UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended: |
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Or
o | TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: |
| to |
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Commission File Number: | 001-34482 |
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VORNADO REALTY L.P.
(Exact name of registrant as specified in its charter)
Delaware |
| 13-3925979 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
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888 Seventh Avenue, New York, New York |
| 10019 |
(Address of principal executive offices) |
| (Zip Code) |
(212) 894-7000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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| o Accelerated Filer | ||
x Non-Accelerated Filer (Do not check if smaller reporting company) |
| o Smaller Reporting Company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox
PART I. | Financial Information: | Page Number | ||||
Item 1. | Financial Statements: | |||||
Consolidated Balance Sheets (Unaudited) as of | ||||||
| 3 | |||||
Consolidated Statements of Income (Unaudited) for the | ||||||
Three | 4 | |||||
Consolidated Statements of Comprehensive Income (Unaudited) | ||||||
for the Three | 5 | |||||
Consolidated Statements of Changes in Equity (Unaudited) for the | ||||||
| 6 | |||||
Consolidated Statements of Cash Flows (Unaudited) for the | ||||||
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Notes to Consolidated Financial Statements (Unaudited) | 10 | |||||
Report of Independent Registered Public Accounting Firm | 31 | |||||
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Item 2. |
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and Results of Operations | 32 | |||||
Item 3. | ||||||
Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. |
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PART II. | Other Information: | |||||
Item 1. | Legal Proceedings | 59 | ||||
Item 1A. | ||||||
Risk Factors |
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Item 2. | ||||||
Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. | ||||||
Defaults Upon Senior Securities |
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Item 4. | ||||||
Mine Safety Disclosures |
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Item 5. | ||||||
Other Information |
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Item 6. | ||||||
Exhibits |
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SIGNATURES | ||||||
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VORNADO REALTY L.P. | VORNADO REALTY L.P. | VORNADO REALTY L.P. | ||||||||||||||
CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | ||||||||||||||
(UNAUDITED) | (UNAUDITED) | (UNAUDITED) | ||||||||||||||
(Amounts in thousands, except unit amounts) | (Amounts in thousands, except unit amounts) | September 30, | December 31, | (Amounts in thousands, except unit amounts) | March 31, | December 31, | ||||||||||
ASSETS | ASSETS | 2014 | 2013 | ASSETS | 2015 | 2014 | ||||||||||
Real estate, at cost: | Real estate, at cost: | Real estate, at cost: | ||||||||||||||
Land | $ | 4,137,278 | $ | 4,066,837 | Land | $ | 3,914,401 | $ | 3,861,913 | |||||||
Buildings and improvements | 12,609,463 | 12,466,244 | Buildings and improvements | 11,881,228 | 11,705,749 | |||||||||||
Development costs and construction in progress | 1,680,202 | 1,353,103 | Development costs and construction in progress | 1,157,180 | 1,128,037 | |||||||||||
Leasehold improvements and equipment | 128,982 | 132,483 | Leasehold improvements and equipment | 127,534 | 126,659 | |||||||||||
Total | 18,555,925 | 18,018,667 | Total | 17,080,343 | 16,822,358 | |||||||||||
Less accumulated depreciation and amortization | (3,613,098) | (3,372,207) | Less accumulated depreciation and amortization | (3,248,078) | (3,161,633) | |||||||||||
Real estate, net | Real estate, net | 14,942,827 | 14,646,460 | Real estate, net | 13,832,265 | 13,660,725 | ||||||||||
Cash and cash equivalents | Cash and cash equivalents | 1,683,142 | 583,290 | Cash and cash equivalents | 1,067,568 | 1,198,477 | ||||||||||
Restricted cash | Restricted cash | 160,848 | 262,440 | Restricted cash | 198,672 | 176,204 | ||||||||||
Marketable securities | Marketable securities | 184,154 | 191,917 | Marketable securities | 184,991 | 206,323 | ||||||||||
Tenant and other receivables, net of allowance for doubtful accounts of $18,307 and $21,869 | 118,636 | 115,862 | ||||||||||||||
Tenant and other receivables, net of allowance for doubtful accounts of $12,456 and $12,210 | Tenant and other receivables, net of allowance for doubtful accounts of $12,456 and $12,210 | 110,477 | 109,998 | |||||||||||||
Investments in partially owned entities | Investments in partially owned entities | 1,268,066 | 1,166,443 | Investments in partially owned entities | 1,408,214 | 1,246,496 | ||||||||||
Investment in Toys "R" Us | - | 83,224 | ||||||||||||||
Real Estate Fund investments | 495,392 | 667,710 | ||||||||||||||
Mortgage and mezzanine loans receivable, net of allowance of $5,811 and $5,845 | 17,085 | 170,972 | ||||||||||||||
Receivable arising from the straight-lining of rents, net of allowance of $3,396 and $4,355 | 873,901 | 817,314 | ||||||||||||||
Deferred leasing and financing costs, net of accumulated amortization of $299,542 and $264,421 | 483,902 | 411,922 | ||||||||||||||
Identified intangible assets, net of accumulated amortization of $223,786 and $277,998 | 280,207 | 311,963 | ||||||||||||||
Real estate fund investments | Real estate fund investments | 554,426 | 513,973 | |||||||||||||
Receivable arising from the straight-lining of rents, net of allowance of $3,083 and $3,188 | Receivable arising from the straight-lining of rents, net of allowance of $3,083 and $3,188 | 816,661 | 787,271 | |||||||||||||
Deferred leasing and financing costs, net of accumulated amortization of $289,589 and $281,109 | Deferred leasing and financing costs, net of accumulated amortization of $289,589 and $281,109 | 478,507 | 475,158 | |||||||||||||
Identified intangible assets, net of accumulated amortization of $200,330 and $199,821 | Identified intangible assets, net of accumulated amortization of $200,330 and $199,821 | 229,579 | 225,155 | |||||||||||||
Assets related to discontinued operations | Assets related to discontinued operations | - | 316,219 | Assets related to discontinued operations | 35,342 | 2,238,474 | ||||||||||
Other assets | Other assets | 492,355 | 351,488 | Other assets | 344,349 | 410,066 | ||||||||||
$ | 21,000,515 | $ | 20,097,224 | $ | 19,261,051 | $ | 21,248,320 | |||||||||
LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY | LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY | LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY | ||||||||||||||
Mortgages payable | Mortgages payable | $ | 9,273,212 | $ | 8,331,993 | Mortgages payable | $ | 8,316,793 | $ | 8,263,165 | ||||||
Senior unsecured notes | Senior unsecured notes | 1,791,987 | 1,350,855 | Senior unsecured notes | 847,332 | 1,347,159 | ||||||||||
Revolving credit facility debt | Revolving credit facility debt | 88,138 | 295,870 | Revolving credit facility debt | 400,000 | - | ||||||||||
Accounts payable and accrued expenses | Accounts payable and accrued expenses | 498,565 | 422,276 | Accounts payable and accrued expenses | 432,970 | 447,745 | ||||||||||
Deferred revenue | Deferred revenue | 489,250 | 529,048 | Deferred revenue | 346,026 | 358,613 | ||||||||||
Deferred compensation plan | Deferred compensation plan | 113,549 | 116,515 | Deferred compensation plan | 121,530 | 117,284 | ||||||||||
Liabilities related to discontinued operations | Liabilities related to discontinued operations | - | 13,950 | Liabilities related to discontinued operations | 11,354 | 1,511,362 | ||||||||||
Other liabilities | Other liabilities | 380,843 | 438,353 | Other liabilities | 436,608 | 375,830 | ||||||||||
Total liabilities | 12,635,544 | 11,498,860 | Total liabilities | 10,912,613 | 12,421,158 | |||||||||||
Commitments and contingencies | Commitments and contingencies | Commitments and contingencies | ||||||||||||||
Redeemable partnership units: | Redeemable partnership units: | Redeemable partnership units: | ||||||||||||||
Class A units - 11,395,068 and 11,292,038 units outstanding | 1,139,052 | 1,002,620 | Class A units - 11,640,982 and 11,356,550 units outstanding | 1,303,790 | 1,336,780 | |||||||||||
Series D cumulative redeemable preferred unit - 1 unit outstanding | 1,000 | 1,000 | Series D cumulative redeemable preferred unit - 1 unit outstanding | 1,000 | 1,000 | |||||||||||
Total redeemable partnership units | 1,140,052 | 1,003,620 | Total redeemable partnership units | 1,304,790 | 1,337,780 | |||||||||||
Equity: | Equity: | Equity: | ||||||||||||||
Partners' capital | 8,325,051 | 8,428,534 | Partners' capital | 8,219,728 | 8,157,544 | |||||||||||
Earnings less than distributions | (1,878,125) | (1,734,839) | Earnings less than distributions | (2,006,439) | (1,505,385) | |||||||||||
Accumulated other comprehensive income | 69,580 | 71,537 | Accumulated other comprehensive income | 72,609 | 93,267 | |||||||||||
Total Vornado Realty L.P. equity | 6,516,506 | 6,765,232 | Total Vornado Realty L.P. equity | 6,285,898 | 6,745,426 | |||||||||||
Noncontrolling interests in consolidated subsidiaries | Noncontrolling interests in consolidated subsidiaries | 708,413 | 829,512 | Noncontrolling interests in consolidated subsidiaries | 757,750 | 743,956 | ||||||||||
Total equity | 7,224,919 | 7,594,744 | Total equity | 7,043,648 | 7,489,382 | |||||||||||
$ | 21,000,515 | $ | 20,097,224 | $ | 19,261,051 | $ | 21,248,320 | |||||||||
See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). |
3
VORNADO REALTY L.P. | VORNADO REALTY L.P. | VORNADO REALTY L.P. | ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||||||
(UNAUDITED) | (UNAUDITED) | (UNAUDITED) | ||||||||||||||||||||
For the Three | For the Nine | For the Three | ||||||||||||||||||||
Months Ended September 30, | Months Ended September 30, | Months Ended March 31, | ||||||||||||||||||||
(Amounts in thousands, except per unit amounts) | (Amounts in thousands, except per unit amounts) | 2014 | 2013 | 2014 | 2013 | (Amounts in thousands, except per unit amounts) | 2015 | 2014 | ||||||||||||||
REVENUES: | REVENUES: | REVENUES: | ||||||||||||||||||||
Property rentals | $ | 538,168 | $ | 521,433 | $ | 1,606,120 | $ | 1,589,038 | Property rentals | $ | 500,274 | $ | 467,140 | |||||||||
Tenant expense reimbursements | 86,330 | 81,814 | 248,964 | 229,938 | Tenant expense reimbursements | 66,921 | 59,301 | |||||||||||||||
Cleveland Medical Mart development project | - | 4,893 | - | 34,026 | Fee and other income | 39,607 | 35,940 | |||||||||||||||
Fee and other income | 46,411 | 60,849 | 142,618 | 205,523 | ||||||||||||||||||
Total revenues | Total revenues | 670,909 | 668,989 | 1,997,702 | 2,058,525 | Total revenues | 606,802 | 562,381 | ||||||||||||||
EXPENSES: | EXPENSES: | EXPENSES: | ||||||||||||||||||||
Operating | 268,450 | 261,776 | 802,505 | 785,992 | Operating | 254,493 | 236,561 | |||||||||||||||
Depreciation and amortization | 130,208 | 122,119 | 406,868 | 394,579 | Depreciation and amortization | 124,122 | 131,792 | |||||||||||||||
General and administrative | 44,547 | 44,186 | 141,273 | 145,871 | General and administrative | 58,492 | 47,502 | |||||||||||||||
Cleveland Medical Mart development project | - | 3,239 | - | 29,764 | Acquisition and transaction related costs | 1,981 | 1,285 | |||||||||||||||
Impairment losses, acquisition and transaction related costs | 7,105 | 2,818 | 32,972 | 6,769 | ||||||||||||||||||
Total expenses | Total expenses | 450,310 | 434,138 | 1,383,618 | 1,362,975 | Total expenses | 439,088 | 417,140 | ||||||||||||||
Operating income | Operating income | 220,599 | 234,851 | 614,084 | 695,550 | Operating income | 167,714 | 145,241 | ||||||||||||||
(Loss) applicable to Toys "R" Us | (18,418) | (34,209) | (74,162) | (69,311) | ||||||||||||||||||
(Loss) income from partially owned entities | (Loss) income from partially owned entities | (7,245) | 1,453 | (3,264) | 23,691 | (Loss) income from partially owned entities | (2,405) | 1,979 | ||||||||||||||
Income from Real Estate Fund | 24,160 | 22,913 | 142,418 | 73,947 | ||||||||||||||||||
Interest and other investment income (loss), net | 7,602 | (10,275) | 28,930 | (32,935) | ||||||||||||||||||
Income from real estate fund investments | Income from real estate fund investments | 24,089 | 18,148 | |||||||||||||||||||
Interest and other investment income, net | Interest and other investment income, net | 10,792 | 11,850 | |||||||||||||||||||
Interest and debt expense | Interest and debt expense | (115,120) | (119,676) | (341,613) | (360,679) | Interest and debt expense | (91,674) | (96,312) | ||||||||||||||
Net gain (loss) on disposition of wholly owned and partially | ||||||||||||||||||||||
Net gain on disposition of wholly owned and partially | Net gain on disposition of wholly owned and partially | |||||||||||||||||||||
owned assets | 2,665 | 15,138 | 13,205 | (20,581) | owned assets | 1,860 | 9,635 | |||||||||||||||
Income before income taxes | Income before income taxes | 114,243 | 110,195 | 379,598 | 309,682 | Income before income taxes | 110,376 | 90,541 | ||||||||||||||
Income tax expense | Income tax expense | (3,177) | (2,222) | (8,358) | (6,172) | Income tax expense | (971) | (851) | ||||||||||||||
Income from continuing operations | Income from continuing operations | 111,066 | 107,973 | 371,240 | 303,510 | Income from continuing operations | 109,405 | 89,690 | ||||||||||||||
Income from discontinued operations | Income from discontinued operations | 58,131 | 24,278 | 61,800 | 299,989 | Income from discontinued operations | 15,841 | 8,466 | ||||||||||||||
Net income | Net income | 169,197 | 132,251 | 433,040 | 603,499 | Net income | 125,246 | 98,156 | ||||||||||||||
Less net income attributable to noncontrolling interests in | ||||||||||||||||||||||
consolidated subsidiaries | (9,685) | (23,833) | (85,239) | (50,049) | ||||||||||||||||||
Less net income attributable to noncontrolling interests in consolidated subsidiaries | Less net income attributable to noncontrolling interests in consolidated subsidiaries | (15,882) | (11,579) | |||||||||||||||||||
Net income attributable to Vornado Realty L.P. | Net income attributable to Vornado Realty L.P. | 159,512 | 108,418 | 347,801 | 553,450 | Net income attributable to Vornado Realty L.P. | 109,364 | 86,577 | ||||||||||||||
Preferred unit distributions | Preferred unit distributions | (20,378) | (20,381) | (61,137) | (63,585) | Preferred unit distributions | (19,496) | (20,380) | ||||||||||||||
Preferred unit redemptions | - | - | - | (1,130) | ||||||||||||||||||
NET INCOME attributable to Class A unitholders | NET INCOME attributable to Class A unitholders | $ | 139,134 | $ | 88,037 | $ | 286,664 | $ | 488,735 | NET INCOME attributable to Class A unitholders | $ | 89,868 | $ | 66,197 | ||||||||
INCOME PER CLASS A UNIT - BASIC: | INCOME PER CLASS A UNIT - BASIC: | INCOME PER CLASS A UNIT - BASIC: | ||||||||||||||||||||
Income from continuing operations, net | $ | 0.41 | $ | 0.33 | $ | 1.12 | $ | 0.96 | Income from continuing operations, net | $ | 0.37 | $ | 0.29 | |||||||||
Income from discontinued operations, net | 0.29 | 0.11 | 0.31 | 1.50 | Income from discontinued operations, net | 0.08 | 0.04 | |||||||||||||||
Net income per Class A unit | $ | 0.70 | $ | 0.44 | $ | 1.43 | $ | 2.46 | Net income per Class A unit | $ | 0.45 | $ | 0.33 | |||||||||
Weighted average units outstanding | 198,322 | 197,599 | 198,158 | 197,510 | Weighted average units outstanding | 198,675 | 197,917 | |||||||||||||||
INCOME PER CLASS A UNIT - DILUTED: | INCOME PER CLASS A UNIT - DILUTED: | INCOME PER CLASS A UNIT - DILUTED: | ||||||||||||||||||||
Income from continuing operations, net | $ | 0.40 | $ | 0.33 | $ | 1.11 | $ | 0.96 | Income from continuing operations, net | $ | 0.36 | $ | 0.29 | |||||||||
Income from discontinued operations, net | 0.29 | 0.11 | 0.31 | 1.49 | Income from discontinued operations, net | 0.08 | 0.04 | |||||||||||||||
Net income per Class A unit | $ | 0.69 | $ | 0.44 | $ | 1.42 | $ | 2.45 | Net income per Class A unit | $ | 0.44 | $ | 0.33 | |||||||||
Weighted average units outstanding | 199,940 | 198,717 | 199,668 | 198,607 | Weighted average units outstanding | 200,749 | 199,354 | |||||||||||||||
DISTRIBUTIONS PER CLASS A UNIT | DISTRIBUTIONS PER CLASS A UNIT | $ | 0.73 | $ | 0.73 | $ | 2.19 | $ | 2.19 | DISTRIBUTIONS PER CLASS A UNIT | $ | 0.63 | $ | 0.73 | ||||||||
See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). |
4
VORNADO REALTY L.P. | VORNADO REALTY L.P. | VORNADO REALTY L.P. | ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||||
(UNAUDITED) | (UNAUDITED) | (UNAUDITED) | ||||||||||||||||||||
For the Three | For the Nine | For the Three | ||||||||||||||||||||
Months Ended September 30, | Months Ended September 30, | Months Ended March 31, | ||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | (Amounts in thousands) | 2015 | 2014 | ||||||||||||||
Net income | Net income | $ | 169,197 | $ | 132,251 | $ | 433,040 | $ | 603,499 | Net income | $ | 125,246 | $ | 98,156 | ||||||||
Other comprehensive income (loss): | Other comprehensive income (loss): | Other comprehensive income (loss): | ||||||||||||||||||||
Change in unrealized net (loss) gain on available-for-sale securities | (22,764) | (8,252) | (7,761) | 160,886 | Change in unrealized net (loss) gain on available-for-sale securities | (21,332) | 13,125 | |||||||||||||||
Amounts reclassified from accumulated other comprehensive | Pro rata share of other comprehensive income (loss) of | |||||||||||||||||||||
income related to sale of available-for-sale securities | - | (42,404) | - | (42,404) | nonconsolidated subsidiaries | 157 | (8,286) | |||||||||||||||
Pro rata share of other comprehensive loss of | Change in value of interest rate swap and other | (771) | 1,611 | |||||||||||||||||||
nonconsolidated subsidiaries | (6,028) | (1,669) | (151) | (25,023) | ||||||||||||||||||
Change in value of interest rate swap | 4,781 | (295) | 5,846 | 14,265 | ||||||||||||||||||
Other | 1 | 1 | - | 531 | ||||||||||||||||||
Comprehensive income | Comprehensive income | 145,187 | 79,632 | 430,974 | 711,754 | Comprehensive income | 103,300 | 104,606 | ||||||||||||||
Less comprehensive income attributable to noncontrolling interests | ||||||||||||||||||||||
Less comprehensive income attributable to noncontrolling interests in consolidated | Less comprehensive income attributable to noncontrolling interests in consolidated | |||||||||||||||||||||
in consolidated subsidiaries | (9,685) | (23,833) | (85,239) | (50,049) | subsidiaries | (15,882) | (11,579) | |||||||||||||||
Comprehensive income attributable to Vornado Realty L.P. | Comprehensive income attributable to Vornado Realty L.P. | $ | 135,502 | $ | 55,799 | $ | 345,735 | $ | 661,705 | Comprehensive income attributable to Vornado Realty L.P. | $ | 87,418 | $ | 93,027 | ||||||||
See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). |
5
VORNADO REALTY L.P. | VORNADO REALTY L.P. | VORNADO REALTY L.P. | ||||||||||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||||||
(UNAUDITED) | (UNAUDITED) | (UNAUDITED) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Non- | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated | controlling | Accumulated | controlling | |||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Class A Units | Earnings | Other | Interests in | (Amounts in thousands) | Class A Units | Earnings | Other | Interests in | ||||||||||||||||||||||||||||||||||||||||||
Preferred Units | Owned by Vornado | Less Than | Comprehensive | Consolidated | Total | Preferred Units | Owned by Vornado | Less Than | Comprehensive | Consolidated | Total | |||||||||||||||||||||||||||||||||||||||||
Units | Amount | Units | Amount | Distributions | Income (Loss) | Subsidiaries | Equity | Units | Amount | Units | Amount | Distributions | Income (Loss) | Subsidiaries | Equity | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2013 | 52,683 | $ | 1,277,225 | 187,285 | $ | 7,151,309 | $ | (1,734,839) | $ | 71,537 | $ | 829,512 | $ | 7,594,744 | ||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2014 | Balance, December 31, 2014 | 52,679 | $ | 1,277,026 | 187,887 | $ | 6,880,518 | $ | (1,505,385) | $ | 93,267 | $ | 743,956 | $ | 7,489,382 | |||||||||||||||||||||||||||||||||||||
Net income attributable to Vornado Realty L.P. | Net income attributable to Vornado Realty L.P. | - | - | - | - | 347,801 | - | - | 347,801 | Net income attributable to Vornado Realty L.P. | - | - | - | - | 109,364 | - | - | 109,364 | ||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling | Net income attributable to noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||||||||
interests in consolidated subsidiaries | - | - | - | - | - | - | 15,882 | 15,882 | ||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to redeemable | Net income attributable to redeemable | Net income attributable to redeemable | ||||||||||||||||||||||||||||||||||||||||||||||||||
partnership units | - | - | - | - | (16,552) | - | - | (16,552) | partnership units | - | - | - | - | (5,287) | - | - | (5,287) | |||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||
in consolidated subsidiaries | - | - | - | - | - | - | 85,239 | 85,239 | ||||||||||||||||||||||||||||||||||||||||||||
Distribution of Urban Edge Properties | Distribution of Urban Edge Properties | - | - | - | - | (464,262) | - | (341) | (464,603) | |||||||||||||||||||||||||||||||||||||||||||
Distributions to Vornado | Distributions to Vornado | - | - | - | - | (410,724) | - | - | (410,724) | Distributions to Vornado | - | - | - | - | (118,447) | - | - | (118,447) | ||||||||||||||||||||||||||||||||||
Distributions to preferred unitholders | Distributions to preferred unitholders | - | - | - | - | (61,099) | - | - | (61,099) | Distributions to preferred unitholders | - | - | - | - | (19,484) | - | - | (19,484) | ||||||||||||||||||||||||||||||||||
Class A units issued to Vornado: | Class A units issued to Vornado: | Class A units issued to Vornado: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Upon redemption of redeemable Class A | Upon redemption of Class A | |||||||||||||||||||||||||||||||||||||||||||||||||||
units, at redemption value | - | - | 227 | 22,668 | - | - | - | 22,668 | units, at redemption value | - | - | 210 | 23,493 | - | - | - | 23,493 | |||||||||||||||||||||||||||||||||||
Under Vornado's Omnibus share plan | - | - | 199 | 12,350 | - | - | - | 12,350 | Under Vornado's employees' share option plan | - | - | 165 | 11,679 | (2,579) | - | - | 9,100 | |||||||||||||||||||||||||||||||||||
Under Vornado's dividend reinvestment plan | - | - | 13 | 1,387 | - | - | - | 1,387 | Under Vornado's dividend reinvestment plan | - | - | 3 | 338 | - | - | - | 338 | |||||||||||||||||||||||||||||||||||
Contributions: | Contributions: | Contributions: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Fund | - | - | - | - | - | - | 5,297 | 5,297 | Real estate fund investments | - | - | - | - | - | - | 51,350 | 51,350 | |||||||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | 5,000 | 5,000 | ||||||||||||||||||||||||||||||||||||||||||||
Distributions: | Distributions: | Distributions: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Fund | - | - | - | - | - | - | (182,964) | (182,964) | Real estate fund investments | - | - | - | - | - | - | (52,882) | (52,882) | |||||||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | (643) | (643) | ||||||||||||||||||||||||||||||||||||||||||||
Transfer of noncontrolling interest | ||||||||||||||||||||||||||||||||||||||||||||||||||||
in Real Estate Fund | - | - | - | - | - | - | (33,028) | (33,028) | Other | - | - | - | - | - | - | (125) | (125) | |||||||||||||||||||||||||||||||||||
Conversion of Series A preferred units to | Conversion of Series A preferred units to | Conversion of Series A preferred units to | ||||||||||||||||||||||||||||||||||||||||||||||||||
Class A units | (4) | (193) | 6 | 193 | - | - | - | - | Class A units | - | (12) | 1 | 12 | - | - | - | - | |||||||||||||||||||||||||||||||||||
Deferred compensation units and options | Deferred compensation units and options | - | - | 5 | 4,646 | (340) | - | - | 4,306 | Deferred compensation units and options | - | - | 7 | 1,325 | (359) | - | - | 966 | ||||||||||||||||||||||||||||||||||
Change in unrealized net loss on | Change in unrealized net loss on | Change in unrealized net loss on | ||||||||||||||||||||||||||||||||||||||||||||||||||
available-for-sale securities | - | - | - | - | - | (7,761) | - | (7,761) | available-for-sale securities | - | - | - | - | - | (21,332) | - | (21,332) | |||||||||||||||||||||||||||||||||||
Pro rata share of other comprehensive loss of | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Pro rata share of other comprehensive income of | Pro rata share of other comprehensive income of | |||||||||||||||||||||||||||||||||||||||||||||||||||
nonconsolidated subsidiaries | - | - | - | - | - | (151) | - | (151) | nonconsolidated subsidiaries | - | - | - | - | - | 157 | - | 157 | |||||||||||||||||||||||||||||||||||
Change in value of interest rate swap | Change in value of interest rate swap | - | - | - | - | - | 5,846 | - | 5,846 | Change in value of interest rate swap | - | - | - | - | - | (776) | - | (776) | ||||||||||||||||||||||||||||||||||
Adjustments to carry redeemable Class A units | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to carry redeemable | Adjustments to carry redeemable | |||||||||||||||||||||||||||||||||||||||||||||||||||
at redemption value | - | - | - | (144,231) | - | - | - | (144,231) | Class A units at redemption value | - | - | - | 25,349 | - | - | - | 25,349 | |||||||||||||||||||||||||||||||||||
Redeemable partnership units' share of | Redeemable partnership units' share of | Redeemable partnership units' share of | ||||||||||||||||||||||||||||||||||||||||||||||||||
above adjustments | - | - | - | - | - | 109 | - | 109 | above adjustments | - | - | - | - | - | 1,288 | - | 1,288 | |||||||||||||||||||||||||||||||||||
Other | Other | - | (6) | - | (297) | (2,372) | - | - | (2,675) | Other | - | - | - | - | - | 5 | (90) | (85) | ||||||||||||||||||||||||||||||||||
Balance, September 30, 2014 | 52,679 | $ | 1,277,026 | 187,735 | $ | 7,048,025 | $ | (1,878,125) | $ | 69,580 | $ | 708,413 | $ | 7,224,919 | ||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2015 | Balance, March 31, 2015 | 52,679 | $ | 1,277,014 | 188,273 | $ | 6,942,714 | $ | (2,006,439) | $ | 72,609 | $ | 757,750 | $ | 7,043,648 | |||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). |
6
VORNADO REALTY L.P. | VORNADO REALTY L.P. | VORNADO REALTY L.P. | ||||||||||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED | ||||||||||||||||||||||||||||||||||||||||||||||||||
(UNAUDITED) | (UNAUDITED) | (UNAUDITED) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Non- | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated | controlling | Accumulated | controlling | |||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Class A Units | Earnings | Other | Interests in | (Amounts in thousands) | Class A Units | Earnings | Other | Interests in | ||||||||||||||||||||||||||||||||||||||||||
Preferred Units | Owned by Vornado | Less Than | Comprehensive | Consolidated | Total | Preferred Units | Owned by Vornado | Less Than | Comprehensive | Consolidated | Total | |||||||||||||||||||||||||||||||||||||||||
Units | Amount | Units | Amount | Distributions | Income (Loss) | Subsidiaries | Equity | Units | Amount | Units | Amount | Distributions | Income (Loss) | Subsidiaries | Equity | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2012 | 51,185 | $ | 1,240,278 | 186,735 | $ | 7,202,878 | $ | (1,573,275) | $ | (18,946) | $ | 1,053,209 | $ | 7,904,144 | ||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2013 | Balance, December 31, 2013 | 52,683 | $ | 1,277,225 | 187,285 | $ | 7,151,309 | $ | (1,734,839) | $ | 71,537 | $ | 829,512 | $ | 7,594,744 | |||||||||||||||||||||||||||||||||||||
