition of assets totaled **$246.03 million** in 2018, primarily from the sale of 666 Fifth Avenue Office Condominium interests (**$134.03 million**), 220 CPS condominium units (**$81.22 million**), and 27 Washington Square North (**$23.56 million**)[268](index=268&type=chunk) - Income tax expense decreased by **$4.74 million** to **$37.63 million** in 20