Net income attributable to Vornado Realty L.P. | Net income attributable to Vornado Realty L.P. | - | - | - | - | 553,450 | - | - | 553,450 | Net income attributable to Vornado Realty L.P. | - | - | - | - | 86,577 | - | - | 86,577 | ||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling | Net income attributable to noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||||||||
interests in consolidated subsidiaries | - | - | - | - | - | - | 11,579 | 11,579 | ||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to redeemable | Net income attributable to redeemable | Net income attributable to redeemable | ||||||||||||||||||||||||||||||||||||||||||||||||||
partnership units | - | - | - | - | (28,960) | - | - | (28,960) | ||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||
in consolidated subsidiaries | - | - | - | - | - | - | 50,049 | 50,049 | partnership units | - | - | - | - | (3,860) | - | - | (3,860) | |||||||||||||||||||||||||||||||||||
Distributions to Vornado | Distributions to Vornado | - | - | - | - | (409,332) | - | - | (409,332) | Distributions to Vornado | - | - | - | - | (136,761) | - | - | (136,761) | ||||||||||||||||||||||||||||||||||
Distributions to preferred unitholders | Distributions to preferred unitholders | - | - | - | - | (62,439) | - | - | (62,439) | Distributions to preferred unitholders | - | - | - | - | (20,368) | - | - | (20,368) | ||||||||||||||||||||||||||||||||||
Issuance of Series L preferred units | 12,000 | 290,536 | - | - | - | - | - | 290,536 | ||||||||||||||||||||||||||||||||||||||||||||
Redemption of Series F and Series H | ||||||||||||||||||||||||||||||||||||||||||||||||||||
preferred units | (10,500) | (253,269) | - | - | - | - | - | (253,269) | ||||||||||||||||||||||||||||||||||||||||||||
Class A units issued to Vornado: | Class A units issued to Vornado: | Class A units issued to Vornado: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Upon redemption of redeemable Class A | Upon redemption of Class A | |||||||||||||||||||||||||||||||||||||||||||||||||||
units, at redemption value | - | - | 234 | 19,627 | - | - | - | 19,627 | units, at redemption value | - | - | 55 | 5,156 | - | - | - | 5,156 | |||||||||||||||||||||||||||||||||||
Under Vornado's Omnibus share plan | - | - | 66 | 3,681 | - | - | - | 3,681 | Under Vornado's employees' share option plan | - | - | 60 | 3,230 | - | - | - | 3,230 | |||||||||||||||||||||||||||||||||||
Under Vornado's dividend reinvestment plan | - | - | 16 | 1,376 | - | - | - | 1,376 | Under Vornado's dividend reinvestment plan | - | - | 5 | 446 | - | - | - | 446 | |||||||||||||||||||||||||||||||||||
Contributions: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Fund | - | - | - | - | - | - | 24,328 | 24,328 | ||||||||||||||||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | 15,687 | 15,687 | ||||||||||||||||||||||||||||||||||||||||||||
Distributions: | Distributions: | Distributions: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Fund | - | - | - | - | - | - | (47,268) | (47,268) | Real estate fund investments | - | - | - | - | - | - | (1,950) | (1,950) | |||||||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | (126,799) | (126,799) | Other | - | - | - | - | - | - | (142) | (142) | |||||||||||||||||||||||||||||||||||
Conversion of Series A preferred units to | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A units | (2) | (90) | 3 | 90 | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation units and options | Deferred compensation units and options | - | - | (6) | 7,182 | (305) | - | - | 6,877 | Deferred compensation units and options | - | - | 7 | 2,119 | (340) | - | - | 1,779 | ||||||||||||||||||||||||||||||||||
Change in unrealized net gain | ||||||||||||||||||||||||||||||||||||||||||||||||||||
on available-for-sale securities | - | - | - | - | - | 160,886 | - | 160,886 | ||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassified related to sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in unrealized net gain on | Change in unrealized net gain on | |||||||||||||||||||||||||||||||||||||||||||||||||||
of available-for-sale securities | - | - | - | - | - | (42,404) | - | (42,404) | available-for-sale securities | - | - | - | - | - | 13,125 | - | 13,125 | |||||||||||||||||||||||||||||||||||
Pro rata share of other comprehensive loss of | Pro rata share of other comprehensive loss of | Pro rata share of other comprehensive loss of | ||||||||||||||||||||||||||||||||||||||||||||||||||
nonconsolidated subsidiaries | - | - | - | - | - | (25,023) | - | (25,023) | nonconsolidated subsidiaries | - | - | - | - | - | (8,286) | - | (8,286) | |||||||||||||||||||||||||||||||||||
Change in value of interest rate swap | Change in value of interest rate swap | - | - | - | - | - | 14,265 | - | 14,265 | Change in value of interest rate swap | - | - | - | - | - | 1,610 | - | 1,610 | ||||||||||||||||||||||||||||||||||
Adjustments to carry redeemable Class A units | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to carry redeemable | Adjustments to carry redeemable | |||||||||||||||||||||||||||||||||||||||||||||||||||
at redemption value | - | - | - | (43,709) | - | - | - | (43,709) | Class A units at redemption value | - | - | - | (136,937) | - | - | - | (136,937) | |||||||||||||||||||||||||||||||||||
Redeemable partnership units' share of above | Redeemable partnership units' share of above | Redeemable partnership units' share of above | ||||||||||||||||||||||||||||||||||||||||||||||||||
adjustments | - | - | - | - | - | (5,982) | - | (5,982) | adjustments | - | - | - | - | - | (361) | - | (361) | |||||||||||||||||||||||||||||||||||
Preferred unit redemptions | - | - | - | - | (1,130) | - | - | (1,130) | ||||||||||||||||||||||||||||||||||||||||||||
Deconsolidation of partially owned entity | - | - | - | - | - | - | (165,427) | (165,427) | ||||||||||||||||||||||||||||||||||||||||||||
Other | Other | - | - | - | (25) | (5,672) | 531 | (164) | (5,330) | Other | - | - | - | (238) | (18) | 1 | 1 | (254) | ||||||||||||||||||||||||||||||||||
Balance, September 30, 2013 | 52,683 | $ | 1,277,455 | 187,048 | $ | 7,191,100 | $ | (1,527,663) | $ | 83,327 | $ | 803,615 | $ | 7,827,834 | ||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2014 | Balance, March 31, 2014 | 52,683 | $ | 1,277,225 | 187,412 | $ | 7,025,085 | $ | (1,809,609) | $ | 77,626 | $ | 839,000 | $ | 7,409,327 | |||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | ||||||||||||||||||||||||||||||||||||||||||||||||||
7
VORNADO REALTY L.P. | VORNADO REALTY L.P. | VORNADO REALTY L.P. | ||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
(UNAUDITED) | (UNAUDITED) | (UNAUDITED) | ||||||||||||||
For the Nine Months Ended | For the Three Months Ended | |||||||||||||||
September 30, | March 31, | |||||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||
(Amounts in thousands) | (Amounts in thousands) | (Amounts in thousands) | ||||||||||||||
Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | ||||||||||||||
Net income | Net income | $ | 433,040 | $ | 603,499 | Net income | $ | 125,246 | $ | 98,156 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Depreciation and amortization (including amortization of deferred financing costs) | 423,959 | 419,249 | Depreciation and amortization (including amortization of deferred financing costs) | 131,112 | 153,869 | |||||||||||
Proceeds from Real Estate Fund investments | 215,676 | 56,664 | Return of capital from real estate fund investments | 72,208 | - | |||||||||||
Net realized and unrealized gains on Real Estate Fund investments | (131,558) | (59,476) | Net gains on sale of real estate and other | (32,243) | - | |||||||||||
Equity in net loss of partially owned entities, including Toys “R” Us | 77,426 | 45,620 | Straight-lining of rental income | (29,474) | (13,236) | |||||||||||
Net gains on sale of real estate | (57,796) | (286,990) | Net realized and unrealized gains on real estate fund investments | (17,639) | (14,169) | |||||||||||
Straight-lining of rental income | (56,983) | (48,561) | Distributions of income from partially owned entities | 15,874 | 12,966 | |||||||||||
Distributions of income from partially owned entities | 42,164 | 34,350 | Other non-cash adjustments | 15,865 | 11,885 | |||||||||||
Amortization of below-market leases, net | (32,663) | (40,341) | Amortization of below-market leases, net | (12,754) | (12,144) | |||||||||||
Other non-cash adjustments | 28,691 | 60,957 | Loss (income) from partially owned entities | 2,405 | (1,979) | |||||||||||
Impairment losses | 20,842 | 4,727 | Net gain on disposition of wholly owned and partially owned assets | (1,860) | (9,635) | |||||||||||
Net (gain) loss on disposition of wholly owned and partially owned assets | (13,205) | 20,581 | Impairment losses | 256 | 20,842 | |||||||||||
Defeasance cost in connection with the refinancing of mortgage notes payable | 5,589 | - | Changes in operating assets and liabilities: | |||||||||||||
Non-cash impairment loss on J.C. Penney common shares | - | 39,487 | Real estate fund investments | (95,022) | (123) | |||||||||||
Loss from the mark-to-market of J.C. Penney derivative position | - | 33,487 | Accounts receivable, net | 975 | (7,624) | |||||||||||
Changes in operating assets and liabilities: | Prepaid assets | 62,658 | 53,841 | |||||||||||||
Real Estate Fund investments | (3,392) | (32,392) | Other assets | (13,093) | (18,297) | |||||||||||
Accounts receivable, net | (2,775) | 63,280 | Accounts payable and accrued expenses | (12,691) | 31,554 | |||||||||||
Prepaid assets | (85,372) | (60,388) | Other liabilities | (17,307) | 3,225 | |||||||||||
Other assets | (68,833) | (25,854) | ||||||||||||||
Accounts payable and accrued expenses | 36,949 | (38,904) | ||||||||||||||
Other liabilities | (3,190) | 597 | ||||||||||||||
Net cash provided by operating activities | Net cash provided by operating activities | 828,569 | 789,592 | Net cash provided by operating activities | 194,516 | 309,131 | ||||||||||
Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | ||||||||||||||
Development costs and construction in progress | (368,571) | (149,010) | Proceeds from sales of real estate and related investments | 334,725 | 120,270 | |||||||||||
Proceeds from sales of real estate and related investments | 335,489 | 734,427 | Development costs and construction in progress | (88,052) | (90,653) | |||||||||||
Additions to real estate | (171,660) | (170,424) | Additions to real estate | (54,466) | (53,103) | |||||||||||
Restricted cash | 101,592 | 21,883 | Acquisitions of real estate and other | (49,878) | - | |||||||||||
Acquisitions of real estate and other | (95,546) | (75,079) | Investments in partially owned entities | (23,912) | (16,633) | |||||||||||
Proceeds from repayments of mortgage and mezzanine loans receivable and other | 96,504 | 49,452 | Proceeds from repayments of mortgage and mezzanine loans receivable and other | 16,763 | 69,347 | |||||||||||
Investments in partially owned entities | (91,697) | (212,624) | Distributions of capital from partially owned entities | 13,409 | 1,277 | |||||||||||
Investment in mortgage and mezzanine loans receivable and other | (11,380) | (390) | Restricted cash | 1,282 | 52,256 | |||||||||||
Distributions of capital from partially owned entities | 8,130 | 287,944 | ||||||||||||||
Proceeds from sales of marketable securities | - | 378,676 | ||||||||||||||
Proceeds from the sale of LNR | - | 240,474 | ||||||||||||||
Funding of J.C. Penney derivative collateral and settlement of derivative | - | (186,079) | ||||||||||||||
Return of J.C. Penney derivative collateral | - | 101,150 | ||||||||||||||
Net cash (used in) provided by investing activities | (197,139) | 1,020,400 | ||||||||||||||
Net cash provided by investing activities | Net cash provided by investing activities | 149,871 | 82,761 | |||||||||||||
See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | ||||||||||||||
8
VORNADO REALTY L.P. | VORNADO REALTY L.P. | VORNADO REALTY L.P. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED | CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED | CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED | ||||||||||||||||
(UNAUDITED) | (UNAUDITED) | (UNAUDITED) | ||||||||||||||||
For the Nine Months Ended | For the Three Months Ended | |||||||||||||||||
September 30, | March 31, | |||||||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | (Amounts in thousands) | ||||||||||||||||
Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | ||||||||||||||||
Proceeds from borrowings | $ | 1,713,285 | $ | 1,600,357 | Repayments of borrowings | $ | (907,431) | $ | (233,198) | |||||||||
Distributions to Vornado | (410,724) | (409,332) | Proceeds from borrowings | 800,000 | 600,000 | |||||||||||||
Repayments of borrowings | (343,354) | (2,851,420) | Cash included in the spin-off of Urban Edge Properties | (225,000) | - | |||||||||||||
Distributions to redeemable security holders and noncontrolling interests | (208,773) | (200,667) | Distributions to Vornado | (118,447) | (136,761) | |||||||||||||
Purchase of marketable securities in connection with the defeasance of mortgage | Distributions to redeemable security holders and noncontrolling interests | (60,287) | (10,474) | |||||||||||||||
notes payable | (198,884) | - | Contributions from noncontrolling interests in consolidated subsidiaries | 51,350 | - | |||||||||||||
Distributions to preferred unitholders | (61,102) | (62,820) | Distributions to preferred unitholders | (19,484) | (20,368) | |||||||||||||
Debt issuance costs | (40,424) | (9,982) | Proceeds received from exercise of Vornado stock options | 12,018 | 3,676 | |||||||||||||
Proceeds received from exercise of Vornado stock options | 13,738 | 5,057 | Debt issuance costs | (5,076) | (20,752) | |||||||||||||
Contributions from noncontrolling interests in consolidated subsidiaries | 5,297 | 40,015 | Repurchase of Class A units related to stock compensation agreements and/or related | |||||||||||||||
Repurchase of Class A units related to stock compensation agreements and/or related | tax withholdings | (2,939) | (578) | |||||||||||||||
tax withholdings | (637) | (332) | ||||||||||||||||
Purchases of outstanding preferred units | - | (299,400) | ||||||||||||||||
Proceeds from the issuance of preferred units | - | 290,536 | ||||||||||||||||
Net cash provided by (used in) financing activities | 468,422 | (1,897,988) | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 1,099,852 | (87,996) | ||||||||||||||||
Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | (475,296) | 181,545 | |||||||||||||||
Net (decrease) increase in cash and cash equivalents | Net (decrease) increase in cash and cash equivalents | (130,909) | 573,437 | |||||||||||||||
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 583,290 | 960,319 | Cash and cash equivalents at beginning of period | 1,198,477 | 583,290 | ||||||||||||
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 1,683,142 | $ | 872,323 | Cash and cash equivalents at end of period | $ | 1,067,568 | $ | 1,156,727 | ||||||||
Supplemental Disclosure of Cash Flow Information: | Supplemental Disclosure of Cash Flow Information: | Supplemental Disclosure of Cash Flow Information: | ||||||||||||||||
Cash payments for interest, excluding capitalized interest of $46,517 and $28,024 | $ | 317,162 | $ | 350,899 | Cash payments for interest, excluding capitalized interest of $8,479 and $13,622 | $ | 91,702 | $ | 100,209 | |||||||||
Cash payments for income taxes | $ | 9,407 | $ | 7,529 | Cash payments for income taxes | $ | 2,175 | $ | 1,214 | |||||||||
Non-Cash Investing and Financing Activities: | Non-Cash Investing and Financing Activities: | Non-Cash Investing and Financing Activities: | ||||||||||||||||
Marketable securities transferred in connection with the defeasance of mortgage | Non-cash distribution of Urban Edge Properties: | |||||||||||||||||
notes payable | $ | 198,884 | $ | - | Assets | $ | 1,722,263 | $ | - | |||||||||
Defeasance of mortgage notes payable | (193,406) | - | Liabilities | (1,482,660) | - | |||||||||||||
Adjustments to carry redeemable Class A units at redemption value | (144,231) | (43,709) | Equity | (239,603) | - | |||||||||||||
Write-off of fully depreciated assets | (103,184) | (54,377) | Transfer of interest in real estate to Pennsylvania Real Estate Investment Trust | (145,313) | - | |||||||||||||
Elimination of a mortgage and mezzanine loan asset and liability | 59,375 | - | Accrued capital expenditures included in accounts payable and accrued expenses | 87,232 | 74,424 | |||||||||||||
Transfer of interest in Real Estate Fund to an unconsolidated joint venture | (58,564) | - | Financing assumed in acquisitions | 62,000 | - | |||||||||||||
Like-kind exchange of real estate: | Like-kind exchange of real estate: | |||||||||||||||||
Acquisitions | 50,159 | 7,663 | Acquisitions | 57,722 | - | |||||||||||||
Dispositions | (50,159) | (163,468) | Dispositions | (38,822) | - | |||||||||||||
Transfer of noncontrolling interest in Real Estate Fund | (33,028) | - | Adjustments to carry redeemable Class A units at redemption value | 25,349 | (136,937) | |||||||||||||
Beverly Connection seller financing | 13,620 | - | Receipt of security deposits included in restricted cash and other liabilities | 42,346 | - | |||||||||||||
Decrease in assets and liabilities resulting from the deconsolidation of Independence Plaza: | Write-off of fully depreciated assets | (18,790) | (67,204) | |||||||||||||||
Real estate, net | - | (852,166) | Elimination of a mortgage and mezzanine loan asset and liability | - | 59,375 | |||||||||||||
Notes and mortgages payable | - | (322,903) | ||||||||||||||||
See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | See notes to consolidated financial statements (unaudited). | ||||||||||||||||
9
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization
Vornado Realty L.P. (the “Operating Partnership” and/or the “Company”) is a Delaware limited partnership. Vornado Realty Trust (“Vornado”) is the sole general partner of, and owned approximately 94.0%93.9% of the common limited partnership interest in, the Operating Partnership at September 30, 2014.March 31, 2015. All references to “we,” “us,” “our,” the “Company” and the “Operating“the Operating Partnership” refer to Vornado Realty L.P. and its consolidated subsidiaries.
On April 11, 2014,January 15, 2015, we announced a plan to spin offcompleted the spin-off of substantially all of our retail segment comprised of 79 strip shopping center business, consisting of 80 strip centers, fourthree malls, and a warehouse park adjacentand $225,000,000 of cash to our East Hanover strip center, into a new publicly traded REIT, Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction, we retained 5,717,184 UE operating partnership units (5.4% ownership interest). We are providing transition services to UE for an initial period of up to two years, including information technology, human resources, tax and financial reporting. UE is providing us with leasing and property management services for (i) the Monmouth Mall, (ii) certain small retail properties that we plan to sell, and (iii) our affiliate, Alexander’s, Inc. (NYSE: ALX), formerly Vornado Spinco. The spin-off is expected to be effectuated through a pro rata distributionRego Park retail assets. Steven Roth, Chairman of UE’s common shares to Vornado common shareholders and Vornado Realty L.P. common unitholders, and is intended to be treated as tax-free for U.S. federal income tax purposes. We expect the spin-off to be completed by the end of 2014, subject to certain conditions, including the Securities and Exchange Commission (“SEC”) declaring UE’s Form 10 registration statement effective, filing and approval of UE’s listing application with the NYSE, receipt of third party consents, and formal approval and declaration of the distribution by Vornado’s Board of Trustees.Trustees and its Chief Executive Officer is a member of the Board of Trustees of UE. The spin-off distribution was effected by Vornado may, at any time anddistributing one UE common share for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms.every two Vornado will retain, for dispositioncommon shares. Beginning in the near term, 20 small retail assets which do not fit UE’s strategy, andfirst quarter of 2015, the Springfield Town Center, which is under contracthistorical financial results of UE are reflected in our consolidated financial statements as discontinued operations for disposition (see Note 9 – Dispositions). all periods presented.
The accompanying consolidated financial statements are unaudited and include the accounts of Vornado Realty L.P. and its consolidated subsidiaries. All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the SEC and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2013,2014, as filed with the SEC.
We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three and nine months ended September 30, 2014March 31, 2015 are not necessarily indicative of the operating results for the full year.
Certain prior year balances have been reclassified in order to conform to the current yearperiod presentation. Beginning in the three months ended March 31, 2015, the Company classified signage revenue within “property rentals”. For the three months ended March 31, 2014, $9,300,000 related to signage revenue has been reclassified from “fee and other income” to “property rentals” to conform to the current period presentation.
10
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
3. Recently Issued Accounting Literature
In June 2013,April 2014, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2013-08”) to Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies (“Topic 946”). ASU 2013-08 amends the guidance in Topic 946 for determining whether an entity qualifies as an investment company and requires certain additional disclosures. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013. The adoption of this update as of January 1, 2014, did not have any impact on our real estate fund or our consolidated financial statements.
In April 2014, the FASB issued an update (“ASU 2014-08”) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entityto ASC Topic 205, Presentation of Financial Statementsand ASC Topic 360, Property Plant and Equipment. Under ASU 2014-08, only disposals that represent a strategic shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. In addition, ASU 2014-08 expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU 2014-08 is effective for interim and annual reporting periods in fiscal years that beginbegan after December 15, 2014. WeUpon adoption of this standard on January 1, 2015, individual properties sold in the ordinary course of business are currently evaluating the impactnot expected to qualify as discontinued operations. The financial results of ASU 2014-08 onUE and certain other retail assets are reflected in our consolidated financial statements.statements as discontinued operations for all periods presented (see Note 8 –
10Dispositions
VORNADO REALTY L.P.).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
3. Recently Issued Accounting Literature – continued
In May 2014, the FASB issued an update ("ASU 2014-09") establishing ASC Topic 606, Revenue from Contracts with Customers. Customers. ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016. We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.
In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation. ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has ended, as a performance condition that affects vesting. ASU 2014-12 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. We are currently evaluating the impact of the adoption of ASU 2014-12 on our consolidated financial statements.
In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810, Consolidation. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidated analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. We are currently evaluating the impact of the adoption of ASU 2015-02 on our consolidated financial statements.
In April 2015, the FASB issued an update (“ASU 2015-03”) Simplifying the Presentation of Debt Issuance Costs to ASC Topic 835, Interest. ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability to which they relate, consistent with debt discounts, as opposed to being presented as assets. ASU 2015-03 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. The adoption of this update on January 1, 2016 will not have a material impact on our consolidated financial statements.
4. Acquisitions
On August 1, 2014,January 20, 2015, we and one of the Fund’s limited partners co-invested with the Fund to buy out the Fund’s joint venture partner’s 57% interest in the Crowne Plaza Times Square Hotel (see Note 5 – Vornado Capital Partners Real Estate Fund).
On March 18, 2015, we acquired the land under our 715 Lexington Avenue retailCenter Building, a 437,000 square foot office building, located at 33-00 Northern Boulevard in Long Island City, New York, for $142,000,000, including the assumption of an existing $62,000,000, 4.43% mortgage maturing in October 2018.
As of March 31, 2015, we have made a $25,000,000 non-refundable deposit related to an agreement to acquire a property in the Penn Plaza submarket in Manhattan for $355,000,000.
On April 8, 2015, we made an $11,000,000 refundable contribution to a joint venture, in which we will have a 55% interest. The joint venture plans to develop a 173,000 square foot Class-A office building, located on the Southeast corner of 58th Street and Lexington Avenue in Manhattan, for $63,000,000.
On October 28, 2014, we completed the purchasewestern side of the St. Regis Fifth Avenue retail for $700,000,000. We own approximately 75% of the joint venture which owns the property. The acquisition will be used in a like-kind exchange for income tax purposes for the sale of 1740 Broadway (see Note 22 – Subsequent Events). We consolidate the accounts of the venture into our consolidated financial statements from the date of acquisition. As of September 30, 2014, the venture’s $50,000,000 non-refundable deposit was included in “other assets” on our consolidated balance sheet.
High Line at 510 West 22nd Street.
11
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
5. Vornado Capital Partners Real Estate Fund (the “Fund”)
We are the general partner and investment manager of the Fund.Fund, which has an eight-year term and a three-year investment period that ended in July 2013. During the investment period, the Fund was our exclusive investment vehicle for all investments that fit within its investment parameters, as defined. The Fund is accounted for under the AICPAASC 946,Financial Services – Investment Company GuideCompanies and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings. We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.
On June 26, 2014, the Fund sold its 64.7% interest in One Park Avenue to a newly formed joint venture that we and an institutional investor own 55% and 45%, respectively (see Note 8 -Investments in Partially Owned Entities - One Park Avenue). This transaction was based on a property value of $560,000,000. From the inception of this investment through its disposition, the Fund realized a $75,529,000 net gain.
On August 21, 2014,January 20, 2015, we and one of the Fund’s limited partners co-invested with the Fund and its 50%to buy out the Fund’s joint venture partnerpartner’s 57% interest in the Crowne Plaza Times Square Hotel (the “Co-Investment”). The purchase price for the 57% interest was approximately $95,000,000 (our share $39,000,000) which valued the property at approximately $480,000,000. The property is encumbered by a newly placed $310,000,000 mortgage loan bearing interest at LIBOR plus 2.80% which matures in December 2018 with a one-year extension option. Our aggregate ownership interest in the property increased to 33% from 11%. The Co-Investment is included as a component of “real estate fund investments” on our consolidated balance sheets.
On March 25, 2015, the Fund completed the sale of The Shops at Georgetown Park, a 305,000 square foot retail property,520 Broadway in Santa Monica, CA for $272,500,000. From the inception of this investment through its disposition, the$91,650,000. The Fund realized a $51,124,000$24,705,000 net gain.gain over the holding period.
At September 30, 2014, the FundMarch 31, 2015, we had sevensix investments with an aggregate fair value of $495,392,000,$554,426,000, or $158,317,000$169,832,000 in excess of cost, and had remaining unfunded commitments of $144,123,000,$102,324,000, of which our share was $36,031,000.$25,581,000. Below is a summary of income from the Fund for the three and nine months ended September 30, 2014March 31, 2015 and 2013.2014.
|
| For the Three Months | For the Nine Months | For the Three Months | |||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Ended September 30, | Ended September 30, | (Amounts in thousands) | Ended March 31, | ||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||||
Net investment income | Net investment income | $ | 3,829 | $ | 2,362 | $ | 10,860 | $ | 6,287 | Net investment income | $ | 6,450 | $ | 3,979 | |||||||||
Net realized gains on exited investments | Net realized gains on exited investments | 51,584 | 8,184 | 126,653 | 8,184 | Net realized gains on exited investments | 24,705 | - | |||||||||||||||
Previously recorded unrealized gains on exited investments | Previously recorded unrealized gains on exited investments | (49,586) | - | (50,316) | - | Previously recorded unrealized gains on exited investments | (23,279) | - | |||||||||||||||
Net unrealized gains on held investments | Net unrealized gains on held investments | 18,333 | 12,367 | 55,221 | 59,476 | Net unrealized gains on held investments | 16,213 | 14,169 | |||||||||||||||
Income from Real Estate Fund | 24,160 | 22,913 | 142,418 | 73,947 | |||||||||||||||||||
Income from real estate fund investments | Income from real estate fund investments | 24,089 | 18,148 | ||||||||||||||||||||
Less income attributable to noncontrolling interests | Less income attributable to noncontrolling interests | (8,588) | (15,422) | (81,217) | (39,321) | Less income attributable to noncontrolling interests | (13,539) | (10,849) | |||||||||||||||
Income from Real Estate Fund attributable to Vornado Realty L.P.(1) |
| 15,572 | $ | 7,491 | $ | 61,201 | $ | 34,626 | |||||||||||||||
Income from real estate fund investments attributable to Vornado Realty L.P.(1) | Income from real estate fund investments attributable to Vornado Realty L.P.(1) | $ | 10,550 | $ | 7,299 | ||||||||||||||||||
(1) | Excludes management, leasing and development fees of $759 and $770 for the three months ended September 30, 2014 and 2013, respectively, and $2,208 and $2,446 for the nine months ended September 30, 2014 and 2013, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. | ||||||||||||||||||||||
(1) Excludes property management, leasing and development fees of $704 and $618 for the three months ended March 31, 2015 and 2014, respectively,which are included as a component of "fee and other income" on our consolidated statements of income. | (1) Excludes property management, leasing and development fees of $704 and $618 for the three months ended March 31, 2015 and 2014, respectively,which are included as a component of "fee and other income" on our consolidated statements of income. | ||||||||||||||||||||||
|
|
6. Marketable Securities
Below is a summary of our marketable securities portfolio as of September 30, 2014March 31, 2015 and December 31, 2013.2014.
(Amounts in thousands) | (Amounts in thousands) | As of September 30, 2014 | As of December 31, 2013 | (Amounts in thousands) | As of March 31, 2015 | As of December 31, 2014 | ||||||||||||||||||||||||||||||
GAAP | Unrealized | GAAP | Unrealized | GAAP | Unrealized | GAAP | Unrealized | |||||||||||||||||||||||||||||
Fair Value | Cost | Gain | Fair Value | Cost | Gain | Fair Value | Cost | Gain | Fair Value | Cost | Gain | |||||||||||||||||||||||||
Equity securities: | Equity securities: | Equity securities: | ||||||||||||||||||||||||||||||||||
Lexington Realty Trust | $ | 180,811 | $ | 72,549 | $ | 108,262 | $ | 188,567 | $ | 72,549 | $ | 116,018 | Lexington Realty Trust | $ | 181,550 | $ | 72,549 | $ | 109,001 | $ | 202,789 | $ | 72,549 | $ | 130,240 | |||||||||||
Other | 3,343 | 57 | 3,286 | 3,350 | 59 | 3,291 | Other | 3,441 | - | 3,441 | 3,534 | - | 3,534 | |||||||||||||||||||||||
$ | 184,154 | $ | 72,606 | $ | 111,548 | $ | 191,917 | $ | 72,608 | $ | 119,309 | $ | 184,991 | $ | 72,549 | $ | 112,442 | $ | 206,323 | $ | 72,549 | $ | 133,774 |
In the first quarter of 2013, we wrote down 8,584,010 J.C. Penney common shares we owned to fair value, based on J.C. Penney’s March 31, 2013 closing share price of $15.11 per share, and recorded a $39,487,000 impairment loss. In the third quarter of 2013, we settled a forward contract and received 4,815,990 J.C. Penney common shares. In connection therewith, we recognized a $20,012,000 loss from the mark-to-market of the derivative position through its settlement date. These losses are included in “interest and other investment income (loss), net” on our consolidated statements of income.
12
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
6. Marketable Securities – continued
In March 2013 and September 2013, we sold an aggregate of 23,400,000 J.C. Penney common shares at a price of $14.29 per share, or $334,500,000, resulting in a net loss of $54,914,000, of which $36,800,000 and $18,114,000 was recognized during the first and third quarter of 2013, respectively. In addition, in the third quarter of 2013, we sold another marketable security for $44,176,000, resulting in a net gain of $31,741,000. The net gains and losses resulting from these sales are included in “net gain (loss) on disposition of wholly owned and partially owned assets” on our consolidated statements of income.
7. Mortgage and Mezzanine Loans Receivable
In October 2012, we acquired a 25.0% participation in a mortgage and mezzanine loan on 701 Seventh Avenue. In March 2013, we transferred at par, the 25.0% participation in the mortgage loan to a third party, for $59,375,000 in cash. The transfer did not qualify for sale accounting given our continuing interest in the mezzanine loan. Accordingly, we continued to include the 25.0% participation in the mortgage loan in “mortgage and mezzanine loans receivable” and recorded a $59,375,000 liability in “other liabilities” on our consolidated balance sheet. In January 2014, the mortgage and mezzanine loans were repaid; accordingly, the $59,375,000 asset and liability were eliminated.
In March 2014, a $30,000,000 mezzanine loan that was scheduled to mature in January 2015 was repaid. In May 2014, a $25,000,000 mezzanine loan that was scheduled to mature in November 2014 was repaid.
As of September 30, 2014 and December 31, 2013, the carrying amount of mortgage and mezzanine loans receivable was $17,085,000 and $170,972,000, respectively. These loans have a weighted average interest rate of 9.1% and 11.0% at September 30, 2014 and December 31, 2013, respectively, and have maturities ranging from April 2015 to May 2016.
8. Investments in Partially Owned Entities
Toys “R” Us (“Toys”)
As of September 30, 2014,March 31, 2015, we own 32.7%32.6% of Toys. We account for our investment in Toys under the equity method and record our share of Toys’ net income or loss on a one-quarter lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. The business of Toys is highly seasonal and substantially all of Toys’ net income is generated in its fourth quarter.
We have not guaranteed any of Toys’ obligations and are not committed to provide any support to Toys. Pursuant to ASC 323-10-35-20, we discontinued applying the equity method of accounting for our Toys’ investment when the carrying amount was reduced to zero.zero in the third quarter of 2014. We will resume application of the equity method if, during the period the equity method has been suspended, our share of unrecognized net income exceeds our share of unrecognized net losses duringlosses.
In the periodfirst quarter of 2014, we recognized our share of Toys’ fourth quarter net income of $75,196,000 and a corresponding non-cash impairment loss of the equity method was suspended.same amount.
Below is a summary of Toys’ latest available financial information on a purchase accounting basis:
(Amounts in thousands) | Balance as of | ||||||||||||||||
Balance Sheet: | August 2, 2014 | November 2, 2013 | |||||||||||||||
Assets | $ | 10,213,000 | $ | 11,756,000 | |||||||||||||
Liabilities | 9,139,000 | 10,437,000 | |||||||||||||||
Noncontrolling interests | 83,000 | 75,000 | |||||||||||||||
Toys “R” Us, Inc. equity (1) | 991,000 | 1,244,000 | |||||||||||||||
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||
Income Statement: | August 2, 2014 | August 3, 2013 | August 2, 2014 | August 3, 2013 | |||||||||||||
Total revenues | $ | 2,440,000 | $ | 2,377,000 | $ | 10,186,000 | $ | 10,555,000 | |||||||||
Net (loss) income attributable to Toys | (133,000) | (111,000) | (244,000) | 11,000 | |||||||||||||
(1) | At September 30, 2014, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $323,497. This basis difference results primarily from non-cash impairment losses aggregating $355,953 that we have recognized through September 30, 2014. We have allocated the basis difference primarily to Toys' real estate, which is being amortized over its remaining estimated useful life.
|
(Amounts in thousands) | Balance as of | ||||||||||
Balance Sheet: | January 31, 2015 | November 1, 2014 | |||||||||
Assets | $ | 9,958,000 | $ | 11,267,000 | |||||||
Liabilities | 9,014,000 | 10,377,000 | |||||||||
Noncontrolling interests | 85,000 | 82,000 | |||||||||
Toys “R” Us, Inc. equity (1) | 859,000 | 808,000 | |||||||||
For the Three Months Ended | |||||||||||
Income Statement: | January 31, 2015 | February 1, 2014 | |||||||||
Total revenues | $ | 4,983,000 | $ | 5,267,000 | |||||||
Net income attributable to Toys | 193,700 | 82,500 | |||||||||
(1) | At March 31, 2015, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $279,936. This basis difference results primarily from non-cash impairment losses aggregating $355,953 that we have recognized through March 31, 2015. We have allocated the basis difference primarily to Toys' real estate, which is being amortized over its remaining estimated useful life.
|
13
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
8. Investments in Partially Owned Entities – continued
As of September 30, 2014,March 31, 2015, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of September 30, 2014, we have a $44,179,000receivable from Alexander’s for fees under these agreements.
As of September 30, 2014,March 31, 2015, the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s September 30, 2014March 31, 2015 closing share price of $373.91,$456.58, was $618,473,000,$755,214,000, or $451,750,000$623,071,000 in excess of the carrying amount on our consolidated balance sheet. As of September 30, 2014,March 31, 2015, the carrying amount of our investment in Alexander’s excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $41,394,000.$41,048,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income. The basis difference related to the land will be recognized upon disposition of our investment.
Below is a summary of Alexander’s latest available financial information:
(Amounts in thousands) | Balance as of | |||||||||||||
Balance Sheet: | September 30, 2014 | December 31, 2013 | ||||||||||||
Assets | $ | 1,465,400 | $ | 1,457,700 | ||||||||||
Liabilities | 1,129,000 | 1,124,100 | ||||||||||||
Stockholders' equity | 336,400 | 333,600 | ||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||
Income Statement: | 2014 | 2013 | 2014 | 2013 | ||||||||||
Total revenues | $ | 50,100 | $ | 49,900 | $ | 149,500 | $ | 146,000 | ||||||
Net income attributable to Alexander’s | 17,700 | 13,800 | 49,800 | 41,100 | ||||||||||
LNR Property LLC (“LNR”)
In January 2013, we and the other equity holders of LNR entered into a definitive agreement to sell LNR for $1.053 billion, of which our share of the net proceeds was $240,474,000. The definitive agreement provided that LNR would not (i) make any cash distributions to the equity holders, including us, through the completion of the sale, which occurred on April 19, 2013, and (ii) take any of the following actions (among others) without the purchaser’s approval, the lending or advancing of any money, the acquisition of assets in excess of specified amounts, or the issuance of equity interests. Notwithstanding the terms of the definitive agreement, in accordance with GAAP, we recorded our pro rata share of LNR’s earnings on a one-quarter lag basis through the date of sale, which increased the carrying amount of our investment in LNR above our share of the net sales proceeds and resulted in us recognizing a $27,231,000 “other-than-temporary” impairment loss on our investment in the three months ended March 31, 2013.
One Park Avenue
On June 26, 2014, we invested an additional $22,700,000 to increase our ownership in One Park Avenue to 55.0% from 46.5% through a joint venture with an institutional investor, who increased his ownership interest to 45.0% (see Note 5 – Vornado Capital Partners Real Estate Fund). The transaction was based on a property value of $560,000,000. The property is encumbered by a $250,000,000 interest-only mortgage loan that bears interest at 4.995% and matures in March 2016. We account for our investment in the joint venture under the equity method because we share control over major decisions with our joint venture partner.
61 Ninth Avenue
On July 23, 2014, a joint venture in which we are a 50.1% partner entered into a 99-year ground lease for 61 Ninth Avenue located on the Southwest corner of Ninth Avenue and 15th Street in Manhattan. The venture’s current plans are to construct an office building, with retail at the base, of approximately 130,000 square feet. Total development costs are currently estimated to be approximately $125,000,000. We account for our investment in the joint venture under the equity method because we share control over major decisions with our joint venture partner.
1413
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
8.7. Investments in Partially Owned Entities - continued
Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX) - continued
Below is a summary of Alexander’s latest available financial information:
(Amounts in thousands) | Balance as of | ||||||||
Balance Sheet: | March 31, 2015 | December 31, 2014 | |||||||
Assets | $ | 1,433,000 | $ | 1,423,000 | |||||
Liabilities | 1,084,000 | 1,075,000 | |||||||
Stockholders' equity | 349,000 | 348,000 | |||||||
For the Three Months Ended March 31, | |||||||||
Income Statement: | 2015 | 2014 | |||||||
Total revenues | $ | 52,000 | $ | 49,000 | |||||
Net income attributable to Alexander’s | 18,000 | 15,000 | |||||||
Urban Edge Properties (“UE”) (NYSE: UE)
As part of our spin-off of substantially all of our retail segment to UE on January 15, 2015 (see Note 1 – Organization), we retained 5,717,184 UE operating partnership units, representing a 5.4% ownership interest in UE. We account for our investment in UE under the equity method and will recognize our share of UE’s earnings on a one-quarter lag basis. We are providing transition services to UE for an initial period of up to two years, including information technology, human resources, tax and financial reporting. UE is providing us with leasing and property management services for (i) the Monmouth Mall, (ii) certain small retail properties that we plan to sell, and (iii) our affiliate, Alexander’s, Rego Park retail assets.
Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI)
On March 31, 2015, we transferred the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to PREIT Associates, L.P., which is the operating partnership of PREIT, in exchange for $485,313,000; comprised of $340,000,000 of cash and 6,250,000 PREIT operating partnership units (valued at $145,313,000 or $23.25 per PREIT unit) (See Note 8 – Dispositions). $19,000,000 of tenant improvements and allowances was credited to PREIT as a closing adjustment. As a result of this transaction, we own an 8.1% interest in PREIT. We account for our investment in PREIT under the equity method and will recognize our share of PREIT’s earnings on a one-quarter lag basis.
14
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
7. Investments in Partially Owned Entities – continued
Below are schedules summarizing our investments in, and (loss) income from, partially owned entities.
Percentage | Percentage | |||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Ownership at | Balance as of | (Amounts in thousands) | Ownership at | Balance as of | ||||||||||||||||||||
Investments: | Investments: | September 30, 2014 | September 30, 2014 | December 31, 2013 | Investments: | March 31, 2015 | March 31, 2015 | December 31, 2014 | ||||||||||||||||||
Toys | 32.7% | $ | - | $ | 83,224 | Partially owned office buildings (1) | Various | $ | 766,074 | $ | 760,749 | |||||||||||||||
PREIT Associates | 8.1% | 144,681 | - | |||||||||||||||||||||||
Alexander’s | 32.4% | $ | 166,723 | $ | 167,785 | Alexander’s | 32.4% | 132,143 | 131,616 | |||||||||||||||||
India real estate ventures | 4.1%-36.5% | 82,588 | 88,467 | India real estate ventures | 4.1%-36.5% | 67,159 | 76,752 | |||||||||||||||||||
Partially owned office buildings (1) | Various | 733,904 | 621,294 | Urban Edge | 5.4% | 25,206 | - | |||||||||||||||||||
Other investments (2) | Various | 284,851 | 288,897 | Toys | 32.6% | - | - | |||||||||||||||||||
$ | 1,268,066 | $ | 1,166,443 | Other investments (2) | Various | 272,951 | 277,379 | |||||||||||||||||||
$ | 1,408,214 | $ | 1,246,496 | |||||||||||||||||||||||
| Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others. | |||||||||||||||||||||||||
| Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. | Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others. | ||||||||||||||||||||||||
(2) | Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. |
Percentage | For the Three Months | For the Nine Months | Percentage | For the Three Months | ||||||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Ownership at | Ended September 30, | Ended September 30, | (Amounts in thousands) | Ownership at | Ended March 31, | |||||||||||||||||||||||||||||||
Our Share of Net (Loss) Income: | Our Share of Net (Loss) Income: | September 30, 2014 | 2014 | 2013 | 2014 | 2013 | Our Share of Net (Loss) Income: | March 31, 2015 | 2015 | 2014 | ||||||||||||||||||||||||||||
Toys: | 32.7% | Partially owned office buildings (1) | Various | $ | (9,296) | $ | (2,395) | |||||||||||||||||||||||||||||||
Equity in net (loss) earnings | $ | (20,357) | $ | (36,056) | $ | (4,691) | $ | 3,778 | ||||||||||||||||||||||||||||||
Non-cash impairment losses | - | - | (75,196) | (78,542) | Alexander's: | |||||||||||||||||||||||||||||||||
Management fees | 1,939 | 1,847 | 5,725 | 5,453 | Equity in net income | 32.4% | 5,594 | 4,759 | ||||||||||||||||||||||||||||||
$ | (18,418) | $ | (34,209) | $ | (74,162) | $ | (69,311) | Management, leasing and development fees | 2,097 | 1,626 | ||||||||||||||||||||||||||||
7,691 | 6,385 | |||||||||||||||||||||||||||||||||||||
Alexander's: | 32.4% | |||||||||||||||||||||||||||||||||||||
Equity in net income | $ | 5,552 | $ | 4,299 | $ | 15,583 | $ | 12,785 | Toys: | |||||||||||||||||||||||||||||
Management, leasing and development fees | 1,640 | 1,676 | 4,888 | 5,017 | Equity in net income | 32.6% | - | 75,196 | ||||||||||||||||||||||||||||||
7,192 | 5,975 | 20,471 | 17,802 | Non-cash impairment losses | - | (75,196) | ||||||||||||||||||||||||||||||||
Management fees | 1,454 | 1,847 | ||||||||||||||||||||||||||||||||||||
India real estate ventures | 4.1%-36.5% | (262) | (1,449) | (2,440) | (2,630) | 1,454 | 1,847 | |||||||||||||||||||||||||||||||
Partially owned office buildings (1) | Various | 18 | 38 | (1,387) | (1,586) | Urban Edge (2) | 5.4% | 584 | - | |||||||||||||||||||||||||||||
Other investments (2) | Various | (14,193) | (3,111) | (19,908) | (8,626) | India real estate ventures | 4.1%-36.5% | (109) | (137) | |||||||||||||||||||||||||||||
LNR (see page 14 for details): | n/a | Other investments (3) | Various | (2,729) | (3,721) | |||||||||||||||||||||||||||||||||
Equity in net income | - | - | - | 45,962 | ||||||||||||||||||||||||||||||||||
Impairment loss | - | - | - | (27,231) | $ | (2,405) | $ | 1,979 | ||||||||||||||||||||||||||||||
- | - | - | 18,731 | |||||||||||||||||||||||||||||||||||
$ | (7,245) | $ | 1,453 | $ | (3,264) | $ | 23,691 | |||||||||||||||||||||||||||||||
(1) | Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others. | |||||||||||||||||||||||||||||||||||||
|
|
| Represents fees earned pursuant to our transition services agreement with UE. | |||||||||||||||||||||||||||||||||||
| Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. | |||||||||||||||||||||||||||||||||||||
(1) | Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others. | |||||||||||||||||||||||||||||||||||||
(2) | Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In the third quarter of 2014, we recognized a $10,263 non-cash charge, comprised of a $5,959 impairment loss and a $4,304 loan loss reserve, on our equity and debt investments in Suffolk Downs. |
15
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
8. Investments in Partially Owned Entities – continued
Below is a summary of the debt of our partially owned entities as of September 30, 2014 and December 31, 2013, none of which is recourse to us.
Percentage | Interest | 100% of | |||||||||||
Ownership at | Rate at | Partially Owned Entities’ Debt at | |||||||||||
(Amounts in thousands) | September 30, | September 30, | September 30, | December 31, | |||||||||
2014 | Maturity | 2014 | 2014 | 2013 | |||||||||
Toys: | |||||||||||||
Notes, loans and mortgages payable | 32.7% | 2014-2021 | 6.72% | $ | 5,385,461 | $ | 5,702,247 | ||||||
Alexander's: | |||||||||||||
Mortgages payable | 32.4% | 2015-2021 | 2.58% | $ | 1,033,541 | $ | 1,049,959 | ||||||
India real estate ventures: | |||||||||||||
TCG Urban Infrastructure Holdings mortgages | |||||||||||||
payable | 25.0% | 2014-2026 | 13.24% | $ | 190,453 | $ | 199,021 | ||||||
Partially owned office buildings(1) | Various | 2014-2023 | 5.71% | $ | 3,657,837 | $ | 3,622,759 | ||||||
Other(2) | Various | 2014-2025 | 4.56% | $ | 1,696,974 | $ | 1,709,509 | ||||||
(1) | Includes 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others. | ||||||||||||
(2) | Includes Independence Plaza, Monmouth Mall, Fashion Center Mall, 50-70 West 93rd Street and others. |
Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $4,156,658,000and $4,189,403,000 at September 30, 2014 and December 31, 2013, respectively.
16
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
9. Dispositions
Discontinued Operations
On February 24, 2014,January 15, 2015, we completed the salespin-off of Broadway Mall in Hicksville, Long Island, New York, for $94,000,000. The sale resulted in net proceedssubstantially all of $92,174,000 after closing costs.
On July 8, 2014, we completed the saleour retail segment comprised of Beverly Connection, a 335,000 square foot power shopping center in Los Angeles, California, for $260,000,000, of which $239,000,000 was cash and $21,000,000 was 10-year mezzanine seller financing. The sale resulted in a net gain of $44,155,000, which was recognized in the third quarter of 2014.
During the third quarter of 2014, we sold two of the 2079 strip shopping centers, which do not fit UE’s strategythree malls, a warehouse park and $225,000,000 of cash to UE (NYSE: UE) (see Note 1 – Organization),.
On March 13, 2015, we sold our lease position in Geary Street, CA for $34,189,000, which resulted in a net gain of $21,376,000.
On March 31, 2015, we transferred the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to PREIT (see Note 7 – Investments in Partially Owned Entities). The financial statement gain was $7,823,000, of which $7,192,000 was recognized in the first quarter of 2015 and the remaining $631,000 was deferred based on our ownership interest in PREIT. On March 31, 2018, we will be entitled to additional consideration of 50% of the increase in the value of Springfield Town Center, if any, over $465,000,000, calculated utilizing a 5.5% capitalization rate. In the first quarter of 2014, we recorded a non-cash impairment loss of $20,000,000 on Springfield Town Center which is included in “income from discontinued operations” on our consolidated statements of income.
During the first quarter of 2015, we sold five residual retail properties, in separate transactions, for an aggregate of $15,000,000 in cash, which$10,731,000, which resulted in a net gain aggregating $13,641,000. gains of $3,675,000.
We have reclassified the revenues and expenses of the properties discussed above to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying consolidated financial statements. The net gains resulting from the sale of these properties are included in “income from discontinued operations” on our consolidated statements of income. The tables below set forth the assets and liabilities related to discontinued operations at September 30, 2014March 31, 2015 and December 31, 20132014 and their combined results of operations and cash flows for the three and nine months ended September 30, 2014March 31, 2015 and 2013.2014.
Assets Related to | Liabilities Related to | ||||||||||||
(Amounts in thousands) | Discontinued Operations as of | Discontinued Operations as of | |||||||||||
September 30, | December 31, | September 30, | December 31, | ||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Beverly Connection | $ | - | $ | 208,458 | $ | - | $ | - | |||||
Broadway Mall | - | 106,164 | - | 13,950 | |||||||||
Other | - | 1,597 | - | - | |||||||||
Total | $ | - | $ | 316,219 | $ | - | $ | 13,950 | |||||
For the Three Months | For the Nine Months | ||||||||||||
(Amounts in thousands) | Ended September 30, | Ended September 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Total revenues | $ | 836 | $ | 17,354 | $ | 13,473 | $ | 63,048 | |||||
Total expenses | 501 | 11,352 | 8,627 | 45,322 | |||||||||
335 | 6,002 | 4,846 | 17,726 | ||||||||||
Net gain on sale of Beverly Connection | 44,155 | - | 44,155 | - | |||||||||
Net gain on sale of Green Acres Mall | - | - | - | 202,275 | |||||||||
Net gains on sales of other real estate | 13,641 | 18,996 | 13,641 | 84,715 | |||||||||
Impairment losses | - | (720) | (842) | (4,727) | |||||||||
Income from discontinued operations | $ | 58,131 | $ | 24,278 | $ | 61,800 | $ | 299,989 |
Balance as of | ||||||||||
(Amounts in thousands) | March 31, | December 31, | ||||||||
2015 | 2014 | |||||||||
Assets related to discontinued operations: | ||||||||||
Real estate, net | $ | 27,199 | $ | 2,028,677 | ||||||
Other assets | 8,143 | 209,797 | ||||||||
$ | 35,342 | $ | 2,238,474 | |||||||
Liabilities related to discontinued operations: | ||||||||||
Mortgages payable | - | 1,288,535 | ||||||||
Other liabilities (primarily deferred revenue in 2014) | 11,354 | 222,827 | ||||||||
$ | 11,354 | $ | 1,511,362 | |||||||
For the Three Months | ||||||||||
(Amounts in thousands) | Ended March 31, | |||||||||
2015 | 2014 | |||||||||
Income from discontinued operations | ||||||||||
Total revenues | $ | 19,958 | $ | 106,563 | ||||||
Total expenses | 13,373 | 76,025 | ||||||||
6,585 | 30,538 | |||||||||
Net gain on sale of lease position in Geary Street, CA | 21,376 | - | ||||||||
Net gains on sale of real estate | 10,867 | - | ||||||||
Transaction related costs | (22,645) | (499) | ||||||||
Impairment losses | (256) | (20,842) | ||||||||
Pretax income from discontinued operations | 15,927 | 9,197 | ||||||||
Income tax expense | (86) | (731) | ||||||||
Income from discontinued operations | $ | 15,841 | $ | 8,466 | ||||||
Cash flows related to discontinued operations: | ||||||||||
Cash flows from operating activities | $ | (36,672) | $ | 15,535 | ||||||
Cash flows from investing activities | 310,069 | (30,397) |
16
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
9. Identified Intangible Assets and Liabilities
The following summarizes our identified intangible assets (primarily acquired in-place and above-market leases) and liabilities (primarily acquired below-market leases) as of March 31, 2015 and December 31, 2014.
Balance as of | |||||||
March 31, | December 31, | ||||||
(Amounts in thousands) | 2015 | 2014 | |||||
Identified intangible assets: | |||||||
Gross amount | $ | 429,909 | $ | 424,976 | |||
Accumulated amortization | (200,330) | (199,821) | |||||
Net | $ | 229,579 | $ | 225,155 | |||
Identified intangible liabilities (included in deferred revenue): | |||||||
Gross amount | $ | 620,891 | $ | 657,976 | |||
Accumulated amortization | (304,929) | (329,775) | |||||
Net | $ | 315,962 | $ | 328,201 |
Other
On March 2, 2014, we entered intoAmortization of acquired below-market leases, net of acquired above-market leases, resulted in an agreementincrease to transfer upon completion,rental income of $12,450,000 and $9,712,000 for the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE: PEI) (“PREIT”) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership units. In connection therewith, we recorded a non-cash impairment loss of $20,000,000 in the first quarter of 2014, which is included in “impairment losses, acquisition and transaction related costs” on our consolidated statements of income. The redevelopment was completed in October 2014 and the closing will be no later thanthree months ended March 31, 2015.2015 and 2014, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands) | ||||
2016 | $ | 36,804 | ||
2017 | 34,829 | |||
2018 | 33,546 | |||
2019 | 23,514 | |||
2020 | 21,505 |
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $6,185,000 and $8,891,000 for the three months ended March 31, 2015 and 2014, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands) | ||||
2016 | $ | 22,523 | ||
2017 | 17,692 | |||
2018 | 13,373 | |||
2019 | 11,425 | |||
2020 | 10,651 |
We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $458,000 for the three months ended March 31, 2015 and 2014. Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands) | ||||
2016 | $ | 1,832 | ||
2017 | 1,832 | |||
2018 | 1,832 | |||
2019 | 1,832 | |||
2020 | 1,832 |
17
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
10. Identified Intangible Assets and LiabilitiesDebt
On January 1, 2015, we redeemed all of the $500,000,000 principal amount of our outstanding 4.25% senior unsecured notes, which were scheduled to mature on April 1, 2015, at a redemption price of 100% of the principal amount plus accrued interest through December 31, 2014.
On April 1, 2015, we completed a $308,000,000 refinancing of RiverHouse Apartments, a three building, 1,670 unit rental complex located in Arlington, VA. The loan is interest-only at LIBOR plus 1.28% and matures in 2025. We realized net proceeds of approximately $43,000,000. The property was previously encumbered by a 5.43%, $195,000,000 mortgage maturing in April 2015 and a $64,000,000 mortgage at LIBOR plus 1.53% maturing in 2018.
The following summarizesis a summary of our identified intangible assets (primarily acquired in-place and above-market leases) and liabilities (primarily acquired below-market leases) as of September 30, 2014 and December 31, 2013.
debt:
Balance as of | |||||||
September 30, | December 31, | ||||||
(Amounts in thousands) | 2014 | 2013 | |||||
Identified intangible assets: | |||||||
Gross amount | $ | 503,993 | $ | 589,961 | |||
Accumulated amortization | (223,786) | (277,998) | |||||
Net | $ | 280,207 | $ | 311,963 | |||
Identified intangible liabilities (included in deferred revenue): | |||||||
Gross amount | $ | 843,941 | $ | 856,933 | |||
Accumulated amortization | (385,824) | (360,398) | |||||
Net | $ | 458,117 | $ | 496,535 |
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $10,039,000 and $11,145,000 for the three months ended September 30, 2014 and 2013, respectively, and $32,201,000 and $38,322,000 for the nine months ended September 30, 2014 and 2013, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2015 is as follows:
(Amounts in thousands) | ||||
2015 | $ | 40,071 | ||
2016 | 38,455 | |||
2017 | 34,890 | |||
2018 | 33,381 | |||
2019 | 30,105 |
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $6,296,000 and $10,686,000 for the three months ended September 30, 2014 and 2013, respectively, and $22,996,000 and $52,997,000 for the nine months ended September 30, 2014 and 2013, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2015 is as follows:
(Amounts in thousands) | ||||
2015 | $ | 23,160 | ||
2016 | 20,195 | |||
2017 | 16,813 | |||
2018 | 12,446 | |||
2019 | 11,539 |
We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $858,000 and $981,000 for the three months ended September 30, 2014 and 2013, respectively, and $2,572,000 and $3,704,000 for the nine months ended September 30, 2014 and 2013, respectively. Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2015 is as follows:
(Amounts in thousands) | ||||
2015 | $ | 3,430 | ||
2016 | 3,430 | |||
2017 | 3,430 | |||
2018 | 3,430 | |||
2019 | 3,430 |
Interest Rate at | Balance at | |||||||||||||
(Amounts in thousands) | March 31, 2015 | March 31, 2015 | December 31, 2014 | |||||||||||
Mortgages Payable: | ||||||||||||||
Fixed rate | 4.46% | $ | 6,553,924 | $ | 6,499,396 | |||||||||
Variable rate | 2.21% | 1,762,869 | 1,763,769 | |||||||||||
3.99% | $ | 8,316,793 | $ | 8,263,165 | ||||||||||
Unsecured Debt: | ||||||||||||||
Senior unsecured notes | 3.68% | $ | 847,332 | $ | 1,347,159 | |||||||||
Revolving credit facility debt | 1.23% | 400,000 | - | |||||||||||
3.39% | $ | 1,247,332 | $ | 1,347,159 |
18
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
11. Debt
On January 31, 2014, we completed a $600,000,000 loan secured by our 220 Central Park South development site. The loan bears interest at LIBOR plus 2.75% (2.90% at September 30, 2014) and matures in January 2016, with three one-year extension options.
On April 16,2014, we completed a $350,000,000 refinancing of 909 Third Avenue, a 1.3 million square foot Manhattan office building. The seven-year interest only loan bears interest at 3.91% and matures in May 2021. We realized net proceeds of approximately $145,000,000 after defeasing the existing 5.64%, $193,000,000 mortgage, defeasance cost and other closing costs.
On June 16, 2014, we completed a green bond public offering of $450,000,000 2.50% senior unsecured notes due June 30, 2019. The notes were sold at 99.619% of their face amount to yield 2.581%.
On July 16, 2014, we completed a $130,000,000 financing of Las Catalinas, a 494,000 square foot mall located in the San Juan area of Puerto Rico. The 10-year fixed rate loan bears interest at 4.43% and matures in August 2024. The loan amortizes based on a 30-year schedule beginning in year six.
On August 12, 2014, we completed a $185,000,000 financing of the Universal buildings, a 690,000 square foot, two-building office complex located in Washington, DC. The loan bears interest at LIBOR plus 1.90% (2.06% at September 30, 2014) and matures in August 2019 with two one-year extension options. The loan amortizes based on a 30-year schedule beginning in the fourth year.
On August 26, 2014, we obtained a standby commitment for up to $500,000,000 of five-year mezzanine loan financing to fund a portion of the development expenditures at 220 Central Park South.
On September 30, 2014, we extended one of our two $1.25 billion unsecured revolving credit facilities from November 2015 to November 2018 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 125 basis points to LIBOR plus 105 basis points and the facility fee was reduced from 25 to 20 basis points.
On October 1, 2014, we redeemed all of the $445,000,000 principal amount of our outstanding 7.875% senior unsecured notes, which were scheduled to mature on October 1, 2039, at a redemption price of 100% of the principal amount plus accrued interest through the redemption date. In the fourth quarter of 2014, we will write off $12,532,000 of unamortized deferred financing costs, which will be included as a component of “interest and debt expense” on our consolidated statements of income.
The following is a summary of our debt:
Interest Rate at | Balance at | |||||||||||||
(Amounts in thousands) | September 30, 2014 | September 30, 2014 | December 31, 2013 | |||||||||||
Mortgages Payable: | ||||||||||||||
Fixed rate | 4.47% | $ | 7,723,956 | $ | 7,563,133 | |||||||||
Variable rate | 2.29% | 1,549,256 | 768,860 | |||||||||||
4.11% | $ | 9,273,212 | $ | 8,331,993 | ||||||||||
Unsecured Debt: | ||||||||||||||
Senior unsecured notes | 4.88% | $ | 1,791,987 | $ | 1,350,855 | |||||||||
Revolving credit facility debt | 1.30% | 88,138 | 295,870 | |||||||||||
4.71% | $ | 1,880,125 | $ | 1,646,725 |
19
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
12. Redeemable Partnership Units
Redeemable partnership units on our consolidated balance sheets are comprised primarily of Class A units that are held by third parties and are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “partners’ capital” on our consolidated balance sheets. Below is a table summarizing the activity of redeemable partnership units.
(Amounts in thousands) | ||||
Balance at December 31, | $ |
| ||
Net income |
| |||
Other comprehensive income |
| |||
Distributions |
| |||
Redemption of Class A units, at redemption value |
| |||
Adjustments to carry redeemable Class A units at redemption value |
| |||
|
| |||
Other, net |
| |||
Balance at | $ |
| ||
Balance at December 31, | $ |
| ||
Net income |
| |||
Other comprehensive loss |
| |||
Distributions |
| |||
Redemption of Class A units, at redemption value |
| |||
Adjustments to carry redeemable Class A units at redemption value |
| |||
Other, net |
| |||
Balance at | $ |
|
As of September 30, 2014March 31, 2015 and December 31, 2013,2014, the aggregate redemption value of redeemable Class A units, which are those units held by third parties, was $1,139,052,000$1,303,790,000 and $1,002,620,000,$1,336,780,000, respectively.
Redeemable partnership units exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and EquityInvestments in Partially Owned Entities, because). The financial statement gain was $7,823,000, of their possible settlement by issuing a variable numberwhich $7,192,000 was recognized in the first quarter of Vornado common shares. Accordingly,2015 and the fairremaining $631,000 was deferred based on our ownership interest in PREIT. On March 31, 2018, we will be entitled to additional consideration of 50% of the increase in the value of these unitsSpringfield Town Center, if any, over $465,000,000, calculated utilizing a 5.5% capitalization rate. In the first quarter of 2014, we recorded a non-cash impairment loss of $20,000,000 on Springfield Town Center which is included as a component of “other liabilities”in “income from discontinued operations” on our consolidated balance sheetsstatements of income.
During the first quarter of 2015, we sold five residual retail properties, in separate transactions, for an aggregate of $10,731,000, which resulted in net gains of $3,675,000.
We have reclassified the revenues and aggregated $55,097,000 asexpenses of September 30, 2014the properties discussed above to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying consolidated financial statements. The net gains resulting from the sale of these properties are included in “income from discontinued operations” on our consolidated statements of income. The tables below set forth the assets and liabilities related to discontinued operations at March 31, 2015 and December 31, 2013. 2014 and their combined results of operations and cash flows for the three months ended March 31, 2015 and 2014.
Balance as of | ||||||||||
(Amounts in thousands) | March 31, | December 31, | ||||||||
2015 | 2014 | |||||||||
Assets related to discontinued operations: | ||||||||||
Real estate, net | $ | 27,199 | $ | 2,028,677 | ||||||
Other assets | 8,143 | 209,797 | ||||||||
$ | 35,342 | $ | 2,238,474 | |||||||
Liabilities related to discontinued operations: | ||||||||||
Mortgages payable | - | 1,288,535 | ||||||||
Other liabilities (primarily deferred revenue in 2014) | 11,354 | 222,827 | ||||||||
$ | 11,354 | $ | 1,511,362 | |||||||
For the Three Months | ||||||||||
(Amounts in thousands) | Ended March 31, | |||||||||
2015 | 2014 | |||||||||
Income from discontinued operations | ||||||||||
Total revenues | $ | 19,958 | $ | 106,563 | ||||||
Total expenses | 13,373 | 76,025 | ||||||||
6,585 | 30,538 | |||||||||
Net gain on sale of lease position in Geary Street, CA | 21,376 | - | ||||||||
Net gains on sale of real estate | 10,867 | - | ||||||||
Transaction related costs | (22,645) | (499) | ||||||||
Impairment losses | (256) | (20,842) | ||||||||
Pretax income from discontinued operations | 15,927 | 9,197 | ||||||||
Income tax expense | (86) | (731) | ||||||||
Income from discontinued operations | $ | 15,841 | $ | 8,466 | ||||||
Cash flows related to discontinued operations: | ||||||||||
Cash flows from operating activities | $ | (36,672) | $ | 15,535 | ||||||
Cash flows from investing activities | 310,069 | (30,397) |
2016
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
13. Accumulated Other Comprehensive Income (“AOCI”)9. Identified Intangible Assets and Liabilities
The following tables set forth the changes in accumulated other comprehensive income (loss) by component.summarizes our identified intangible assets (primarily acquired in-place and above-market leases) and liabilities (primarily acquired below-market leases) as of March 31, 2015 and December 31, 2014.
For the Three Months Ended September 30, 2014 | |||||||||||||||||
Securities | Pro rata share of | Interest | |||||||||||||||
available- | nonconsolidated | rate | |||||||||||||||
(Amounts in thousands) | Total | for-sale | subsidiaries' OCI | swap | Other | ||||||||||||
Balance as of June 30, 2014 | $ | 92,221 | $ | 134,312 | $ | (5,624) | $ | (30,817) | $ | (5,650) | |||||||
OCI before reclassifications | (22,641) | (22,764) | (6,028) | 4,781 | 1,370 | ||||||||||||
Amounts reclassified from AOCI | - | - | - | - | - | ||||||||||||
Net current period OCI | (22,641) | (22,764) | (6,028) | 4,781 | 1,370 | ||||||||||||
Balance as of September 30, 2014 | $ | 69,580 | $ | 111,548 | $ | (11,652) | $ | (26,036) | $ | (4,280) | |||||||
For the Three Months Ended September 30, 2013 | |||||||||||||||||
Securities | Pro rata share of | Interest | |||||||||||||||
available- | nonconsolidated | rate | |||||||||||||||
(Amounts in thousands) | Total | for-sale | subsidiaries' OCI | swap | Other | ||||||||||||
Balance as of June 30, 2013 | $ | 132,894 | $ | 188,570 | $ | (12,041) | $ | (35,505) | $ | (8,130) | |||||||
OCI before reclassifications | (7,163) | (8,252) | (1,669) | (295) | 3,053 | ||||||||||||
Amounts reclassified from AOCI | (42,404) | (42,404) | (1) | - | - | - | |||||||||||
Net current period OCI | (49,567) | (50,656) | (1,669) | (295) | 3,053 | ||||||||||||
Balance as of September 30, 2013 | $ | 83,327 | $ | 137,914 | $ | (13,710) | $ | (35,800) | $ | (5,077) | |||||||
(1) | Reclassified to "net gain (loss) on disposition of wholly owned and partially owned assets" on our consolidated statements of income. | ||||||||||||||||
For the Nine Months Ended September 30, 2014 | |||||||||||||||||
Securities | Pro rata share of | Interest | |||||||||||||||
available- | nonconsolidated | rate | |||||||||||||||
(Amounts in thousands) | Total | for-sale | subsidiaries' OCI | swap | Other | ||||||||||||
Balance as of December 31, 2013 | $ | 71,537 | $ | 119,309 | $ | (11,501) | $ | (31,882) | $ | (4,389) | |||||||
OCI before reclassifications | (1,957) | (7,761) | (151) | 5,846 | 109 | ||||||||||||
Amounts reclassified from AOCI | - | - | - | - | - | ||||||||||||
Net current period OCI | (1,957) | (7,761) | (151) | 5,846 | 109 | ||||||||||||
Balance as of September 30, 2014 | $ | 69,580 | $ | 111,548 | $ | (11,652) | $ | (26,036) | $ | (4,280) | |||||||
For the Nine Months Ended September 30, 2013 | |||||||||||||||||
Securities | Pro rata share of | Interest | |||||||||||||||
available- | nonconsolidated | rate | |||||||||||||||
(Amounts in thousands) | Total | for-sale | subsidiaries' OCI | swap | Other | ||||||||||||
Balance as of December 31, 2012 | $ | (18,946) | $ | 19,432 | $ | 11,313 | $ | (50,065) | $ | 374 | |||||||
OCI before reclassifications | 144,677 | 160,886 | (25,023) | 14,265 | (5,451) | ||||||||||||
Amounts reclassified from AOCI | (42,404) | (42,404) | (1) | - | - | - | |||||||||||
Net current period OCI | 102,273 | 118,482 | (25,023) | 14,265 | (5,451) | ||||||||||||
Balance as of September 30, 2013 | $ | 83,327 | $ | 137,914 | $ | (13,710) | $ | (35,800) | $ | (5,077) | |||||||
(1) | Reclassified to "net gain (loss) on disposition of wholly owned and partially owned assets" on our consolidated statements of income. |
Balance as of | |||||||
March 31, | December 31, | ||||||
(Amounts in thousands) | 2015 | 2014 | |||||
Identified intangible assets: | |||||||
Gross amount | $ | 429,909 | $ | 424,976 | |||
Accumulated amortization | (200,330) | (199,821) | |||||
Net | $ | 229,579 | $ | 225,155 | |||
Identified intangible liabilities (included in deferred revenue): | |||||||
Gross amount | $ | 620,891 | $ | 657,976 | |||
Accumulated amortization | (304,929) | (329,775) | |||||
Net | $ | 315,962 | $ | 328,201 |
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $12,450,000 and $9,712,000 for the three months ended March 31, 2015 and 2014, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands) | ||||
2016 | $ | 36,804 | ||
2017 | 34,829 | |||
2018 | 33,546 | |||
2019 | 23,514 | |||
2020 | 21,505 |
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $6,185,000 and $8,891,000 for the three months ended March 31, 2015 and 2014, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands) | ||||
2016 | $ | 22,523 | ||
2017 | 17,692 | |||
2018 | 13,373 | |||
2019 | 11,425 | |||
2020 | 10,651 |
We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $458,000 for the three months ended March 31, 2015 and 2014. Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands) | ||||
2016 | $ | 1,832 | ||
2017 | 1,832 | |||
2018 | 1,832 | |||
2019 | 1,832 | |||
2020 | 1,832 |
2117
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
14. Variable Interest Entities (“VIEs”)10. Debt
On January 1, 2015, we redeemed all of the $500,000,000 principal amount of our outstanding 4.25% senior unsecured notes, which were scheduled to mature on April 1, 2015, at a redemption price of 100% of the principal amount plus accrued interest through December 31, 2014.
At September 30, 2014,On April 1, 2015, we have unconsolidated VIEs comprisedcompleted a $308,000,000 refinancing of RiverHouse Apartments, a three building, 1,670 unit rental complex located in Arlington, VA. The loan is interest-only at LIBOR plus 1.28% and matures in 2025. We realized net proceeds of approximately $43,000,000. The property was previously encumbered by a 5.43%, $195,000,000 mortgage maturing in April 2015 and a $64,000,000 mortgage at LIBOR plus 1.53% maturing in 2018.
The following is a summary of our investments in the entities that own One Park Avenue, Independence Plaza and the Warner Building, and at December 31, 2013, our unconsolidated VIEs comprised of our investments in the entities that own Independence Plaza and the Warner Building. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance. We account for our investment in these entities under the equity method. As of September 30, 2014 and December 31, 2013, the net carrying amounts of our investment in these entities were $284,440,000 and $152,929,000, respectively, and our maximum exposure to loss in these entities is limited to our investment. We did not have any consolidated VIEs as of September 30, 2014 and December 31, 2013.
15. Fair Value Measurements
ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable securities, (ii) Real Estate Fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) interest rate swaps and (v) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units). The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy at September 30, 2014 and December 31, 2013, respectively.
debt:
As of September 30, 2014 | |||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Marketable securities | $ | 184,154 | $ | 184,154 | $ | - | $ | - | |||||||
Real Estate Fund investments (75% of which is attributable to | |||||||||||||||
noncontrolling interests) | 495,392 | - | - | 495,392 | |||||||||||
Deferred compensation plan assets (included in other assets) | 113,549 | 50,366 | - | 63,183 | |||||||||||
Total assets | $ | 793,095 | $ | 234,520 | $ | - | $ | 558,575 | |||||||
Mandatorily redeemable instruments (included in other liabilities) | $ | 55,096 | $ | 55,096 | $ | - | $ | - | |||||||
Interest rate swap (included in other liabilities) | 26,036 | - | 26,036 | - | |||||||||||
Total liabilities | $ | 81,132 | $ | 55,096 | $ | 26,036 | $ | - | |||||||
As of December 31, 2013 | |||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Marketable securities | $ | 191,917 | $ | 191,917 | $ | - | $ | - | |||||||
Real Estate Fund investments (75% of which is attributable to | |||||||||||||||
noncontrolling interests) | 667,710 | - | - | 667,710 | |||||||||||
Deferred compensation plan assets (included in other assets) | 116,515 | 47,733 | - | 68,782 | |||||||||||
Total assets | $ | 976,142 | $ | 239,650 | $ | - | $ | 736,492 | |||||||
Mandatorily redeemable instruments (included in other liabilities) | $ | 55,097 | $ | 55,097 | $ | - | $ | - | |||||||
Interest rate swap (included in other liabilities) | 31,882 | - | 31,882 | - | |||||||||||
Total liabilities | $ | 86,979 | $ | 55,097 | $ | 31,882 | $ | - |
Interest Rate at | Balance at | |||||||||||||
(Amounts in thousands) | March 31, 2015 | March 31, 2015 | December 31, 2014 | |||||||||||
Mortgages Payable: | ||||||||||||||
Fixed rate | 4.46% | $ | 6,553,924 | $ | 6,499,396 | |||||||||
Variable rate | 2.21% | 1,762,869 | 1,763,769 | |||||||||||
3.99% | $ | 8,316,793 | $ | 8,263,165 | ||||||||||
Unsecured Debt: | ||||||||||||||
Senior unsecured notes | 3.68% | $ | 847,332 | $ | 1,347,159 | |||||||||
Revolving credit facility debt | 1.23% | 400,000 | - | |||||||||||
3.39% | $ | 1,247,332 | $ | 1,347,159 |
2218
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
15. Fair Value Measurements – continued11. Redeemable Partnership Units
Financial AssetsRedeemable partnership units on our consolidated balance sheets are comprised primarily of Class A units that are held by third parties and Liabilities Measuredare recorded at Fair Value on a Recurring Basis - continued
Real Estate Fund Investments
At September 30, 2014, our Real Estate Fund had seven investments with an aggregate fairthe greater of their carrying amount or redemption value of $495,392,000, or $158,317,000 in excess of cost. These investments are classified as Level 3. We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 0.5 to 5.8 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holdingeach reporting period. Changes in the value from period to period are determined basedcharged to “partners’ capital” on our consolidated balance sheets. Below is a table summarizing the net cash flowactivity of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs.
The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from original underwriting assumptions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these Fund investments at September 30, 2014.redeemable partnership units.
(Amounts in thousands) | ||||||||
Balance at December 31, 2013 | $ | 1,003,620 | ||||||
Net income | 3,860 | |||||||
Other comprehensive income |
| |||||||
Distributions | (8,383) | |||||||
Redemption of Class A units, at redemption value | (5,156) | |||||||
Adjustments to carry redeemable Class A units at redemption value | 136,937 | |||||||
Other, net | 9,592 | |||||||
Balance at March 31, 2014 | $ | 1,140,831 | ||||||
Balance at December 31, 2014 | $ |
| ||||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
Redemption of Class A units, at redemption value | (23,493) | |||||||
Adjustments to carry redeemable Class A units at redemption value | (25,349) | |||||||
Other, net | 19,133 | |||||||
Balance at March 31, 2015 | $ | 1,304,790 |
The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timingAs of exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.
The table below summarizes the changes in the fair value of Fund investments that are classified as Level 3, for the three and nine months ended September 30, 2014 and 2013.
Real Estate Fund Investments | Real Estate Fund Investments | ||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Beginning balance | $ | 549,091 | $ | 622,124 | $ | 667,710 | $ | 600,786 | |||||||
Purchases | 725 | 7,406 | 3,392 | 38,299 | |||||||||||
Dispositions / Distributions | (74,755) | (14,184) | (307,268) | (70,848) | |||||||||||
Net unrealized gains | 18,333 | 12,367 | 55,221 | 59,476 | |||||||||||
Net realized gains | 51,584 | 8,184 | 126,653 | 8,184 | |||||||||||
Previously recorded unrealized gains | (49,586) | - | (50,316) | - | |||||||||||
Other, net | - | 93 | - | 93 | |||||||||||
Ending balance | $ | 495,392 | $ | 635,990 | $ | 495,392 | $ | 635,990 | |||||||
23
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
15. Fair Value Measurements – continued
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
Deferred Compensation Plan Assets
Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties. We receive quarterly financial reports from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund. The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis. The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements.
The table below summarizes the changes in the fair value of Deferred Compensation Plan Assets that are classified as Level 3, for the three and nine months ended September 30, 2014 and 2013.
Deferred Compensation Plan Assets | Deferred Compensation Plan Assets | ||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Beginning balance | $ | 64,609 | $ | 66,502 | $ | 68,782 | $ | 62,631 | |||||||
Purchases | 1,377 | 880 | 10,936 | 4,027 | |||||||||||
Sales | (4,917) | (873) | (21,296) | (5,318) | |||||||||||
Realized and unrealized gain (loss) | 927 | (42) | 2,901 | 4,094 | |||||||||||
Other, net | 1,187 | 58 | 1,860 | 1,091 | |||||||||||
Ending balance | $ | 63,183 | $ | 66,525 | $ | 63,183 | $ | 66,525 | |||||||
Fair Value Measurements on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets, our investment in Suffolk Downs and our investment in Toys that were written-down to estimated fair value at September 30, 2014 or at DecemberMarch 31, 2013. The fair value of our real estate assets and our investment in Suffolk Downs was determined using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity. In determining the fair value of our investment in Toys, we considered, among other inputs, a December 31, 2013 third-party valuation of Toys and Toys’ historical results, financial forecasts and business outlook. Our determination of the fair value of our investment in Toys included consideration of the following widely-used valuation methodologies: (i) market multiple methodology, that considered comparable publicly traded retail companies and a range of EBITDA multiples from 5.75x to 6.5x, (ii) comparable sales transactions methodology, that considered sales of retailers ranging in size from $150 million to $3 billion, (iii) a discounted cash flow methodology, that utilized five-year financial projections and assumed a terminal EBITDA multiple of 5.75x, a 10% discount rate and a 38% tax rate, and (iv) a Black-Scholes valuation analysis, that assumed one, two and three year time-to-expiration periods and 24% to 29% volatility factors. Generally, we consider a number of valuation techniques when measuring fair values but in certain circumstances, a single valuation technique may be appropriate. The tables below aggregate the fair values of these assets by their levels in the fair value hierarchy.
As of September 30, 2014 | |||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Investment in Suffolk Downs | $ | 1,328 | $ | - | $ | - | $ | 1,328 | |||||||
As of December 31, 2013 | |||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Real estate assets | $ | 354,351 | $ | - | $ | - | $ | 354,351 | |||||||
Investment in Toys "R" Us | 83,224 | - | - | 83,224 | |||||||||||
Total assets | $ | 437,575 | $ | - | $ | - | $ | 437,575 | |||||||
24
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
15. Fair Value Measurements – continued
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), mortgage and mezzanine loans receivable and our secured and unsecured debt. Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value of cash equivalents and borrowings under our revolving credit facility is classified as Level 1, and the fair value of our mortgage and mezzanine loans receivable is classified as Level 3. The fair value of our secured and unsecured debt are classified as Level 2. The table below summarizes the carrying amounts and fair value of these financial instruments as of September 30, 20142015 and December 31, 2013.2014, the aggregate redemption value of redeemable Class A units, which are those units held by third parties, was $1,303,790,000 and $1,336,780,000, respectively.
As of September 30, 2014 | As of December 31, 2013 | ||||||||||||||
Carrying | Fair | Carrying | Fair | ||||||||||||
(Amounts in thousands) | Amount | Value | Amount | Value | |||||||||||
Cash equivalents | $ | 1,361,305 | $ | 1,361,000 | $ | 295,000 | $ | 295,000 | |||||||
Mortgage and mezzanine loans receivable | 17,085 | 17,000 | 170,972 | 171,000 | |||||||||||
$ | 1,378,390 | $ | 1,378,000 | $ | 465,972 | $ | 466,000 | ||||||||
Debt: | |||||||||||||||
Mortgages payable | $ | 9,273,212 | $ | 9,192,000 | $ | 8,331,993 | $ | 8,104,000 | |||||||
Senior unsecured notes | 1,791,987 | 1,840,000 | 1,350,855 | 1,402,000 | |||||||||||
Revolving credit facility debt | 88,138 | 88,000 | 295,870 | 296,000 | |||||||||||
$ | 11,153,337 | $ | 11,120,000 | $ | 9,978,718 | $ | 9,802,000 |
16. Incentive Compensation
Vornado’s 2010 Omnibus Share Plan (the “Plan”) provides for grants of incentive and non-qualified Vornado stock options, Vornado restricted stock, restrictedRedeemable partnership units exclude our Series G-1 through G-4 convertible preferred units and out-performance plan awards to certain of Vornado’s employees and officers. We accountSeries D-13 cumulative redeemable preferred units, as they are accounted for all stock-based compensationas liabilities in accordance with ASC 718,480, Compensation – Stock Compensation. Stock-based compensation expense was $8,315,000and $9,201,000 in the three months ended September 30, 2014 and 2013, respectively and $28,389,000 and $25,796,000 in the nine months ended September 30, 2014 and 2013, respectively.
On January 10, 2014, the Compensation Committee of Vornado’s Board of Trustees approved the 2014 Outperformance Plan, a multi-year, performance-based equity compensation plan and related form of award agreement (the “2014 OPP”). Under the 2014 OPP, participants have the opportunity to earn compensation payable in the form of units during a three-year performance measurement period, if and only if Vornado outperforms a predetermined total shareholder return (“TSR”) and/or outperforms the market with respect to relative TSR. Awards under the 2014 OPP may be earned if Vornado (i) achieves a TSR level greater than 7% per annum, or 21% over the three-year performance measurement period (the “Absolute Component”), and/or (ii) achieves a TSR above that of the SNL US REIT Index (the “Index”) over a three-year performance measurement period (the “Relative Component”). To the extent awards would be earned under the Absolute Component but Vornado underperforms the Index, such awards earned under the Absolute Component would be reduced (and potentially fully negated) based on the degree to which Vornado underperforms the Index. In certain circumstances, in the event Vornado outperforms the Index but awards would not otherwise be earned under the Absolute Component, awards may be increased under the Relative Component. To the extent awards would otherwise be earned under the Relative Component but Vornado fails to achieve at least a 6% per annum absolute TSR, such awards earned under the Relative Component would be reduced based on Vornado’s absolute TSR, with no awards being earned in the event Vornado’s TSR during the applicable measurement period is 0% or negative, irrespective of the degree to which Vornado may outperform the Index. If the designated performance objectives are achieved, OPP Units are also subject to time-based vesting requirements. Awards earned under the 2014 OPP vest 33% in year three, 33% in year four and 34% in year five. Distributions on awards earned accrue during the performance measurement period. In addition, Vornado’s executive officers (for the purposes of Section 16 of the Exchange Act) are required to hold any earned OPP awards (or related equity) for at least one year following vesting.
25
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
17. Fee and Other Income
The following table sets forth the details of fee and other income:
For the Three Months | For the Nine Months | ||||||||||||
(Amounts in thousands) | Ended September 30, | Ended September 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
BMS cleaning fees | $ | 22,467 | $ | 15,898 | $ | 63,618 | $ | 49,071 | |||||
Signage revenue | 7,698 | 8,738 | 25,889 | 23,566 | |||||||||
Management and leasing fees | 4,662 | 7,977 | 17,027 | 19,661 | |||||||||
Lease termination fees (1) | 3,764 | 20,344 | 12,102 | 87,353 | |||||||||
Other income | 7,820 | 7,892 | 23,982 | 25,872 | |||||||||
$ | 46,411 | $ | 60,849 | $ | 142,618 | $ | 205,523 | ||||||
(1) | The three and nine months ended September 30, 2013 includes a $19,500 termination fee income from a tenant at 1290 Avenue of the Americas. The nine months ended September 30, 2013 also includes $59,599 of income pursuant to a settlement agreement with Stop & Shop. |
Management and leasing fees include management fees from Interstate Properties, a related party, of $132,000 and $134,000 for the three months ended September 30, 2014 and 2013, respectively, and $397,000 and $467,000 for the nine months ended September 30, 2014 and 2013, respectively. The above table excludes fee income from partially owned entities, which is typically included in “(loss) income from partially owned entities” (see Note 8 – Investments in Partially Owned Entities). The financial statement gain was $7,823,000, of which $7,192,000 was recognized in the first quarter of 2015 and the remaining $631,000 was deferred based on our ownership interest in PREIT. On March 31, 2018, we will be entitled to additional consideration of 50% of the increase in the value of Springfield Town Center, if any, over $465,000,000, calculated utilizing a 5.5% capitalization rate. In the first quarter of 2014, we recorded a non-cash impairment loss of $20,000,000 on Springfield Town Center which is included in “income from discontinued operations” on our consolidated statements of income.
During the first quarter of 2015, we sold18. Interest five residual retail properties, in separate transactions, for an aggregate of $10,731,000, which resulted in net gains of $3,675,000.
We have reclassified the revenues and Other Investment Income (Loss), Net
expenses of the properties discussed above to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying consolidated financial statements. The following table setsnet gains resulting from the sale of these properties are included in “income from discontinued operations” on our consolidated statements of income. The tables below set forth the detailsassets and liabilities related to discontinued operations at March 31, 2015 and December 31, 2014 and their combined results of interestoperations and other investment income (loss):cash flows for the three months ended March 31, 2015 and 2014.
For the Three Months | For the Nine Months | |||||||||||||
(Amounts in thousands) | Ended September 30, | Ended September 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
Dividends and interest on marketable securities | $ | 3,200 | $ | 2,804 | $ | 9,504 | $ | 8,344 | ||||||
Mark-to-market of investments in our deferred compensation plan (1) | 1,352 | 269 | 8,132 | 6,207 | ||||||||||
Interest on mezzanine loans receivable | 404 | 4,766 | 3,524 | 14,783 | ||||||||||
Loss from the mark-to-market of J.C. Penney | ||||||||||||||
derivative position | - | (20,012) | - | (33,487) | ||||||||||
Non-cash impairment loss on J.C. Penney common shares | - | - | - | (39,487) | ||||||||||
Income from prepayment penalties in connection with the | ||||||||||||||
repayment of a mezzanine loan receivable | - | - | - | 5,267 | ||||||||||
Other, net | 2,646 | 1,898 | 7,770 | 5,438 | ||||||||||
$ | 7,602 | $ | (10,275) | $ | 28,930 | $ | (32,935) | |||||||
(1) | This income is entirely offset by the expense resulting from the mark-to-market of the deferred compensation plan liability, which is included in "general and administrative" expense. |
19. Interest and Debt Expense
The following table sets forth the details of interest and debt expense:
For the Three Months | For the Nine Months | |||||||||||||
(Amounts in thousands) | Ended September 30, | Ended September 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
Interest expense | $ | 124,163 | 125,256 | $ | 367,899 | $ | 373,619 | |||||||
Amortization of deferred financing costs | 7,292 | 4,952 | 20,231 | 15,084 | ||||||||||
Capitalized interest | (16,335) | (10,532) | (46,517) | (28,024) | ||||||||||
$ | 115,120 | $ | 119,676 | $ | 341,613 | $ | 360,679 | |||||||
Balance as of | ||||||||||
(Amounts in thousands) | March 31, | December 31, | ||||||||
2015 | 2014 | |||||||||
Assets related to discontinued operations: | ||||||||||
Real estate, net | $ | 27,199 | $ | 2,028,677 | ||||||
Other assets | 8,143 | 209,797 | ||||||||
$ | 35,342 | $ | 2,238,474 | |||||||
Liabilities related to discontinued operations: | ||||||||||
Mortgages payable | - | 1,288,535 | ||||||||
Other liabilities (primarily deferred revenue in 2014) | 11,354 | 222,827 | ||||||||
$ | 11,354 | $ | 1,511,362 | |||||||
For the Three Months | ||||||||||
(Amounts in thousands) | Ended March 31, | |||||||||
2015 | 2014 | |||||||||
Income from discontinued operations | ||||||||||
Total revenues | $ | 19,958 | $ | 106,563 | ||||||
Total expenses | 13,373 | 76,025 | ||||||||
6,585 | 30,538 | |||||||||
Net gain on sale of lease position in Geary Street, CA | 21,376 | - | ||||||||
Net gains on sale of real estate | 10,867 | - | ||||||||
Transaction related costs | (22,645) | (499) | ||||||||
Impairment losses | (256) | (20,842) | ||||||||
Pretax income from discontinued operations | 15,927 | 9,197 | ||||||||
Income tax expense | (86) | (731) | ||||||||
Income from discontinued operations | $ | 15,841 | $ | 8,466 | ||||||
Cash flows related to discontinued operations: | ||||||||||
Cash flows from operating activities | $ | (36,672) | $ | 15,535 | ||||||
Cash flows from investing activities | 310,069 | (30,397) |
2616
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
20.9. Identified Intangible Assets and Liabilities
The following summarizes our identified intangible assets (primarily acquired in-place and above-market leases) and liabilities (primarily acquired below-market leases) as of March 31, 2015 and December 31, 2014.
Balance as of | |||||||
March 31, | December 31, | ||||||
(Amounts in thousands) | 2015 | 2014 | |||||
Identified intangible assets: | |||||||
Gross amount | $ | 429,909 | $ | 424,976 | |||
Accumulated amortization | (200,330) | (199,821) | |||||
Net | $ | 229,579 | $ | 225,155 | |||
Identified intangible liabilities (included in deferred revenue): | |||||||
Gross amount | $ | 620,891 | $ | 657,976 | |||
Accumulated amortization | (304,929) | (329,775) | |||||
Net | $ | 315,962 | $ | 328,201 |
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $12,450,000 and $9,712,000 for the three months ended March 31, 2015 and 2014, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands) | ||||
2016 | $ | 36,804 | ||
2017 | 34,829 | |||
2018 | 33,546 | |||
2019 | 23,514 | |||
2020 | 21,505 |
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $6,185,000 and $8,891,000 for the three months ended March 31, 2015 and 2014, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands) | ||||
2016 | $ | 22,523 | ||
2017 | 17,692 | |||
2018 | 13,373 | |||
2019 | 11,425 | |||
2020 | 10,651 |
We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $458,000 for the three months ended March 31, 2015 and 2014. Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands) | ||||
2016 | $ | 1,832 | ||
2017 | 1,832 | |||
2018 | 1,832 | |||
2019 | 1,832 | |||
2020 | 1,832 |
17
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
10. Debt
On January 1, 2015, we redeemed all of the $500,000,000 principal amount of our outstanding 4.25% senior unsecured notes, which were scheduled to mature on April 1, 2015, at a redemption price of 100% of the principal amount plus accrued interest through December 31, 2014.
On April 1, 2015, we completed a $308,000,000 refinancing of RiverHouse Apartments, a three building, 1,670 unit rental complex located in Arlington, VA. The loan is interest-only at LIBOR plus 1.28% and matures in 2025. We realized net proceeds of approximately $43,000,000. The property was previously encumbered by a 5.43%, $195,000,000 mortgage maturing in April 2015 and a $64,000,000 mortgage at LIBOR plus 1.53% maturing in 2018.
The following is a summary of our debt:
Interest Rate at | Balance at | |||||||||||||
(Amounts in thousands) | March 31, 2015 | March 31, 2015 | December 31, 2014 | |||||||||||
Mortgages Payable: | ||||||||||||||
Fixed rate | 4.46% | $ | 6,553,924 | $ | 6,499,396 | |||||||||
Variable rate | 2.21% | 1,762,869 | 1,763,769 | |||||||||||
3.99% | $ | 8,316,793 | $ | 8,263,165 | ||||||||||
Unsecured Debt: | ||||||||||||||
Senior unsecured notes | 3.68% | $ | 847,332 | $ | 1,347,159 | |||||||||
Revolving credit facility debt | 1.23% | 400,000 | - | |||||||||||
3.39% | $ | 1,247,332 | $ | 1,347,159 |
18
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
11. Redeemable Partnership Units
Redeemable partnership units on our consolidated balance sheets are comprised primarily of Class A units that are held by third parties and are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “partners’ capital” on our consolidated balance sheets. Below is a table summarizing the activity of redeemable partnership units.
(Amounts in thousands) | ||||
Balance at December 31, 2013 | $ | 1,003,620 | ||
Net income | 3,860 | |||
Other comprehensive income | 361 | |||
Distributions | (8,383) | |||
Redemption of Class A units, at redemption value | (5,156) | |||
Adjustments to carry redeemable Class A units at redemption value | 136,937 | |||
Other, net | 9,592 | |||
Balance at March 31, 2014 | $ | 1,140,831 | ||
Balance at December 31, 2014 | $ | 1,337,780 | ||
Net income | 5,287 | |||
Other comprehensive loss | (1,288) | |||
Distributions | (7,280) | |||
Redemption of Class A units, at redemption value | (23,493) | |||
Adjustments to carry redeemable Class A units at redemption value | (25,349) | |||
Other, net | 19,133 | |||
Balance at March 31, 2015 | $ | 1,304,790 |
As of March 31, 2015 and December 31, 2014, the aggregate redemption value of redeemable Class A units, which are those units held by third parties, was $1,303,790,000 and $1,336,780,000, respectively.
Redeemable partnership units exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares. Accordingly, the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $55,097,000 as of March 31, 2015 and December 31, 2014. Changes in the value from period to period, if any, are charged to “interest and debt expense” on our consolidated statements of income.
19
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
12. Accumulated Other Comprehensive Income (“AOCI”)
The following tables set forth the changes in accumulated other comprehensive income (loss) by component.
For the Three Months Ended March 31, 2014 | |||||||||||||||||
Securities | Pro rata share of | Interest | |||||||||||||||
available- | nonconsolidated | rate | |||||||||||||||
(Amounts in thousands) | Total | for-sale | subsidiaries' OCI | swap | Other | ||||||||||||
Balance as of December 31, 2013 | $ | 71,537 | $ | 119,309 | $ | (11,501) | $ | (31,882) | $ | (4,389) | |||||||
OCI before reclassifications | 6,089 | 13,125 | (8,286) | 1,610 | (360) | ||||||||||||
Amounts reclassified from AOCI | - | - | - | - | - | ||||||||||||
Net current period OCI | 6,089 | 13,125 | (8,286) | 1,610 | (360) | ||||||||||||
Balance as of March 31, 2014 | $ | 77,626 | $ | 132,434 | $ | (19,787) | $ | (30,272) | $ | (4,749) | |||||||
For the Three Months Ended March 31, 2015 | |||||||||||||||||
Securities | Pro rata share of | Interest | |||||||||||||||
available- | nonconsolidated | rate | |||||||||||||||
(Amounts in thousands) | Total | for-sale | subsidiaries' OCI | swap | Other | ||||||||||||
Balance as of December 31, 2014 | $ | 93,267 | $ | 133,774 | $ | (8,992) | $ | (25,803) | $ | (5,712) | |||||||
OCI before reclassifications | (20,658) | (21,332) | 157 | (776) | 1,293 | ||||||||||||
Amounts reclassified from AOCI | - | - | - | - | - | ||||||||||||
Net current period OCI | (20,658) | (21,332) | 157 | (776) | 1,293 | ||||||||||||
Balance as of March 31, 2015 | $ | 72,609 | $ | 112,442 | $ | (8,835) | $ | (26,579) | $ | (4,419) | |||||||
20
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
13. Variable Interest Entities (“VIEs”)
At March 31, 2015 and December 31, 2014, we have unconsolidated VIEs comprised of our investments in the entities that own One Park Avenue, Independence Plaza and the Warner Building. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance. We account for our investment in these entities under the equity method. As of March 31, 2015 and December 31, 2014, the net carrying amounts of our investment in these entities were $286,876,000 and $286,783,000, respectively, and our maximum exposure to loss in these entities is limited to our investment. We did not have any consolidated VIEs as of March 31, 2015 and December 31, 2014.
14. Fair Value Measurements
ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable securities, (ii) real estate fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units), and (v) an interest rate swap. The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy at March 31, 2015 and December 31, 2014, respectively.
As of March 31, 2015 | |||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Marketable securities | $ | 184,991 | $ | 184,991 | $ | - | $ | - | |||||||
Real estate fund investments (75% of which is attributable to | |||||||||||||||
noncontrolling interests) | 554,426 | - | - | 554,426 | |||||||||||
Deferred compensation plan assets (included in other assets) | 121,530 | 56,694 | - | 64,836 | |||||||||||
Total assets | $ | 860,947 | $ | 241,685 | $ | - | $ | 619,262 | |||||||
Mandatorily redeemable instruments (included in other liabilities) | $ | 55,097 | $ | 55,097 | $ | - | $ | - | |||||||
Interest rate swap (included in other liabilities) | 26,574 | - | 26,574 | - | |||||||||||
Total liabilities | $ | 81,671 | $ | 55,097 | $ | 26,574 | $ | - | |||||||
As of December 31, 2014 | |||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Marketable securities | $ | 206,323 | $ | 206,323 | $ | - | $ | - | |||||||
Real estate fund investments (75% of which is attributable to | |||||||||||||||
noncontrolling interests) | 513,973 | - | - | 513,973 | |||||||||||
Deferred compensation plan assets (included in other assets) | 117,284 | 53,969 | - | 63,315 | |||||||||||
Total assets | $ | 837,580 | $ | 260,292 | $ | - | $ | 577,288 | |||||||
Mandatorily redeemable instruments (included in other liabilities) | $ | 55,097 | $ | 55,097 | $ | - | $ | - | |||||||
Interest rate swap (included in other liabilities) | 25,797 | - | 25,797 | - | |||||||||||
Total liabilities | $ | 80,894 | $ | 55,097 | $ | 25,797 | $ | - |
21
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
14. Fair Value Measurements – continued
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
Real Estate Fund Investments
At March 31, 2015, we had six investments with an aggregate fair value of $554,426,000, or $169,832,000 in excess of cost. These investments are classified as Level 3. We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 0.8 to 5.8 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs.
The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from original underwriting assumptions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these real estate fund investments at March 31, 2015 and December 31, 2014.
Weighted Average | ||||||||||||
Range | (based on fair value of investments) | |||||||||||
Unobservable Quantitative Input | March 31, 2015 | December 31, 2014 | March 31, 2015 | December 31, 2014 | ||||||||
Discount rates | 12.0% to 14.5% | 12.0% to 17.5% | 13.4% | 13.7% | ||||||||
Terminal capitalization rates | 4.8% to 6.5% | 4.7% to 6.5% | 5.5% | 5.3% | ||||||||
The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.
The table below summarizes the changes in the fair value of real estate fund investments that are classified as Level 3, for the three months ended March 31, 2015 and 2014.
Real Estate Fund Investments | |||||||||
For the Three Months Ended March 31, | |||||||||
(Amounts in thousands) | 2015 | 2014 | |||||||
Beginning balance | $ | 513,973 | $ | 667,710 | |||||
Purchases | 95,000 | 123 | |||||||
Dispositions / Distributions | (72,186) | - | |||||||
Net unrealized gains | 16,213 | 14,169 | |||||||
Net realized gains | 1,426 | - | |||||||
Ending balance | $ | 554,426 | $ | 682,002 | |||||
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(UNAUDITED)
14. Fair Value Measurements – continued
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
Deferred Compensation Plan Assets
Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties. We receive quarterly financial reports from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund. The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis. The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements.
The table below summarizes the changes in the fair value of deferred compensation plan assets that are classified as Level 3, for the three months ended March 31, 2015 and 2014.
Deferred Compensation Plan Assets | |||||||||
For the Three Months Ended March 31, | |||||||||
(Amounts in thousands) | 2015 | 2014 | |||||||
Beginning balance | $ | 63,315 | $ | 68,782 | |||||
Purchases | 624 | 1,644 | |||||||
Sales | (438) | (5,124) | |||||||
Realized and unrealized gain | 1,335 | 2,172 | |||||||
Other, net | - | 153 | |||||||
Ending balance | $ | 64,836 | $ | 67,627 | |||||
Fair Value Measurements on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets required to be measured for impairment at December 31, 2014. The fair value of our real estate assets was determined using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity.
As of December 31, 2014 | |||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Real estate assets | $ | 4,848 | $ | - | $ | - | $ | 4,848 | |||||||
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(UNAUDITED)
14. Fair Value Measurements – continued
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), mortgage and mezzanine loans receivable and our secured and unsecured debt. Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value of cash equivalents and borrowings under our revolving credit facility is classified as Level 1, and the fair value of our mortgage and mezzanine loans receivable is classified as Level 3. The fair value of our secured and unsecured debt are classified as Level 2. The table below summarizes the carrying amounts and fair value of these financial instruments as of March 31, 2015 and December 31, 2014.
As of March 31, 2015 | As of December 31, 2014 | ||||||||||||||
Carrying | Fair | Carrying | Fair | ||||||||||||
(Amounts in thousands) | Amount | Value | Amount | Value | |||||||||||
Cash equivalents | $ | 526,218 | $ | 526,000 | $ | 749,418 | $ | 749,000 | |||||||
Mortgage and mezzanine loans receivable | - | - | 16,748 | 17,000 | |||||||||||
$ | 526,218 | $ | 526,000 | $ | 766,166 | $ | 766,000 | ||||||||
Debt: | |||||||||||||||
Mortgages payable | $ | 8,316,793 | $ | 8,334,000 | $ | 8,263,165 | $ | 8,224,000 | |||||||
Senior unsecured notes | 847,332 | 898,000 | 1,347,159 | 1,385,000 | |||||||||||
Revolving credit facility debt | 400,000 | 400,000 | - | - | |||||||||||
$ | 9,564,125 | $ | 9,632,000 | $ | 9,610,324 | $ | 9,609,000 |
15. Incentive Compensation
Vornado’s 2010 Omnibus Share Plan (the “Plan”) provides for grants of incentive and non-qualified Vornado stock options, Vornado restricted stock, restricted units and Out-Performance Plan awards to certain of Vornado’s employees and officers. We account for all stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. Stock-based compensation expense was $20,142,000 and $11,024,000 in the three months ended March 31, 2015 and 2014, respectively.
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(UNAUDITED)
16. Fee and Other Income
The following table sets forth the details of fee and other income:
For the Three Months | |||||||||
(Amounts in thousands) | Ended March 31, | ||||||||
2015 | 2014 | ||||||||
BMS cleaning fees | $ | 22,633 | $ | 18,956 | |||||
Management and leasing fees | 4,192 | 5,828 | |||||||
Lease termination fees | 3,747 | 3,577 | |||||||
Other income | 9,035 | 7,579 | |||||||
$ | 39,607 | $ | 35,940 | ||||||
Management and leasing fees include management fees from Interstate Properties, a related party, of $139,000and $134,000 for the three months ended March 31, 2015 and 2014, respectively. The above table excludes fee income from partially owned entities, which is typically included in “(loss) income from partially owned entities” (see Note 7 – Investments in Partially Owned Entities).
17. Interest and Other Investment Income, Net
The following table sets forth the details of interest and other investment income:
For the Three Months | ||||||||||
(Amounts in thousands) | Ended March 31, | |||||||||
2015 | 2014 | |||||||||
Dividends and interest on marketable securities | $ | 3,203 | $ | 3,106 | ||||||
Mark-to-market of investments in our deferred compensation plan (1) | 2,859 | 4,400 | ||||||||
Interest on mezzanine loans receivable | 1,674 | 2,384 | ||||||||
Other, net | 3,056 | 1,960 | ||||||||
$ | 10,792 | $ | 11,850 | |||||||
(1) | This income is entirely offset by the expense resulting from the mark-to-market of the deferred compensation plan liability, which is included in "general and administrative" expense. |
18. Interest and Debt Expense
The following table sets forth the details of interest and debt expense:
For the Three Months | ||||||||||
(Amounts in thousands) | Ended March 31, | |||||||||
2015 | 2014 | |||||||||
Interest expense | $ | 95,328 | $ | 105,512 | ||||||
Amortization of deferred financing costs | 7,456 | 4,422 | ||||||||
Capitalized interest and debt expense | (11,110) | (13,622) | ||||||||
$ | 91,674 | $ | 96,312 | |||||||
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(UNAUDITED)
19. Income Per Class A Unit
The following table provides a reconciliation of both net income and the number of Class A units used in the computation of (i) basic income per Class A unit - which includes the weighted average number of Class A units outstanding without regard to dilutive potential Class A units, and (ii) diluted income per Class A unit - which includes the weighted average Class A units and dilutive unit equivalents. Dilutive unit equivalents may include our Series A convertible preferred units, Vornado stock options and restricted unit awards.
For the Three Months | For the Nine Months | For the Three Months | ||||||||||||||||||||||
(Amounts in thousands, except per unit amounts) | Ended September 30, | Ended September 30, | ||||||||||||||||||||||
(Amounts in thousands, except per units amounts) | (Amounts in thousands, except per units amounts) | Ended March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
Numerator: | Numerator: | Numerator: | ||||||||||||||||||||||
Income from continuing operations, net of income attributable | Income from continuing operations, net of income attributable to noncontrolling interests | $ | 93,523 | $ | 78,111 | |||||||||||||||||||
to noncontrolling interests in consolidated subsidiaries | $ | 101,381 | $ | 87,100 | $ | 286,001 | $ | 256,525 | Income from discontinued operations, net of income attributable to noncontrolling interests | 15,841 | 8,466 | |||||||||||||
Income from discontinued operations, net of income attributable | Net income attributable to Vornado Realty L.P. | 109,364 | 86,577 | |||||||||||||||||||||
to noncontrolling interests in consolidated subsidiaries | 58,131 | 21,318 | 61,800 | 296,925 | Preferred unit distributions | (19,496) | (20,380) | |||||||||||||||||
Net income attributable to Vornado Realty L.P. | 159,512 | 108,418 | 347,801 | 553,450 | Net income attributable to Class A unitholders | 89,868 | 66,197 | |||||||||||||||||
Preferred unit distributions | (20,378) | (20,381) | (61,137) | (63,585) | Earnings allocated to unvested participating securities | (749) | (899) | |||||||||||||||||
Preferred unit redemptions | - | - | - | (1,130) | Numerator for diluted income per Class A unit | $ | 89,119 | $ | 65,298 | |||||||||||||||
Net income attributable to Class A unitholders | 139,134 | 88,037 | 286,664 | 488,735 | ||||||||||||||||||||
Earnings allocated to unvested participating securities | (769) | (699) | (2,436) | (2,203) | ||||||||||||||||||||
Numerator for basic income per Class A unit | 138,365 | 87,338 | 284,228 | 486,532 | ||||||||||||||||||||
Impact of assumed conversions: | ||||||||||||||||||||||||
Convertible preferred unit distributions | 24 | - | - | 82 | ||||||||||||||||||||
Numerator for diluted income per Class A unit | $ | 138,389 | $ | 87,338 | $ | 284,228 | $ | 486,614 | ||||||||||||||||
Denominator: | Denominator: | Denominator: | ||||||||||||||||||||||
Denominator for basic income per Class A unit – weighted | ||||||||||||||||||||||||
average units | 198,322 | 197,599 | 198,158 | 197,510 | ||||||||||||||||||||
Effect of dilutive securities(1): | Denominator for basic income per Class A unit – weighted average units | 198,675 | 197,917 | |||||||||||||||||||||
Vornado stock options and restricted unit awards | 1,577 | 1,118 | 1,510 | 1,049 | Effect of dilutive securities(1): | |||||||||||||||||||
Convertible preferred units | 41 | - | - | 48 | Vornado stock options and restricted unit awards | 2,074 | 1,437 | |||||||||||||||||
Denominator for diluted income per Class A unit – weighted average | Denominator for diluted income per Class A unit – weighted average units | |||||||||||||||||||||||
units and assumed conversions | 199,940 | 198,717 | 199,668 | 198,607 | and assumed conversions | 200,749 | 199,354 | |||||||||||||||||
INCOME PER CLASS A UNIT – BASIC: | INCOME PER CLASS A UNIT – BASIC: | INCOME PER CLASS A UNIT – BASIC: | ||||||||||||||||||||||
Income from continuing operations, net | $ | 0.41 | $ | 0.33 | $ | 1.12 | $ | 0.96 | Income from continuing operations, net | $ | 0.37 | $ | 0.29 | |||||||||||
Income from discontinued operations, net | 0.29 | 0.11 | 0.31 | 1.50 | Income from discontinued operations, net | 0.08 | 0.04 | |||||||||||||||||
Net income per Class A unit | $ | 0.70 | $ | 0.44 | $ | 1.43 | $ | 2.46 | Net income per Class A unit | $ | 0.45 | $ | 0.33 | |||||||||||
INCOME PER CLASS A UNIT – DILUTED: | INCOME PER CLASS A UNIT – DILUTED: | INCOME PER CLASS A UNIT – DILUTED: | ||||||||||||||||||||||
Income from continuing operations, net | $ | 0.40 | $ | 0.33 | $ | 1.11 | $ | 0.96 | Income from continuing operations, net | $ | 0.36 | $ | 0.29 | |||||||||||
Income from discontinued operations, net | 0.29 | 0.11 | 0.31 | 1.49 | Income from discontinued operations, net | 0.08 | 0.04 | |||||||||||||||||
Net income per Class A unit | $ | 0.69 | $ | 0.44 | $ | 1.42 | $ | 2.45 | Net income per Class A unit | $ | 0.44 | $ | 0.33 | |||||||||||
(1) | The effect of dilutive securities in the three months ended September 30, 2014 and 2013 excludes an aggregate of 117 and 1,009 weighted average Class A unit equivalents, respectively, and 182 and 962 weighted average Class A unit equivalents in the nine months ended September 30, 2014 and 2013, respectively, as their effect was anti-dilutive. | (1) | The effect of dilutive securities in the three months ended March 31, 2015 and 2014 excludes an aggregate of 76 and 213 weighted average Class A unit equivalents, respectively, as their effect was anti-dilutive. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
21.20. Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as floods. Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, includingand $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2014.2020.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the federalFederal government with no direct exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $2,150,000$2,480,000 and 15% of the balance of a covered loss (16% effective January 1, 2016) and the federalFederal government is responsible for the remaining 85% of a covered loss.loss (84% effective January 1, 2016). We are ultimately responsible for any loss incurred by PPIC.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future.
Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance our properties and expand our portfolio.
Other Commitments and Contingencies
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
Our mortgage loans are non-recourse to us. However, in certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. As of September 30, 2014,March 31, 2015, the aggregate dollar amount of these guarantees and master leases is approximately $360,000,000.$349,000,000.
At September 30, 2014, $39,947,000March 31, 2015, $39,632,000 of letters of credit were outstanding under one of our revolving credit facilities. Our revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.
As of September 30, 2014,March 31, 2015, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $111,000,000.$78,000,000.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
21. Segment Information
As a result of the spin-off of substantially all of our Retail Properties segment (see Note 8 - Dispositions), the remaining retail properties no longer meet the criteria to be a separate reportable segment. In addition, as a result of our investment in Toys being reduced to zero, we suspended equity method accounting for our investment in Toys (see Note 7 - Investments in Partially Owned Entities) and the Toys segment no longer meets the criteria to be a separate reportable segment. Accordingly, effective January 1, 2015, the Retail Properties segment and Toys have been reclassified to the Other segment. We have also reclassified the prior period segment financial results to conform to the current period presentation. Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended March 31, 2015 and 2014.
(Amounts in thousands) | For the Three Months Ended March 31, 2015 | ||||||||||||||
Total | New York | Washington, DC | Other | ||||||||||||
Total revenues | $ | 606,802 | $ | 399,513 | $ | 133,968 | $ | 73,321 | |||||||
Total expenses | 439,088 | 252,760 | 92,997 | 93,331 | |||||||||||
Operating income (loss) | 167,714 | 146,753 | 40,971 | (20,010) | |||||||||||
(Loss) income from partially owned entities | (2,405) | (5,663) | 131 | 3,127 | |||||||||||
Income from real estate fund investments | 24,089 | - | - | 24,089 | |||||||||||
Interest and other investment income, net | 10,792 | 1,862 | 13 | 8,917 | |||||||||||
Interest and debt expense | (91,674) | (45,351) | (18,160) | (28,163) | |||||||||||
Net gain on disposition of wholly owned and partially | |||||||||||||||
owned assets | 1,860 | - | - | 1,860 | |||||||||||
Income (loss) before income taxes | 110,376 | 97,601 | 22,955 | (10,180) | |||||||||||
Income tax (expense) benefit | (971) | (943) | 674 | (702) | |||||||||||
Income (loss) from continuing operations | 109,405 | 96,658 | 23,629 | (10,882) | |||||||||||
Income from discontinued operations | 15,841 | - | - | 15,841 | |||||||||||
Net income | 125,246 | 96,658 | 23,629 | 4,959 | |||||||||||
Less net income attributable to noncontrolling interests in | |||||||||||||||
consolidated subsidiaries | (15,882) | (1,506) | - | (14,376) | |||||||||||
Net income (loss) attributable to Vornado Realty L.P. | 109,364 | 95,152 | 23,629 | (9,417) | |||||||||||
Interest and debt expense(2) | 114,675 | 58,667 | 21,512 | 34,496 | |||||||||||
Depreciation and amortization(2) | 156,450 | 94,124 | 40,752 | 21,574 | |||||||||||
Income tax (benefit) expense (2) | (739) | 1,002 | (2,636) | 895 | |||||||||||
EBITDA(1) | $ | 379,750 | $ | 248,945 | (3) | $ | 83,257 | (4) | $ | 47,548 | (5) |
(Amounts in thousands) | For the Three Months Ended March 31, 2014 | ||||||||||||||
Total | New York | Washington, DC | Other | ||||||||||||
Total revenues | $ | 562,381 | $ | 361,184 | $ | 135,278 | $ | 65,919 | |||||||
Total expenses | 417,140 | 237,734 | 89,572 | 89,834 | |||||||||||
Operating income (loss) | 145,241 | 123,450 | 45,706 | (23,915) | |||||||||||
Income (loss) from partially owned entities | 1,979 | 1,566 | (1,266) | 1,679 | |||||||||||
Income from real estate fund investments | 18,148 | - | - | 18,148 | |||||||||||
Interest and other investment income, net | 11,850 | 1,441 | 36 | 10,373 | |||||||||||
Interest and debt expense | (96,312) | (42,839) | (19,347) | (34,126) | |||||||||||
Net gain on disposition of wholly owned and partially | |||||||||||||||
owned assets | 9,635 | - | - | 9,635 | |||||||||||
Income (loss) before income taxes | 90,541 | 83,618 | 25,129 | (18,206) | |||||||||||
Income tax (expense) benefit | (851) | (969) | 199 | (81) | |||||||||||
Income (loss) from continuing operations | 89,690 | 82,649 | 25,328 | (18,287) | |||||||||||
Income from discontinued operations | 8,466 | 5,867 | - | 2,599 | |||||||||||
Net income (loss) | 98,156 | 88,516 | 25,328 | (15,688) | |||||||||||
Less net income attributable to noncontrolling interests in | |||||||||||||||
consolidated subsidiaries | (11,579) | (1,405) | - | (10,174) | |||||||||||
Net income (loss) attributable to Vornado Realty L.P. | 86,577 | 87,111 | 25,328 | (25,862) | |||||||||||
Interest and debt expense(2) | 170,952 | 58,068 | 22,798 | 90,086 | |||||||||||
Depreciation and amortization(2) | 196,339 | 87,587 | 36,150 | 72,602 | |||||||||||
Income tax expense (benefit)(2) | 19,831 | 1,032 | (189) | 18,988 | |||||||||||
EBITDA(1) | $ | 473,699 | $ | 233,798 | (3) | $ | 84,087 | (4) | $ | 155,814 | (5) | ||||
See notes on the following page. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
22. Subsequent Events21. Segment Information – continued
Notes to preceding tabular information: | ||||||||||||
(1) | EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies. | |||||||||||
(2) | Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities. | |||||||||||
(3) | The elements of "New York" EBITDA are summarized below. | |||||||||||
For the Three Months | ||||||||||||
Ended March 31, | ||||||||||||
(Amounts in thousands) | 2015 | 2014 | ||||||||||
Office | $ | 159,359 | $ | 157,879 | ||||||||
Retail | 81,305 | 66,195 | ||||||||||
Alexander's | 10,407 | 10,430 | ||||||||||
Hotel Pennsylvania | (2,126) | (706) | ||||||||||
Total New York | $ | 248,945 | $ | 233,798 | ||||||||
(4) | The elements of "Washington, DC" EBITDA are summarized below. | |||||||||||
For the Three Months | ||||||||||||
Ended March 31, | ||||||||||||
(Amounts in thousands) | 2015 | 2014 | ||||||||||
Office, excluding the Skyline Properties | $ | 67,385 | $ | 67,257 | ||||||||
Skyline properties | 6,055 | 6,499 | ||||||||||
Total Office | 73,440 | 73,756 | ||||||||||
Residential | 9,817 | 10,331 | ||||||||||
Total Washington, DC | $ | 83,257 | $ | 84,087 | ||||||||
On October 27, 2014, we completed a $140,000,000 financing of 655 Fifth Avenue, a 57,500 square foot retail and office property. The loan is interest only at LIBOR plus 1.40% and matures in October 2019 with two one-year extension options.
On October 31, 2014, we entered into an agreement to sell 1740 Broadway, a 601,000 square foot office building in Manhattan for approximately $605,000,000. The sale will result in net proceeds of approximately $585,000,000, after closing costs, and result in a financial statement gain of approximately $443,000,000. The tax gain will be approximately $483,000,000, which will be deferred in like-kind exchanges, primarily for the St. Regis Fifth Avenue retail (see Note 4 – Acquisitions). The sale is subject to customary closing conditions and is expected to be completed in the fourth quarter of 2014.
29
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
23. Segment Information
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three and nine months ended September 30, 2014 and 2013.
(Amounts in thousands) | For the Three Months Ended September 30, 2014 | ||||||||||||||||||||
Retail | |||||||||||||||||||||
Total | New York | Washington, DC | Properties | Toys | Other | ||||||||||||||||
Total revenues | $ | 670,909 | $ | 394,579 | $ | 133,541 | $ | 82,442 | $ | - | $ | 60,347 | |||||||||
Total expenses | 450,310 | 243,314 | 88,375 | 44,466 | - | 74,155 | |||||||||||||||
Operating income (loss) | 220,599 | 151,265 | 45,166 | 37,976 | - | (13,808) | |||||||||||||||
(Loss) income from partially owned | |||||||||||||||||||||
entities, including Toys | (25,663) | 5,810 | (1,411) | 371 | (18,418) | (12,015) | |||||||||||||||
Income from Real Estate Fund | 24,160 | - | - | - | - | 24,160 | |||||||||||||||
Interest and other investment income, net | 7,602 | 1,859 | 15 | 9 | - | 5,719 | |||||||||||||||
Interest and debt expense | (115,120) | (43,061) | (18,685) | (10,056) | - | (43,318) | |||||||||||||||
Net gain on disposition of wholly owned and | |||||||||||||||||||||
partially owned assets | 2,665 | - | - | - | - | 2,665 | |||||||||||||||
Income (loss) before income taxes | 114,243 | 115,873 | 25,085 | 28,300 | (18,418) | (36,597) | |||||||||||||||
Income tax expense | (3,177) | (802) | (130) | (525) | - | (1,720) | |||||||||||||||
Income (loss) from continuing operations | 111,066 | 115,071 | 24,955 | 27,775 | (18,418) | (38,317) | |||||||||||||||
Income from discontinued operations | 58,131 | - | - | 57,499 | - | 632 | |||||||||||||||
Net income (loss) | 169,197 | 115,071 | 24,955 | 85,274 | (18,418) | (37,685) | |||||||||||||||
Less net income attributable to noncontrolling | |||||||||||||||||||||
interests in consolidated subsidiaries | (9,685) | (2,690) | - | (76) | - | (6,919) | |||||||||||||||
Net income (loss) attributable to | |||||||||||||||||||||
Vornado Realty L.P. | 159,512 | 112,381 | 24,955 | 85,198 | (18,418) | (44,604) | |||||||||||||||
Interest and debt expense(2) | 160,252 | 58,010 | 22,208 | 11,205 | 22,471 | 46,358 | |||||||||||||||
Depreciation and amortization(2) | 160,270 | 79,446 | 36,411 | 15,256 | 9,923 | 19,234 | |||||||||||||||
Income tax expense (benefit) (2) | 2,232 | 746 | 145 | 525 | (1,536) | 2,352 | |||||||||||||||
EBITDA(1) | $ | 482,266 | $ | 250,583 | (3) | $ | 83,719 | (4) | $ | 112,184 | (5) | $ | 12,440 | $ | 23,340 | (6) |
(Amounts in thousands) | For the Three Months Ended September 30, 2013 | ||||||||||||||||||||
Retail | |||||||||||||||||||||
Total | New York | Washington, DC | Properties | Toys | Other | ||||||||||||||||
Total revenues | $ | 668,989 | $ | 388,747 | $ | 137,604 | $ | 81,439 | $ | - | $ | 61,199 | |||||||||
Total expenses | 434,138 | 223,992 | 87,612 | 45,461 | - | 77,073 | |||||||||||||||
Operating income (loss) | 234,851 | 164,755 | 49,992 | 35,978 | - | (15,874) | |||||||||||||||
(Loss) income from partially owned | |||||||||||||||||||||
entities, including Toys | (32,756) | 4,189 | (2,003) | 188 | (34,209) | (921) | |||||||||||||||
Income from Real Estate Fund | 22,913 | - | - | - | - | 22,913 | |||||||||||||||
Interest and other investment (loss) income, net | (10,275) | 1,468 | 17 | 1 | - | (11,761) | |||||||||||||||
Interest and debt expense | (119,676) | (42,349) | (27,246) | (10,834) | - | (39,247) | |||||||||||||||
Net gain on disposition of wholly owned and | |||||||||||||||||||||
partially owned assets | 15,138 | - | - | 1,377 | - | 13,761 | |||||||||||||||
Income (loss) before income taxes | 110,195 | 128,063 | 20,760 | 26,710 | (34,209) | (31,129) | |||||||||||||||
Income tax expense | (2,222) | (65) | (766) | (731) | - | (660) | |||||||||||||||
Income (loss) from continuing operations | 107,973 | 127,998 | 19,994 | 25,979 | (34,209) | (31,789) | |||||||||||||||
Income from discontinued operations | 24,278 | 2,883 | - | 21,149 | - | 246 | |||||||||||||||
Net income (loss) | 132,251 | 130,881 | 19,994 | 47,128 | (34,209) | (31,543) | |||||||||||||||
Less net income attributable to noncontrolling | |||||||||||||||||||||
interests in consolidated subsidiaries | (23,833) | (6,556) | - | (2,970) | - | (14,307) | |||||||||||||||
Net income (loss) attributable to | |||||||||||||||||||||
Vornado Realty L.P. | 108,418 | 124,325 | 19,994 | 44,158 | (34,209) | (45,850) | |||||||||||||||
Interest and debt expense(2) | 183,116 | 59,344 | 30,717 | 12,119 | 38,435 | 42,501 | |||||||||||||||
Depreciation and amortization(2) | 172,756 | 67,294 | 35,403 | 17,573 | 32,176 | 20,310 | |||||||||||||||
Income tax (benefit) expense (2) | (20,292) | 67 | 828 | 731 | (22,690) | 772 | |||||||||||||||
EBITDA(1) | $ | 443,998 | $ | 251,030 | (3) | $ | 86,942 | (4) | $ | 74,581 | (5) | $ | 13,712 | $ | 17,733 | (6) | |||||
See notes on page 32. |
30
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
23.21. Segment Information – continued
(Amounts in thousands) | For the Nine Months Ended September 30, 2014 | ||||||||||||||||||||
Retail | |||||||||||||||||||||
Total | New York | Washington, DC | Properties | Toys | Other | ||||||||||||||||
Total revenues | $ | 1,997,702 | $ | 1,151,395 | $ | 403,645 | $ | 253,623 | $ | - | $ | 189,039 | |||||||||
Total expenses | 1,383,618 | 716,125 | 265,299 | 173,945 | - | 228,249 | |||||||||||||||
Operating income (loss) | 614,084 | 435,270 | 138,346 | 79,678 | - | (39,210) | |||||||||||||||
(Loss) income from partially owned | |||||||||||||||||||||
entities, including Toys | (77,426) | 16,372 | (4,925) | 1,250 | (74,162) | (15,961) | |||||||||||||||
Income from Real Estate Fund | 142,418 | - | - | - | - | 142,418 | |||||||||||||||
Interest and other investment income, net | 28,930 | 4,979 | 93 | 26 | - | 23,832 | |||||||||||||||
Interest and debt expense | (341,613) | (134,970) | (56,692) | (28,565) | - | (121,386) | |||||||||||||||
Net gain on disposition of wholly | |||||||||||||||||||||
owned and partially owned assets | 13,205 | - | - | - | - | 13,205 | |||||||||||||||
Income (loss) before income taxes | 379,598 | 321,651 | 76,822 | 52,389 | (74,162) | 2,898 | |||||||||||||||
Income tax expense | (8,358) | (2,997) | (46) | (1,575) | - | (3,740) | |||||||||||||||
Income (loss) from continuing operations | 371,240 | 318,654 | 76,776 | 50,814 | (74,162) | (842) | |||||||||||||||
Income from discontinued operations | 61,800 | - | - | 60,993 | - | 807 | |||||||||||||||
Net income (loss) | 433,040 | 318,654 | 76,776 | 111,807 | (74,162) | (35) | |||||||||||||||
Less net income attributable to noncontrolling | |||||||||||||||||||||
interests in consolidated subsidiaries | (85,239) | (7,203) | - | (114) | - | (77,922) | |||||||||||||||
Net income (loss) attributable to | |||||||||||||||||||||
Vornado Realty L.P. | 347,801 | 311,451 | 76,776 | 111,693 | (74,162) | (77,957) | |||||||||||||||
Interest and debt expense(2) | 510,724 | 180,150 | 67,469 | 31,989 | 100,549 | 130,567 | |||||||||||||||
Depreciation and amortization(2) | 530,052 | 241,040 | 108,367 | 56,387 | 64,533 | 59,725 | |||||||||||||||
Income tax expense (2) | 21,489 | 3,069 | 88 | 1,575 | 12,106 | 4,651 | |||||||||||||||
EBITDA(1) | $ | 1,410,066 | $ | 735,710 | (3) | $ | 252,700 | (4) | $ | 201,644 | (5) | $ | 103,026 | $ | 116,986 | (6) |
(Amounts in thousands) | For the Nine Months Ended September 30, 2013 | ||||||||||||||||||||
Retail | |||||||||||||||||||||
Total | New York | Washington, DC | Properties | Toys | Other | ||||||||||||||||
Total revenues | $ | 2,058,525 | $ | 1,129,248 | $ | 406,652 | $ | 303,704 | $ | - | $ | 218,921 | |||||||||
Total expenses | 1,362,975 | 700,652 | 258,591 | 140,343 | - | 263,389 | |||||||||||||||
Operating income (loss) | 695,550 | 428,596 | 148,061 | 163,361 | - | (44,468) | |||||||||||||||
(Loss) income from partially owned | |||||||||||||||||||||
entities, including Toys | (45,620) | 14,020 | (6,545) | 1,512 | (69,311) | 14,704 | |||||||||||||||
Income from Real Estate Fund | 73,947 | - | - | - | - | 73,947 | |||||||||||||||
Interest and other investment (loss) income, net | (32,935) | 4,076 | 99 | 3 | - | (37,113) | |||||||||||||||
Interest and debt expense | (360,679) | (125,428) | (83,350) | (32,637) | - | (119,264) | |||||||||||||||
Net (loss) gain on disposition of wholly | |||||||||||||||||||||
owned and partially owned assets | (20,581) | - | - | 1,377 | - | (21,958) | |||||||||||||||
Income (loss) before income taxes | 309,682 | 321,264 | 58,265 | 133,616 | (69,311) | (134,152) | |||||||||||||||
Income tax expense | (6,172) | (1,298) | (1,949) | (1,480) | - | (1,445) | |||||||||||||||
Income (loss) from continuing operations | 303,510 | 319,966 | 56,316 | 132,136 | (69,311) | (135,597) | |||||||||||||||
Income (loss) from discontinued operations | 299,989 | 8,539 | - | 292,279 | - | (829) | |||||||||||||||
Net income (loss) | 603,499 | 328,505 | 56,316 | 424,415 | (69,311) | (136,426) | |||||||||||||||
Less net income attributable to noncontrolling | |||||||||||||||||||||
interests in consolidated subsidiaries | (50,049) | (9,518) | - | (3,079) | - | (37,452) | |||||||||||||||
Net income (loss) attributable to | |||||||||||||||||||||
Vornado Realty L.P. | 553,450 | 318,987 | 56,316 | 421,336 | (69,311) | (173,878) | |||||||||||||||
Interest and debt expense(2) | 551,357 | 163,579 | 93,715 | 40,057 | 119,347 | 134,659 | |||||||||||||||
Depreciation and amortization(2) | 549,072 | 220,280 | 105,799 | 52,440 | 103,732 | 66,821 | |||||||||||||||
Income tax expense(2) | 18,101 | 1,444 | 2,134 | 1,480 | 10,959 | 2,084 | |||||||||||||||
EBITDA(1) | $ | 1,671,980 | $ | 704,290 | (3) | $ | 257,964 | (4) | $ | 515,313 | (5) | $ | 164,727 | $ | 29,686 | (6) | |||||
See notes on the following page. |
31
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
23. Segment Information – continued
Notes to preceding tabular information: | |||||||||||||||||
(1) | EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies. | ||||||||||||||||
(2) | Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities. | ||||||||||||||||
(3) | The elements of "New York" EBITDA are summarized below. | ||||||||||||||||
For the Three Months | For the Nine Months | ||||||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | |||||||||||||
Office(a) | $ | 159,568 | $ | 172,367 | $ | 480,280 | $ | 476,849 | |||||||||
Retail | 71,327 | 59,782 | 205,469 | 177,394 | |||||||||||||
Alexander's | 10,387 | 10,387 | 31,088 | 31,141 | |||||||||||||
Hotel Pennsylvania | 9,301 | 8,494 | 18,873 | 18,906 | |||||||||||||
Total New York | $ | 250,583 | $ | 251,030 | $ | 735,710 | $ | 704,290 | |||||||||
(a) | The three months ended September 30, 2014 and 2013, includes $2,140 and $12,029, respectively, of lease termination income, net. The nine months ended September 30, 2014 and 2013, includes $4,543 and $17,373, respectively, of lease termination income, net. | ||||||||||||||||
(4) | The elements of "Washington, DC" EBITDA are summarized below. | ||||||||||||||||
For the Three Months | For the Nine Months | ||||||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | |||||||||||||
Office, excluding the Skyline Properties | $ | 65,904 | $ | 69,220 | $ | 200,218 | $ | 202,463 | |||||||||
Skyline properties | 7,698 | 6,841 | 21,270 | 22,546 | |||||||||||||
Total Office | 73,602 | 76,061 | 221,488 | 225,009 | |||||||||||||
Residential | 10,117 | 10,881 | 31,212 | 32,955 | |||||||||||||
Total Washington, DC | $ | 83,719 | $ | 86,942 | $ | 252,700 | $ | 257,964 | |||||||||
(5) | The elements of "Retail Properties" EBITDA are summarized below. | ||||||||||||||||
For the Three Months | For the Nine Months | ||||||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | |||||||||||||
Strip shopping centers(a) | $ | 97,122 | $ | 59,175 | $ | 178,499 | $ | 264,065 | |||||||||
Regional malls(b) | 15,062 | 15,406 | 23,145 | 251,248 | |||||||||||||
Total Retail properties | $ | 112,184 | $ | 74,581 | $ | 201,644 | $ | 515,313 | |||||||||
(a) | The three months ended September 30, 2014 and 2013, includes $57,796 and $16,087, respectively, of net gains on sale of real estate. The nine months ended September 30, 2014 and 2013, includes $57,796 and $81,806, respectively, of net gains on sale of real estate and the nine months ended September 30, 2013 also includes $59,599 of income pursuant to a settlement agreement with Stop & Shop. | ||||||||||||||||
(b) | The nine months ended September 30, 2014, includes a $20,000 non-cash impairment loss on Springfield Town Center. The nine months ended September 30, 2013, includes a $202,275 net gain on sale of the Green Acres Mall. |
32
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
23. Segment Information – continued
Notes to preceding tabular information - continued: | ||||||||||||||||||
(6) | The elements of "other" EBITDA are summarized below. | |||||||||||||||||
For the Three Months | For the Nine Months | |||||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||||
Our share of Real Estate Fund: | ||||||||||||||||||
Income before net realized/unrealized gains | $ | 2,059 | $ | 2,086 | $ | 6,676 | $ | 5,737 | ||||||||||
Net realized gains on exited investments | 12,896 | 2,046 | 31,663 | 2,046 | ||||||||||||||
Previously recorded unrealized gains on exited investments | (12,397) | - | (12,579) | - | ||||||||||||||
Net unrealized gains on held investments | 4,583 | 3,092 | 13,805 | 14,869 | ||||||||||||||
Carried interest | 8,431 | 267 | 21,636 | 11,974 | ||||||||||||||
Total | 15,572 | 7,491 | 61,201 | 34,626 | ||||||||||||||
The Mart and trade shows | 19,497 | 14,925 | 61,038 | 54,232 | ||||||||||||||
555 California Street | 11,994 | 10,720 | 35,566 | 32,371 | ||||||||||||||
India real estate ventures | 2,651 | 695 | 4,574 | 4,708 | ||||||||||||||
LNR(a) | - | - | - | 20,443 | ||||||||||||||
Other investments | 4,618 | 5,330 | 13,825 | 21,138 | ||||||||||||||
54,332 | 39,161 | 176,204 | 167,518 | |||||||||||||||
Corporate general and administrative expenses(b) | (22,948) | (23,467) | (71,952) | (71,054) | ||||||||||||||
Investment income and other, net(b) | 6,659 | 11,108 | 22,764 | 39,153 | ||||||||||||||
Suffolk Downs impairment loss and loan loss reserve | (10,263) | - | (10,263) | - | ||||||||||||||
Acquisition and transaction related costs(c) | (7,105) | (2,818) | (12,972) | (6,769) | ||||||||||||||
Net gain on sale of residential condominiums and a land parcel | 2,665 | 134 | 13,205 | 1,139 | ||||||||||||||
Net gain on sale of marketable securities | - | 31,741 | - | 31,741 | ||||||||||||||
Loss from the mark-to-market of J.C. Penney | ||||||||||||||||||
derivative position | - | (20,012) | - | (33,487) | ||||||||||||||
Loss on sale of J.C. Penney common shares | - | (18,114) | - | (54,914) | ||||||||||||||
Non-cash impairment loss on J.C. Penney common shares | - | - | - | (39,487) | ||||||||||||||
Severance costs (primarily reduction-in-force at the Mart) | - | - | - | (4,154) | ||||||||||||||
$ | 23,340 | $ | 17,733 | $ | 116,986 | $ | 29,686 | |||||||||||
(a) | On April 19, 2013, LNR was sold for $1.053 billion. | |||||||||||||||||
(b) | The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $1,352 and $269 for the three months ended September 30, 2014 and 2013, respectively, and $8,132 and $6,207 for the nine months ended September 30, 2014 and 2013, respectively. | |||||||||||||||||
(c) | The three and nine months ended September 30, 2014, includes $5,828 and $9,343, respectively, of transaction costs related to the spin-off of our strip shopping centers and malls (see Note 1 - Organization). | |||||||||||||||||
Notes to preceding tabular information - continued: | ||||||||||||
(5) | The elements of "other" EBITDA are summarized below. | |||||||||||
For the Three Months | ||||||||||||
Ended March 31, | ||||||||||||
(Amounts in thousands) | 2015 | 2014 | ||||||||||
Our share of Real Estate Fund: | ||||||||||||
Income before net realized/unrealized gains | $ | 1,614 | $ | 1,982 | ||||||||
Net realized/unrealized gains on investments | 5,548 | 3,542 | ||||||||||
Carried interest | 3,388 | 1,775 | ||||||||||
Total | 10,550 | 7,299 | ||||||||||
The Mart and trade shows | 21,041 | 19,087 | ||||||||||
555 California Street | 12,401 | 12,066 | ||||||||||
India real estate ventures | 1,841 | 1,824 | ||||||||||
Our share of Toys "R" Us(a) | - | 83,550 | ||||||||||
Other investments | 9,109 | 9,447 | ||||||||||
54,942 | 133,273 | |||||||||||
Corporate general and administrative expenses(b) | (35,942) | (25,982) | ||||||||||
Investment income and other, net(b) | 8,762 | 8,073 | ||||||||||
Urban Edge Properties and residual retail properties discontinued operations(c) | 19,907 | 32,100 | ||||||||||
Acquisition and transaction related costs | (1,981) | (1,285) | ||||||||||
Net gain on sale of residential condominiums and a land parcel | 1,860 | 9,635 | ||||||||||
$ | 47,548 | $ | 155,814 | |||||||||
(a) | As a result of our investment being reduced to zero, we suspended equity method accounting in the third quarter of 2014 (see Note 7 - Investments in Partially Owned Entities). The three months ended March 31, 2014 includes an impairment loss of $75,196. | |||||||||||
(b) | The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $2,859 and $4,400 for the three months ended March 31, 2015 and 2014, respectively. The three months ended March 31, 2015 include $8,817 from the acceleration of the recognition of compensation expense related to 2013-2015 Out-Performance Plans due to the modification of the vesting criteria of awards such that they will fully vest at age 65. The accelerated expense will result in lower general and administrative expense for the remainder of 2015 of $2,600 and $6,217 thereafter. | |||||||||||
(c) | The three months ended March 31, 2015 and 2014, include $22,645 and $499, respectively, of transaction costs related to the spin-off of our strip shopping centers and malls (see Note 1 - Organization). | |||||||||||
3330
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Partners
Vornado Realty L.P.
New York, New York
We have reviewed the accompanying consolidated balance sheet of Vornado Realty L.P. (the “Company”) as of September 30, 2014,March 31, 2015, and the related consolidated statements of income, and comprehensive income, for the three-month and nine-month periods ended September 30, 2014 and 2013 and changes in equity, and cash flows for the nine-monththree-month periods ended September 30, 2014March 31, 2015 and 2013.2014. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty L.P. as of December 31, 2013,2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated March 3, 2014,February 23, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 20132014 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 7, 2014May 8, 2015
3431
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements contained in this Quarterly Report constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q. We also note the following forward-looking statements: in the case of our development and redevelopment projects, the estimated completion date, estimated project cost and cost to complete; and estimates of future capital expenditures, and operating partnership distributions. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2013.2014. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and nine months ended September 30, 2014.March 31, 2015. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three and nine months ended September 30, 2014March 31, 2015 are not necessarily indicative of the operating results for the full year. Certain prior year balances have been reclassified in order to conform to current year presentation.
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Overview
Business Objective and Operating Strategy
Our business objective is to maximize Vornado shareholder value, which we measure by the total return provided to Vornado’s shareholders. Below is a table comparing Vornado’s performance to the FTSE NAREIT Office REIT Index (“Office REIT”) and the Morgan Stanley REIT Index (“RMS”) for the following periods ended September 30, 2014.March 31, 2015.
Total Return(1) | ||||||||
Vornado | Office REIT | RMS | ||||||
Three-month | (5.7%) | (5.2%) | (3.1%) | |||||
Nine-month | 15.1% | 11.7% | 14.0% | |||||
One-year | 22.5% | 12.4% | 13.3% | |||||
Three-year | 49.7% | 47.9% | 58.6% | |||||
Five-year | 85.6% | 69.6% | 109.7% | |||||
Ten-year | 139.4% | 89.1% | 124.1% | |||||
(1) Past performance is not necessarily indicative of future performance. |
Total Return(1) | ||||||||
Vornado | Office REIT | RMS | ||||||
Three-month | 5.6% | 6.7% | 4.7% | |||||
One-year | 28.8% | 20.8% | 24.2% | |||||
Three-year | 63.3% | 46.2% | 48.8% | |||||
Five-year | 93.8% | 74.8% | 109.0% | |||||
Ten-year | 165.2% | 109.2% | 151.5% | |||||
(1) Past performance is not necessarily indicative of future performance. |
We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:
· Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;spirit
· Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation;appreciation
· Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;rents
· Investing in retail properties in select under-stored locations such as the New York City metropolitan area;area
· Developing and redeveloping existing properties to increase returns and maximize value; andvalue
· Investing in operating companies that have a significant real estate component.component
We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from asset sales and by accessing the public and private capital markets. We may also offer partnership units in exchange for property and may repurchase or otherwise reacquire these units or any other securities in the future.
We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, sales prices, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the global, national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and populationemployment trends. See “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for additional information regarding these factors.
On April 11, 2014, we announced a plan to spin off our shopping center business, consisting of 80 strip centers, four malls and a warehouse park adjacent to our East Hanover strip center, into a new publicly traded REIT, Urban Edge Properties (“UE”), formerly Vornado Spinco. The spin-off is expected to be effectuated through a pro rata distribution of UE’s common shares to Vornado common shareholders and Vornado Realty L.P. common unitholders, and is intended to be treated as tax-free for U.S. federal income tax purposes. We expect the spin-off to be completed by the end of 2014, subject to certain conditions, including the Securities and Exchange Commission (“SEC”) declaring UE’s Form 10 registration statement effective, filing and approval of UE’s listing application with the NYSE, receipt of third party consents, and formal approval and declaration of the distribution by Vornado’s Board of Trustees. Vornado may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms. Vornado will retain, for disposition in the near term, 20 small retail assets which do not fit UE’s strategy, and the Springfield Town Center, which is under contract for disposition (see Note 9 – Dispositions of the notes to our consolidated financial statements in Part I of this quarterly report on Form 10-Q).
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Overview – continued
Quarter Ended September 30, 2014March 31, 2015 Financial Results Summary
Net income attributable to Class A unitholders for the quarter ended September 30, 2014March 31, 2015 was $139,134,000,$89,868,000, or $0.69$0.44 per diluted unit, compared to $88,037,000,$66,197,000, or $0.44$0.33 per diluted unit for the quarter ended September 30, 2013.March 31, 2014. Net income for the quarters ended September 30,March 31, 2015 and 2014 include $256,000 and 2013 include $57,796,000 and $16,087,000, respectively,$20,842,000 of real estate impairment losses, respectively. Net income for the quarter ended March 31, 2015 also includes $10,867,000 of net gains on sale of real estate and $2,546,000 of real estate impairment losses in the quarter ended September 30, 2013.estate. In addition, the quarters ended September 30,March 31, 2015 and 2014 and 2013 include certain other items that affect comparability, which are listed in the table below. The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below increased net income attributable to Class A unitholders for the quarter ended September 30, 2014March 31, 2015 by $24,686,000,$19,895,000, or $0.12$0.10 per diluted unit, and decreased net income attributable to Class A unitholdersby $17,488,000 or $0.09 per diluted unit for the quarter ended September 30, 2013 by $21,840,000 or $0.11 per diluted unit.March 31, 2014.
For the Three Months Ended September 30, | For the Three Months Ended March 31, | |||||||||||||
(Amounts in thousands) | (Amounts in thousands) | 2014 | 2013 | (Amounts in thousands) | 2015 | 2014 | ||||||||
Items that affect comparability income (expense): | Items that affect comparability income (expense): | Items that affect comparability income (expense): | ||||||||||||
Toys "R" Us net loss | $ | (18,418) | $ | (34,209) | Income from discontinued operations (including Urban Edge spin-off related | |||||||||
Impairment loss and loan loss reserve on investment in Suffolk Downs | (10,263) | - | costs of $22,645 in 2015) | $ | 5,230 | $ | 28,133 | |||||||
Acquisition and transaction related costs | (7,105) | (2,818) | Net gain on sale of residential condominiums and a land parcel | 1,860 | 9,635 | |||||||||
Net gain on sale of residential condominiums | 2,665 | 134 | Toys "R" Us net income | 1,454 | 1,847 | |||||||||
Income from discontinued operations | 335 | 4,694 | Other, net | 740 | (1,285) | |||||||||
Losses from the disposition of investment in J.C. Penney | - | (38,126) | ||||||||||||
Net gain on sale of marketable securities | - | 31,741 | ||||||||||||
Other, net | (324) | 3,203 | ||||||||||||
Items that affect comparability | Items that affect comparability | $ | (33,110) | $ | (35,381) | Items that affect comparability | $ | 9,284 | $ | 38,330 |
The percentage increase (decrease) in same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Cashcash basis same store EBITDA of our operating segments for the quarter ended September 30, 2014March 31, 2015 over the quarter ended September 30, 2013March 31, 2014 and the trailing quarter ended June 30,December 31, 2014 are summarized below.
Same Store EBITDA: | Retail Properties | |||||||||||||||||
New York | Washington, DC | UE | Total | |||||||||||||||
September 30, 2014 vs. September 30, 2013 | ||||||||||||||||||
Same store EBITDA | 4.6 | % | (2.7 | %) | 1.3 | % | 1.1 | % | ||||||||||
Cash basis same store EBITDA | 5.2 | % | (4.1 | %) | 2.9 | % | 1.8 | % | ||||||||||
September 30, 2014 vs. June 30, 2014 | ||||||||||||||||||
Same store EBITDA | (0.9 | %) | (0.6 | %) | 0.6 | % | 0.3 | % | ||||||||||
Cash basis same store EBITDA | (1.2 | %) | (0.9 | %) | 0.3 | % | (0.2 | %) | ||||||||||
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Overview – continued
Nine Months Ended September 30, 2014 Financial Results Summary
Net income attributable to Class A unitholders for the nine months ended September 30, 2014 was $286,664,000, or $1.42 per diluted unit, compared to $488,735,000, or $2.45 per diluted unit for the nine months ended September 30, 2013. Net income for the nine months ended September 30, 2014 and 2013 include $57,796,000 and $284,546,000, respectively, of net gains on sale of real estate, and $20,842,000 and $10,823,000, respectively, of real estate impairment losses. In addition, the nine months ended September 30, 2014 and 2013 include certain items that affect comparability, which are listed in the table below. The aggregate of real estate impairment losses, net gains on sale of real estate and the items in the table below decreased net income attributable to Class A unitholders for the nine months ended September 30, 2014 by $48,305,000, or $0.24 per diluted unit, and increased net income attributable to Class A unitholders for the nine months ended September 30, 2013 by $189,566,000, or $0.95 per diluted unit.
For the Nine Months Ended September 30, | |||||||
(Amounts in thousands) | 2014 | 2013 | |||||
Items that affect comparability income (expense): | |||||||
Toys "R" Us net loss (including impairment losses of $75,196 and $78,542, | |||||||
respectively) | $ | (74,162) | $ | (69,311) | |||
Net gain on sale of residential condominiums and a land parcel in 2014 | 13,205 | 1,139 | |||||
Acquisition and transaction related costs | (12,972) | (6,769) | |||||
Impairment loss and loan loss reserve on investment in Suffolk Downs | (10,263) | - | |||||
Income from discontinued operations, including LNR in 2013 | 4,846 | 28,970 | |||||
Defeasance cost in connection with the refinancing of 909 Third Avenue | (5,589) | - | |||||
Losses from the disposition of investment in J.C. Penney | - | (127,888) | |||||
Stop & Shop litigation settlement income | - | 59,599 | |||||
Net gain on sale of marketable securities | - | 31,741 | |||||
The Mart reduction-in-force and severance costs | - | (4,154) | |||||
Preferred unit redemptions | - | (1,130) | |||||
Other, net | (324) | 3,646 | |||||
Items that affect comparability | $ | (85,259) | $ | (84,157) |
The percentage increase (decrease) in same store EBITDA and Cash basis same store EBITDA of our operating segments for the nine months ended September 30, 2014 over the nine months ended September 30, 2013 is summarized below.
Same Store EBITDA: | Retail Properties | |||||||||||||||||
New York | Washington, DC | UE | Total | |||||||||||||||
September 30, 2014 vs. September 30, 2013 | ||||||||||||||||||
Same store EBITDA | 5.3 | % | (2.4 | %) | 1.7 | % | 1.4 | % | ||||||||||
Cash basis same store EBITDA | 7.4 | % | (1.8 | %) | 2.5 | % | 2.1 | % | ||||||||||
Same Store EBITDA: | ||||||||||||||
New York | Washington, DC | |||||||||||||
March 31, 2015 vs. March 31, 2014 | ||||||||||||||
Same store EBITDA | 3.2 | % | (1) | (0.2 | %) | |||||||||
Cash basis same store EBITDA | 5.5 | % | (1) | (5.5 | %) | |||||||||
March 31, 2015 vs. December 31, 2014 | ||||||||||||||
Same store EBITDA | (4.3 | %) | (2) | 2.4 | % | |||||||||
Cash basis same store EBITDA | (3.9 | %) | (2) | (0.8 | %) | |||||||||
(1) | Excluding Hotel Pennsylvania, same store EBITDA increased by 3.8% and by 6.1% on a cash basis. | |||||||||||||
(2) | Excluding Hotel Pennsylvania, same store EBITDA increased by 1.5% and by 2.6% on a cash basis. |
Calculations of same store EBITDA, reconciliations of our net income to EBITDA and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of the Financial Condition and Results of Operations.
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Overview – continued
20142015 Acquisitions
On June 26, 2014,January 20, 2015, we invested an additional $22,700,000and one of the Fund’s limited partners co-invested with the Fund to increase our ownership in One Park Avenue to 55.0% from 46.5% through abuy out the Fund’s joint venture with an institutional investor, who increased his ownershippartner’s 57% interest to 45.0%.in the Crowne Plaza Times Square Hotel. The transactionpurchase price for the 57% interest was based on aapproximately $95,000,000 (our share $39,000,000) which valued the property value of $560,000,000.at approximately $480,000,000. The property is encumbered by a $250,000,000 interest-onlynewly placed $310,000,000 mortgage loan that bearsbearing interest at 4.995% andLIBOR plus 2.80% which matures in March 2016. December 2018 with a one-year extension option. Our aggregate ownership interest in the property increased to 33% from 11%.
On July 23, 2014,March 18, 2015, we acquired the Center Building, a 437,000 square foot office building, located at 33-00 Northern Boulevard in Long Island City, New York, for $142,000,000, including the assumption of an existing $62,000,000, 4.43% mortgage maturing in October 2018.
As of March 31, 2015, we have made a $25,000,000 non-refundable deposit related to an agreement to acquire a property in the Penn Plaza submarket in Manhattan for $355,000,000.
On April 8, 2015, we made an $11,000,000 refundable contribution to a joint venture, in which we arewill have a 50.1% partner entered into55% interest. The joint venture plans to develop a 99-year ground lease for 61 Ninth Avenue173,000 square foot Class-A office building, located on the Southwest corner of Ninth Avenue and 15th Street in Manhattan. The venture’s current plans are to construct an office building, with retail at the base, of approximately 130,000 square feet. Total development costs are currently estimated to be approximately $125,000,000.
On August 1, 2014, we acquired the land under our 715 Lexington Avenue retail property located on the Southeast corner of 58th Street and Lexington Avenue in Manhattan, for $63,000,000.
On October 28, 2014, we completed the purchasewestern side of the St. Regis Fifth Avenue retail for $700,000,000. We own approximately 75% of the joint venture which owns the property. The acquisition will be used in a like-kind exchange for income tax purposes for the sale of 1740 Broadway (see Note 22 – Subsequent Events of the notes to our consolidated financial statements in Part I of this quarterly report on Form 10-Q). We consolidate the accounts of the venture into our consolidated financial statements from the date of acquisition. As of September 30, 2014, the venture’s $50,000,000 non-refundable deposit was included in “other assets” on our consolidated balance sheet. High Line at 510 West 22nd Street.
20142015 Dispositions
On February 24, 2014,January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of cash to Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction, we retained 5,717,184 UE operating partnership units (5.4% ownership interest). We are providing transition services to UE for an initial period of up to two years, including information technology, human resources, tax and financial reporting. UE is providing us with leasing and property management services for (i) the Monmouth Mall, (ii) certain small retail properties that we plan to sell, and (iii) our affiliate, Alexander’s, Inc. (NYSE: ALX), Rego Park retail assets. Steven Roth, Chairman of Vornado’s Board of Trustees and its Chief Executive Officer is a member of the Board of Trustees of UE. The spin-off distribution was effected by Vornado distributing one UE common share for every two Vornado common shares.
On March 13, 2015, we sold our lease position in Geary Street, CA for $34,189,000, which resulted in a net gain of $21,376,000.
On March 25, 2015, the Fund completed the sale of 520 Broadway Mall in Hicksville, Long Island, New YorkSanta Monica, CA for $94,000,000.$91,650,000. The sale resulted inFund realized a $24,705,000 net proceeds of $92,174,000 after closing costs.gain over the holding period.
On March 2, 2014,31, 2015, we entered into an agreement to transfer upon completion,transferred the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to PREIT Associates, L.P., which is the operating partnership of Pennsylvania Real Estate Investment Trust (NYSE: PEI) (“PREIT”(collectively, “PREIT”). The financial statement gain was $7,823,000, of which $7,192,000 was recognized in exchange for $465,000,000 comprisedthe first quarter of $340,000,0002015 and the remaining $631,000 was deferred based on our ownership interest in PREIT. In the first quarter of cash and $125,000,000 of PREIT operating partnership units. In connection therewith,2014, we recorded a non-cash impairment loss of $20,000,000 in the first quarter of 2014,on Springfield Town Center which is included in “impairment losses, acquisition and transaction related costs”“income from discontinued operations” on our consolidated statements of income. The redevelopment was completed in October 2014 and the closing will be no later than March 31, 2015.
On July 8, 2014, we completed the sale of Beverly Connection, a 335,000 square foot power shopping center in Los Angeles, California, for $260,000,000, of which $239,000,000 was cash and $21,000,000 was 10-year mezzanine seller financing. The sale resulted in a net gain of approximately $44,155,000, which was recognized in the third quarter of 2014.
During the thirdfirst quarter of 2014,2015, we sold two of the 20 strip shopping centers which do not fit UE’s strategy (see Note 1 – Organization of the notes to our consolidated financial statements in Part I of this quarterly report on Form 10-Q),five residual retail properties, in separate transactions, for an aggregate of $15,000,000 in cash, which$10,731,000, which resulted in a net gain aggregating $13,641,000.gains of $3,675,000.
On October 31, 2014, we entered into an agreement to sell 1740 Broadway, a 601,000 square foot office building in Manhattan for approximately $605,000,000. The sale will result in net proceeds of approximately $585,000,000, after closing costs, and result in a financial statement gain of approximately $443,000,000. The tax gain will be approximately $483,000,000, which will be deferred in like-kind exchanges, primarily for the St. Regis Fifth Avenue retail (see Note 4 – Acquisitions of the notes to our consolidated financial statements in Part I of this quarterly report on Form 10-Q). The sale is subject to customary closing conditions and is expected to be completed in the fourth quarter of 2014.
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Overview – continued
20142015 Financings
On January 31, 2014, we completed a $600,000,000 loan secured by our 220 Central Park South development site. The loan bears interest at LIBOR plus 2.75% (2.90% at September 30, 2014) and matures in January 2016, with three one-year extension options.
On April 16,2014, we completed a $350,000,000 refinancing of 909 Third Avenue, a 1.3 million square foot Manhattan office building. The seven-year interest only loan bears interest at 3.91% and matures in May 2021. We realized net proceeds of approximately $145,000,000 after defeasing the existing 5.64%, $193,000,000 mortgage, defeasance cost and other closing costs.
On June 16, 2014, we completed a green bond public offering of $450,000,000 2.50% senior unsecured notes due June 30, 2019. The notes were sold at 99.619% of their face amount to yield 2.581%.
On July 16, 2014, we completed a $130,000,000 financing of Las Catalinas, a 494,000 square foot mall located in the San Juan area of Puerto Rico. The 10-year fixed rate loan bears interest at 4.43% and matures in August 2024. The loan amortizes based on a 30-year schedule beginning in year six.
On August 12, 2014, we completed a $185,000,000 financing of the Universal buildings, a 690,000 square foot, two-building office complex located in Washington, DC. The loan bears interest at LIBOR plus 1.90% (2.06% at September 30, 2014) and matures in August 2019 with two one-year extension options. The loan amortizes based on a 30-year schedule beginning in the fourth year.
On August 26, 2014, we obtained a standby commitment for up to $500,000,000 of five-year mezzanine loan financing to fund a portion of the development expenditures at 220 Central Park South.
On September 30, 2014, we extended one of our two $1.25 billion unsecured revolving credit facilities from November1, 2015, to November 2018 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 125 basis points to LIBOR plus 105 basis points and the facility fee was reduced from 25 to 20 points.
On October 1, 2014, we redeemed all of the $445,000,000$500,000,000 principal amount of our outstanding 7.875%4.25% senior unsecured notes, which were scheduled to mature on OctoberApril 1, 2039,2015, at a redemption price of 100% of the principal amount plus accrued interest through the redemption date. In the fourth quarter of 2014, we will write off $12,532,000 of unamortized deferred financing costs, which will be included as a component of “interest and debt expense” on our consolidated statements of income.December 31, 2014.
On October 27, 2014,April 1, 2015, we completed a $140,000,000 financing$308,000,000 refinancing of 655 Fifth Avenue,RiverHouse Apartments, a 57,500 square foot retail and office property.three building, 1,670 unit rental complex located in Arlington, VA. The loan is interest onlyinterest-only at LIBOR plus 1.40%1.28% and matures in October 2019 with two one-year extension options.
Vornado Capital Partners Real Estate Fund (the “Fund”)
On June 26, 2014, the Fund sold its 64.7% interest2025. We realized net proceeds of approximately $43,000,000. The property was previously encumbered by a 5.43%, $195,000,000 mortgage maturing in One Park Avenue toApril 2015 and a newly formed joint venture that we and an institutional investor own 55% and 45%, respectively. This transaction was based on a property value of $560,000,000. From the inception of this investment through its disposition, the Fund realized a $75,529,000 net gain.
On August 21, 2014, the Fund and its 50% joint venture partner completed the sale of The Shops$64,000,000 mortgage at Georgetown Park, a 305,000 square foot retail property, for $272,500,000. From the inception of this investment through its disposition, the Fund realized a $51,124,000 net gain.
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Overview – continuedLIBOR plus 1.53% maturing in 2018.
Recently Issued Accounting Literature
In June 2013,April 2014, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2013-08”) to Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies (“Topic 946”). ASU 2013-08 amends the guidance in Topic 946 for determining whether an entity qualifies as an investment company and requires certain additional disclosures. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013. The adoption of this update as of January 1, 2014, did not have any impact on our real estate fund or our consolidated financial statements.
In April 2014, the FASB issued an update (“ASU 2014-08”) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entityto ASC Topic 205, Presentation of Financial Statementsand ASC Topic 360, Property Plant and Equipment. Under ASU 2014-08, only disposals that represent a strategic shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. In addition, ASU 2014-08 expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU 2014-08 is effective for interim and annual reporting periods in fiscal years that beginbegan after December 15, 2014. WeUpon adoption of this standard on January 1, 2015, individual properties sold in the ordinary course of business are currently evaluating the impactnot expected to qualify as discontinued operations. The financial results of ASU 2014-08 onUE and certain other retail assets are reflected in our consolidated financial statements. statements as discontinued operations for all periods presented.
In May 2014, the FASB issued an update ("ASU 2014-09") establishing ASC Topic 606, Revenue from Contracts with Customers. Customers. ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016. We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.
In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation. ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has ended, as a performance condition that affects vesting. ASU 2014-12 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. We are currently evaluating the impact of the adoption of ASU 2014-12 on our consolidated financial statements.
In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810, Consolidation. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidated analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. We are currently evaluating the impact of the adoption of ASU 2015-02 on our consolidated financial statements.
In April 2015, the FASB issued an update (“ASU 2015-03”) Simplifying the Presentation of Debt Issuance Costs to ASC Topic 835, Interest. ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability to which they relate, consistent with debt discounts, as opposed to being presented as assets. ASU 2015-03 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. The adoption of this update on January 1, 2016 will not have a material impact on our consolidated financial statements.
Critical Accounting Policies
A summary of our critical accounting policies is included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 20132014 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2014.2015.
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Overview - continued
Leasing Activity:
The leasing activity and related statistics in the table below are based on leases signed during the period and are not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Second generation relet space represents square footage that has not been vacant for more than nine months and tenant improvements and leasing commissions are based on our share of square feet leased during the period.
New York | Washington, DC | Retail Properties |
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(Square feet in thousands) | Office | Retail | Office | Strips | Malls |
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Quarter Ended September 30, 2014 |
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Total square feet leased | 556 | 33 | 450 | 243 | 25 |
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Our share of square feet leased: | 483 | 29 | 377 | 243 | 19 |
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Initial rent (1) | $ | 68.44 | $ | 168.22 | $ | 38.32 | $ | 17.66 | $ | 42.03 |
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Weighted average lease term (years) | 9.7 | 11.2 | 7.1 | 9.0 | 5.7 |
| ||||||||||||||||||||||||||||||||||
Second generation relet space: |
| |||||||||||||||||||||||||||||||||||||||
Square feet | 243 | 15 | 193 | 31 | 2 |
| ||||||||||||||||||||||||||||||||||
Cash basis: |
| |||||||||||||||||||||||||||||||||||||||
Initial rent (1) | $ | 70.88 | $ | 238.45 | $ | 39.30 | $ | 27.19 | $ | 86.42 |
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Prior escalated rent | $ | 60.13 | $ | 168.14 | $ | 42.41 | $ | 25.22 | $ | 70.11 |
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Percentage increase (decrease) | 17.9% | 41.8% | (7.3%) | 7.8% | 23.3% |
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GAAP basis: |
| |||||||||||||||||||||||||||||||||||||||
Straight-line rent (2) | $ | 69.12 | $ | 247.02 | $ | 39.07 | $ | 27.89 | $ | 86.77 |
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Prior straight-line rent | $ | 61.40 | $ | 161.01 | $ | 40.15 | $ | 24.74 | $ | 65.89 |
| |||||||||||||||||||||||||||||
Percentage increase (decrease) | 12.6% | 53.4% | (2.7%) | 12.7% | 31.7% |
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Tenant improvements and leasing |
| |||||||||||||||||||||||||||||||||||||||
commissions: |
| |||||||||||||||||||||||||||||||||||||||
Per square foot | $ | 82.95 | $ | 18.90 | $ | 34.33 | $ | 28.31(3) | $ | 31.04(4) |
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Per square foot per annum | $ | 8.55 | $ | 1.69 | $ | 4.84 | $ | 3.15(3) | $ | 5.45(4) |
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Percentage of initial rent | 12.5% | 1.0% | 12.6% | 17.8%(3) | 13.0%(4) |
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| ||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2014: |
| |||||||||||||||||||||||||||||||||||||||
Total square feet leased | 2,726 | 68 | 1,159 | (5) | 707 | 104 |
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Our share of square feet leased: | 2,321 | 63 | 1,055 | (5) | 707 | 91 |
| |||||||||||||||||||||||||||||||||
Initial rent (1) | $ | 66.78 | $ | 259.92 | $ | 39.57 | $ | 18.86 | $ | 28.70 |
| |||||||||||||||||||||||||||||
Weighted average lease term (years) | 10.9 | 10.9 | 7.5 | 7.0 | 5.2 |
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Second generation relet space: |
| |||||||||||||||||||||||||||||||||||||||
Square feet | 1,817 | 47 | 660 | 366 | 55 |
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Cash basis: |
| |||||||||||||||||||||||||||||||||||||||
Initial rent (1) | $ | 68.14 | $ | 318.17 | $ | 39.93 | $ | 21.38 | $ | 24.30 |
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Prior escalated rent | $ | 60.47 | $ | 236.71 | $ | 42.56 | $ | 20.19 | $ | 22.66 |
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Percentage increase (decrease) | 12.7% | 34.4% | (6.2%) | 5.9% | 7.2% |
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GAAP basis: |
| |||||||||||||||||||||||||||||||||||||||
Straight-line rent (2) | $ | 67.29 | $ | 353.95 | $ | 38.76 | $ | 21.75 | $ | 24.71 |
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Prior straight-line rent | $ | 57.12 | $ | 233.53 | $ | 39.20 | $ | 19.50 | $ | 22.46 |
| |||||||||||||||||||||||||||||
Percentage increase (decrease) | 17.8% | 51.6% | (1.1%) | 11.5% | 10.0% |
| ||||||||||||||||||||||||||||||||||
Tenant improvements and leasing |
| |||||||||||||||||||||||||||||||||||||||
commissions: |
| |||||||||||||||||||||||||||||||||||||||
Per square foot | $ | 74.65 | $ | 56.44 | $ | 38.14 | $ | 11.53 | $ | 9.32 |
| |||||||||||||||||||||||||||||
Per square foot per annum | $ | 6.85 | $ | 5.18 | $ | 5.09 | $ | 1.65 | $ | 1.79 |
| |||||||||||||||||||||||||||||
Percentage of initial rent | 10.3% | 2.0% | 12.9% | 8.7% | 6.2% |
| ||||||||||||||||||||||||||||||||||
(1) | Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents. Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot. | |||||||||||||||||||||||||||||||||||||||
(2) | Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent. | |||||||||||||||||||||||||||||||||||||||
(3) | Excluding tenant improvements and leasing commissions for a 59 square foot lease at our Kearny strip shopping center, the tenant improvements and leasing commissions per square foot were $3.12 instead of $28.31, $0.45 per square foot per annum instead of $3.15 per square foot per annum and 2.5% of initial rent instead of 17.8% of initial rent. | |||||||||||||||||||||||||||||||||||||||
(4) | Represents tenant improvements and leasing commissions for a 7 square foot lease at our Las Catalinas shopping mall. There were no other tenant improvements and leasing commissions during the quarter ended September 30, 2014. | |||||||||||||||||||||||||||||||||||||||
(5) | Excludes (i) 165 square feet leased to WeWork that will be redeveloped into rental residential apartments (see page 69), and (ii) 71 square feet of retail space that was leased at an initial rent of $47.06 per square foot. | |||||||||||||||||||||||||||||||||||||||
New York | Washington, DC | |||||||||||||||||||||||||||||||||||
(Square feet in thousands) | Office | Retail | Office | |||||||||||||||||||||||||||||||||
Quarter Ended March 31, 2015 | ||||||||||||||||||||||||||||||||||||
Total square feet leased | 553 | 7 | 754 | |||||||||||||||||||||||||||||||||
Our share of square feet leased: | 417 | 7 | 696 | |||||||||||||||||||||||||||||||||
Initial rent (1) | $ | 77.85 | $ | 362.96 | $ | 35.06 | ||||||||||||||||||||||||||||||
Weighted average lease term (years) | 8.7 | 12.2 | 11.1 | |||||||||||||||||||||||||||||||||
Second generation relet space: | ||||||||||||||||||||||||||||||||||||
Square feet | 263 | 3 | 505 | |||||||||||||||||||||||||||||||||
Cash basis: | ||||||||||||||||||||||||||||||||||||
Initial rent (1) | $ | 74.67 | $ | 302.30 | $ | 33.30 | (3) | |||||||||||||||||||||||||||||
Prior escalated rent | $ | 63.78 | $ | 258.75 | $ | 40.39 | (3) | |||||||||||||||||||||||||||||
Percentage increase (decrease) | 17.1% | 16.8% | (17.6%) | (3) | ||||||||||||||||||||||||||||||||
GAAP basis: | ||||||||||||||||||||||||||||||||||||
Straight-line rent (2) | $ | 71.14 | $ | 330.95 | $ | 31.13 | (3) | |||||||||||||||||||||||||||||
Prior straight-line rent | $ | 60.16 | $ | 241.36 | $ | 37.51 | (3) | |||||||||||||||||||||||||||||
Percentage increase (decrease) | 18.2% | 37.1% | (17.0%) | (3) | ||||||||||||||||||||||||||||||||
Tenant improvements and leasing commissions: | ||||||||||||||||||||||||||||||||||||
Per square foot | $ | 74.72 | $ | 296.70 | $ | 84.37 | ||||||||||||||||||||||||||||||
Per square foot per annum | $ | 8.59 | $ | 24.32 | $ | 7.60 | ||||||||||||||||||||||||||||||
Percentage of initial rent | 11.0% | 6.7% | 21.7% | |||||||||||||||||||||||||||||||||
(1) | Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents. Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot. | |||||||||||||||||||||||||||||||||||
(2) | Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent. | |||||||||||||||||||||||||||||||||||
(3) | Excluding 371 square feet of leasing activity with the U.S. Marshals Service (of which 293 square feet are second generation relet space), our initial rent and prior escalated rent on a cash basis was $35.11 and $35.26 per square foot, respectively (0.4% decrease), and our initial rent and prior escalated rent on a GAAP basis was $32.72 and $33.77 per square foot, respectively (3.1% decrease). | |||||||||||||||||||||||||||||||||||
4237
Overview –- continued
Square footage (in service) and Occupancy as of September 30, 2014: | ||||||||||||||
Square Feet (in service) | ||||||||||||||
Number of | Total | Our | ||||||||||||
(Square feet in thousands) | Properties | Portfolio | Share | Occupancy % | ||||||||||
New York: | ||||||||||||||
Office | 32 | 19,922 | 16,660 | 96.6% | ||||||||||
Retail | 56 | 2,370 | 2,186 | 96.9% | ||||||||||
Alexander's | 6 | 2,178 | 706 | 99.7% | ||||||||||
Hotel Pennsylvania | 1 | 1,400 | 1,400 | |||||||||||
Residential - 1,655 units | 4 | 1,523 | 762 | 94.7% | ||||||||||
27,393 | 21,714 | 96.7% | ||||||||||||
Washington, DC: | ||||||||||||||
Office, excluding the Skyline Properties | 51 | 13,340 | 11,021 | 87.1% | ||||||||||
Skyline Properties | 8 | 2,648 | 2,648 | 53.2% | ||||||||||
Total Office | 59 | 15,988 | 13,669 | 80.5% | ||||||||||
Residential - 2,414 units | 7 | 2,597 | 2,455 | 97.0% | ||||||||||
Other | 6 | 381 | 381 | 100.0% | ||||||||||
18,966 | 16,505 | 83.4% | ||||||||||||
Retail Properties: | ||||||||||||||
Strip Shopping Centers | 100 | 14,439 | 14,013 | 94.5% | ||||||||||
Regional Malls | 5 | 4,132 | 2,644 | 95.5% | ||||||||||
18,571 | 16,657 | 94.6% | ||||||||||||
Other: | ||||||||||||||
The Mart | 1 | 3,586 | 3,577 | 96.7% | ||||||||||
555 California Street | 3 | 1,799 | 1,259 | 96.8% | ||||||||||
Primarily Warehouses | 5 | 971 | 971 | 45.6% | ||||||||||
6,356 | 5,807 | |||||||||||||
Total square feet at September 30, 2014 | 71,286 | 60,683 |
Square footage (in service) and Occupancy as of March 31, 2015: | ||||||||||||||
Square Feet (in service) | ||||||||||||||
Number of | Total | Our | ||||||||||||
(Square feet in thousands) | Properties | Portfolio | Share | Occupancy % | ||||||||||
New York: | ||||||||||||||
Office | 32 | 20,695 | 17,363 | 97.3% | ||||||||||
Retail | 57 | 2,474 | 2,201 | 96.0% | ||||||||||
Alexander's | 6 | 2,178 | 706 | 99.7% | ||||||||||
Hotel Pennsylvania | 1 | 1,400 | 1,400 | |||||||||||
Residential - 1,654 units | 2 | 1,521 | 761 | 96.1% | ||||||||||
28,268 | 22,431 | 97.3% | ||||||||||||
Washington, DC: | ||||||||||||||
Office, excluding the Skyline Properties | 51 | 13,457 | 11,083 | 88.2% | ||||||||||
Skyline Properties | 8 | 2,648 | 2,648 | 53.4% | ||||||||||
Total Office | 59 | 16,105 | 13,731 | 81.5% | ||||||||||
Residential - 2,414 units | 7 | 2,597 | 2,455 | 97.1% | ||||||||||
Other | 6 | 384 | 384 | 100.0% | ||||||||||
19,086 | 16,570 | 84.2% | ||||||||||||
Other: | ||||||||||||||
The Mart | 1 | 3,587 | 3,578 | 94.5% | ||||||||||
555 California Street | 3 | 1,802 | 1,261 | 97.5% | ||||||||||
85 Tenth Avenue(1) | 1 | 614 | 306 | 100.0% | ||||||||||
Other Properties | 3 | 2,135 | 1,174 | 96.6% | ||||||||||
8,138 | 6,319 | |||||||||||||
Total square feet at March 31, 2015 | 55,492 | 45,320 | ||||||||||||
(1) | As of March 31, 2015, we own junior and senior mezzanine loans of 85 Tenth Avenue with an accreted balance of $151.4 million. The junior and senior mezzanine loans bear paid-in-kind interest of 12% and 9%, respectively and mature in May 2017. We account for our investment in 85 Tenth Avenue using the equity method of accounting because we will receive a 49.9% interest in the property after repayment of the junior mezzanine loan. As a result of recording our share of the GAAP losses of the property, the net carrying amount of these loans is $26.2 million on our consolidated balance sheets. |
4338
Overview - continued | ||||||||||||||
Square footage (in service) and Occupancy as of December 31, 2013: | ||||||||||||||
Square Feet (in service) | ||||||||||||||
Number of | Total | Our | ||||||||||||
(Square feet in thousands) | properties | Portfolio | Share | Occupancy % | ||||||||||
New York: | ||||||||||||||
Office | 31 | 19,799 | 16,358 | 96.6% | ||||||||||
Retail | 55 | 2,389 | 2,166 | 97.4% | ||||||||||
Alexander's | 6 | 2,178 | 706 | 99.4% | ||||||||||
Hotel Pennsylvania | 1 | 1,400 | 1,400 | |||||||||||
Residential - 1,655 units | 4 | 1,523 | 762 | 94.8% | ||||||||||
27,289 | 21,392 | 96.8% | ||||||||||||
Washington, DC: | ||||||||||||||
Office, excluding the Skyline Properties | 51 | 13,581 | 11,151 | 85.4% | ||||||||||
Skyline Properties | 8 | 2,652 | 2,652 | 60.8% | ||||||||||
Total Office | 59 | 16,233 | 13,803 | 80.7% | ||||||||||
Residential - 2,405 units | 7 | 2,588 | 2,446 | 96.3% | ||||||||||
Other | 5 | 379 | 379 | 100.0% | ||||||||||
19,200 | 16,628 | 83.4% | ||||||||||||
Retail Properties: | ||||||||||||||
Strip Shopping Centers | 101 | 14,490 | 14,111 | 94.7% | ||||||||||
Regional Malls | 5 | 4,135 | 2,646 | 95.9% | ||||||||||
18,625 | 16,757 | 94.9% | ||||||||||||
Other: | ||||||||||||||
The Mart | 2 | 3,703 | 3,694 | 96.3% | ||||||||||
555 California Street | 3 | 1,795 | 1,257 | 94.5% | ||||||||||
Primarily Warehouses | 5 | 971 | 971 | 45.6% | ||||||||||
6,469 | 5,922 | |||||||||||||
Total square feet at December 31, 2013 | 71,583 | 60,699 |
Overview - continued | ||||||||||||||
Square footage (in service) and Occupancy as of December 31, 2014: | ||||||||||||||
Square Feet (in service) | ||||||||||||||
Number of | Total | Our | ||||||||||||
(Square feet in thousands) | properties | Portfolio | Share | Occupancy % | ||||||||||
New York: | ||||||||||||||
Office | 31 | 20,052 | 16,808 | 96.9% | ||||||||||
Retail | 56 | 2,450 | 2,179 | 96.4% | ||||||||||
Alexander's | 6 | 2,178 | 706 | 99.7% | ||||||||||
Hotel Pennsylvania | 1 | 1,400 | 1,400 | |||||||||||
Residential - 1,654 units | 2 | 1,524 | 763 | 95.2% | ||||||||||
27,604 | 21,856 | 96.9% | ||||||||||||
Washington, DC: | ||||||||||||||
Office, excluding the Skyline Properties | 51 | 13,461 | 11,083 | 87.5% | ||||||||||
Skyline Properties | 8 | 2,648 | 2,648 | 53.5% | ||||||||||
Total Office | 59 | 16,109 | 13,731 | 80.9% | ||||||||||
Residential - 2,414 units | 7 | 2,597 | 2,455 | 97.4% | ||||||||||
Other | 6 | 384 | 384 | 100.0% | ||||||||||
19,090 | 16,570 | 83.8% | ||||||||||||
Other: | ||||||||||||||
The Mart | 2 | 3,587 | 3,578 | 94.7% | ||||||||||
555 California Street | 3 | 1,801 | 1,261 | 97.6% | ||||||||||
85 Tenth Avenue(1) | 1 | 613 | 306 | 100.0% | ||||||||||
Other Properties | 3 | 2,135 | 1,174 | 96.8% | ||||||||||
8,136 | 6,319 | |||||||||||||
Total square feet at December 31, 2014 | 54,830 | 44,745 | ||||||||||||
(1) | As of December 31, 2014, we own junior and senior mezzanine loans of 85 Tenth Avenue with an accreted balance of $147.6 million. The junior and senior mezzanine loans bear paid-in-kind interest of 12% and 9%, respectively and mature in May 2017. We account for our investment in 85 Tenth Avenue using the equity method of accounting because we will receive a 49.9% interest in the property after repayment of the junior mezzanine loan. As a result of recording our share of the GAAP losses of the property, the net carrying amount of these loans is $28.2 million on our consolidated balance sheets. |
4439
Overview - continued
Washington, DC Segment
We estimate that 2014expect 2015 EBITDA from continuing operations will be between $5,000,000 and $10,000,000 lower than 2013 EBITDA, dueflat to the effects of Base Realignment and Closure (“BRAC”) related move-outs and the sluggish leasing environment in the Washington, DC / Northern Virginia area. EBITDA from continuing operations for the nine months ended September 30, 2014 was lower than the prior year’s nine months by $5,264,000, which was offset by an interest expense reduction of $18,318,000 from the restructuring of the Skyline properties mortgage loan in October 2013. As a result of this and other items, the overall earnings in the nine months ended September 30, 2014 were higher than the prior year’s nine months.
EBITDA. Of the 2,395,000 square feet subject to the effects of the BRACBase Realignment and Closure (“BRAC”) statute, 393,000 square feet has been taken out of service for redevelopment and 952,0001,260,000 square feet has been leased.leased or is pending. The table below summarizessummarizes the status of the BRAC space as of September 30, 2014.March 31, 2015.
Rent Per | Square Feet | Rent Per | Square Feet | |||||||||||||||||||||||||
Square Foot | Total | Crystal City | Skyline | Rosslyn | Square Foot | Total | Crystal City | Skyline | Rosslyn | |||||||||||||||||||
Resolved: | Resolved: | Resolved: | ||||||||||||||||||||||||||
Relet as of March 31, 2015 | $ | 37.14 | 1,133,000 | 671,000 | 381,000 | 81,000 | ||||||||||||||||||||||
Relet as of September 30, 2014 | $ | 37.97 | 952,000 | 591,000 | 281,000 | 80,000 | Leases pending | 43.02 | 127,000 | 124,000 | - | 3,000 | ||||||||||||||||
Taken out of service for redevelopment | 393,000 | 393,000 | - | - | Taken out of service for redevelopment | 393,000 | 393,000 | - | - | |||||||||||||||||||
1,345,000 | 984,000 | 281,000 | 80,000 | 1,653,000 | 1,188,000 | 381,000 | 84,000 | |||||||||||||||||||||
To Be Resolved: | To Be Resolved: | To Be Resolved: | ||||||||||||||||||||||||||
Vacated as of September 30, 2014 | 36.41 | 835,000 | 367,000 | 402,000 | 66,000 | Vacated as of March 31, 2015 | 35.42 | 693,000 | 204,000 | 425,000 | 64,000 | |||||||||||||||||
Expiring in: | Expiring in 2015 | 42.98 | 49,000 | 44,000 | 5,000 | - | ||||||||||||||||||||||
2014 | 39.54 | 26,000 | - | 26,000 | - | 742,000 | 248,000 | 430,000 | 64,000 | |||||||||||||||||||
2015 | 36.76 | 189,000 | 88,000 | 101,000 | - | |||||||||||||||||||||||
1,050,000 | 455,000 | 529,000 | 66,000 | |||||||||||||||||||||||||
Total square feet subject to BRAC | Total square feet subject to BRAC | 2,395,000 | 1,439,000 | 810,000 | 146,000 | Total square feet subject to BRAC | 2,395,000 | 1,436,000 | 811,000 | 148,000 |
4540
Net Income and EBITDA by Segment for the Three Months Ended September 30,March 31, 2015 and 2014 and 2013
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended September 30, 2014March 31, 2015 and 2013.2014.
(Amounts in thousands) | (Amounts in thousands) | For the Three Months Ended September 30, 2014 | (Amounts in thousands) | For the Three Months Ended March 31, 2015 | ||||||||||||||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||||||||||
Total | New York | Washington, DC | Properties | Toys | Other | Total | New York | Washington, DC | Other | |||||||||||||||||||||||||||
Total revenues | Total revenues | $ | 670,909 | $ | 394,579 | $ | 133,541 | $ | 82,442 | $ | - | $ | 60,347 | Total revenues | $ | 606,802 | $ | 399,513 | $ | 133,968 | $ | 73,321 | ||||||||||||||
Total expenses | Total expenses | 450,310 | 243,314 | 88,375 | 44,466 | - | 74,155 | Total expenses | 439,088 | 252,760 | 92,997 | 93,331 | ||||||||||||||||||||||||
Operating income (loss) | Operating income (loss) | 220,599 | 151,265 | 45,166 | 37,976 | - | (13,808) | Operating income (loss) | 167,714 | 146,753 | 40,971 | (20,010) | ||||||||||||||||||||||||
(Loss) income from partially owned | ||||||||||||||||||||||||||||||||||||
entities, including Toys | (25,663) | 5,810 | (1,411) | 371 | (18,418) | (12,015) | ||||||||||||||||||||||||||||||
Income from Real Estate Fund | 24,160 | - | - | - | - | 24,160 | ||||||||||||||||||||||||||||||
(Loss) income from partially owned entities | (Loss) income from partially owned entities | (2,405) | (5,663) | 131 | 3,127 | |||||||||||||||||||||||||||||||
Income from real estate fund investments | Income from real estate fund investments | 24,089 | - | - | 24,089 | |||||||||||||||||||||||||||||||
Interest and other investment income, net | Interest and other investment income, net | 7,602 | 1,859 | 15 | 9 | - | 5,719 | Interest and other investment income, net | 10,792 | 1,862 | 13 | 8,917 | ||||||||||||||||||||||||
Interest and debt expense | Interest and debt expense | (115,120) | (43,061) | (18,685) | (10,056) | - | (43,318) | Interest and debt expense | (91,674) | (45,351) | (18,160) | (28,163) | ||||||||||||||||||||||||
Net gain on disposition of wholly owned and | ||||||||||||||||||||||||||||||||||||
Net gain on disposition of wholly owned and partially | Net gain on disposition of wholly owned and partially | |||||||||||||||||||||||||||||||||||
partially owned assets | 2,665 | - | - | - | - | 2,665 | owned assets | 1,860 | - | - | 1,860 | |||||||||||||||||||||||||
Income (loss) before income taxes | Income (loss) before income taxes | 114,243 | 115,873 | 25,085 | 28,300 | (18,418) | (36,597) | Income (loss) before income taxes | 110,376 | 97,601 | 22,955 | (10,180) | ||||||||||||||||||||||||
Income tax expense | (3,177) | (802) | (130) | (525) | - | (1,720) | ||||||||||||||||||||||||||||||
Income tax (expense) benefit | Income tax (expense) benefit | (971) | (943) | 674 | (702) | |||||||||||||||||||||||||||||||
Income (loss) from continuing operations | Income (loss) from continuing operations | 111,066 | 115,071 | 24,955 | 27,775 | (18,418) | (38,317) | Income (loss) from continuing operations | 109,405 | 96,658 | 23,629 | (10,882) | ||||||||||||||||||||||||
Income from discontinued operations | Income from discontinued operations | 58,131 | - | - | 57,499 | - | 632 | Income from discontinued operations | 15,841 | - | - | 15,841 | ||||||||||||||||||||||||
Net income (loss) | 169,197 | 115,071 | 24,955 | 85,274 | (18,418) | (37,685) | ||||||||||||||||||||||||||||||
Less net income attributable to noncontrolling | ||||||||||||||||||||||||||||||||||||
Net income | Net income | 125,246 | 96,658 | 23,629 | 4,959 | |||||||||||||||||||||||||||||||
Less net income attributable to noncontrolling interests in | Less net income attributable to noncontrolling interests in | |||||||||||||||||||||||||||||||||||
interests in consolidated subsidiaries | (9,685) | (2,690) | - | (76) | - | (6,919) | consolidated subsidiaries | (15,882) | (1,506) | - | (14,376) | |||||||||||||||||||||||||
Net income (loss) attributable to | ||||||||||||||||||||||||||||||||||||
Vornado Realty L.P. | 159,512 | 112,381 | 24,955 | 85,198 | (18,418) | (44,604) | ||||||||||||||||||||||||||||||
Net income (loss) attributable to Vornado Realty L.P. | Net income (loss) attributable to Vornado Realty L.P. | 109,364 | 95,152 | 23,629 | (9,417) | |||||||||||||||||||||||||||||||
Interest and debt expense(2) | Interest and debt expense(2) | 160,252 | 58,010 | 22,208 | 11,205 | 22,471 | 46,358 | Interest and debt expense(2) | 114,675 | 58,667 | 21,512 | 34,496 | ||||||||||||||||||||||||
Depreciation and amortization(2) | Depreciation and amortization(2) | 160,270 | 79,446 | 36,411 | 15,256 | 9,923 | 19,234 | Depreciation and amortization(2) | 156,450 | 94,124 | 40,752 | 21,574 | ||||||||||||||||||||||||
Income tax expense (benefit) (2) | 2,232 | 746 | 145 | 525 | (1,536) | 2,352 | ||||||||||||||||||||||||||||||
Income tax (benefit) expense (2) | Income tax (benefit) expense (2) | (739) | 1,002 | (2,636) | 895 | |||||||||||||||||||||||||||||||
EBITDA(1) | EBITDA(1) | $ | 482,266 | $ | 250,583 | (3) | $ | 83,719 | (4) | $ | 112,184 | (5) | $ | 12,440 | $ | 23,340 | (6) | EBITDA(1) | $ | 379,750 | $ | 248,945 | (3) | $ | 83,257 | (4) | $ | 47,548 | (5) |
(Amounts in thousands) | (Amounts in thousands) | For the Three Months Ended September 30, 2013 | (Amounts in thousands) | For the Three Months Ended March 31, 2014 | ||||||||||||||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||||||||||
Total | New York | Washington, DC | Properties | Toys | Other | Total | New York | Washington, DC | Other | |||||||||||||||||||||||||||
Total revenues | Total revenues | $ | 668,989 | $ | 388,747 | $ | 137,604 | $ | 81,439 | $ | - | $ | 61,199 | Total revenues | $ | 562,381 | $ | 361,184 | $ | 135,278 | $ | 65,919 | ||||||||||||||
Total expenses | Total expenses | 434,138 | 223,992 | 87,612 | 45,461 | - | 77,073 | Total expenses | 417,140 | 237,734 | 89,572 | 89,834 | ||||||||||||||||||||||||
Operating income (loss) | Operating income (loss) | 234,851 | 164,755 | 49,992 | 35,978 | - | (15,874) | Operating income (loss) | 145,241 | 123,450 | 45,706 | (23,915) | ||||||||||||||||||||||||
(Loss) income from partially owned | ||||||||||||||||||||||||||||||||||||
entities, including Toys | (32,756) | 4,189 | (2,003) | 188 | (34,209) | (921) | ||||||||||||||||||||||||||||||
Income from Real Estate Fund | 22,913 | - | - | - | - | 22,913 | ||||||||||||||||||||||||||||||
Interest and other investment (loss) income, net | (10,275) | 1,468 | 17 | 1 | - | (11,761) | ||||||||||||||||||||||||||||||
Income (loss) from partially owned entities | Income (loss) from partially owned entities | 1,979 | 1,566 | (1,266) | 1,679 | |||||||||||||||||||||||||||||||
Income from real estate fund investments | Income from real estate fund investments | 18,148 | - | - | 18,148 | |||||||||||||||||||||||||||||||
Interest and other investment income, net | Interest and other investment income, net | 11,850 | 1,441 | 36 | 10,373 | |||||||||||||||||||||||||||||||
Interest and debt expense | Interest and debt expense | (119,676) | (42,349) | (27,246) | (10,834) | - | (39,247) | Interest and debt expense | (96,312) | (42,839) | (19,347) | (34,126) | ||||||||||||||||||||||||
Net gain on disposition of wholly owned and | ||||||||||||||||||||||||||||||||||||
Net gain on disposition of wholly owned and partially | Net gain on disposition of wholly owned and partially | |||||||||||||||||||||||||||||||||||
partially owned assets | 15,138 | - | - | 1,377 | - | 13,761 | owned assets | 9,635 | - | - | 9,635 | |||||||||||||||||||||||||
Income (loss) before income taxes | Income (loss) before income taxes | 110,195 | 128,063 | 20,760 | 26,710 | (34,209) | (31,129) | Income (loss) before income taxes | 90,541 | 83,618 | 25,129 | (18,206) | ||||||||||||||||||||||||
Income tax expense | (2,222) | (65) | (766) | (731) | - | (660) | ||||||||||||||||||||||||||||||
Income tax (expense) benefit | Income tax (expense) benefit | (851) | (969) | 199 | (81) | |||||||||||||||||||||||||||||||
Income (loss) from continuing operations | Income (loss) from continuing operations | 107,973 | 127,998 | 19,994 | 25,979 | (34,209) | (31,789) | Income (loss) from continuing operations | 89,690 | 82,649 | 25,328 | (18,287) | ||||||||||||||||||||||||
Income from discontinued operations | Income from discontinued operations | 24,278 | 2,883 | - | 21,149 | - | 246 | Income from discontinued operations | 8,466 | 5,867 | - | 2,599 | ||||||||||||||||||||||||
Net income (loss) | Net income (loss) | 132,251 | 130,881 | 19,994 | 47,128 | (34,209) | (31,543) | Net income (loss) | 98,156 | 88,516 | 25,328 | (15,688) | ||||||||||||||||||||||||
Less net income attributable to noncontrolling | ||||||||||||||||||||||||||||||||||||
Less net income attributable to noncontrolling interests in | Less net income attributable to noncontrolling interests in | |||||||||||||||||||||||||||||||||||
interests in consolidated subsidiaries | (23,833) | (6,556) | - | (2,970) | - | (14,307) | consolidated subsidiaries | (11,579) | (1,405) | - | (10,174) | |||||||||||||||||||||||||
Net income (loss) attributable to | ||||||||||||||||||||||||||||||||||||
Vornado Realty L.P. | 108,418 | 124,325 | 19,994 | 44,158 | (34,209) | (45,850) | ||||||||||||||||||||||||||||||
Net income (loss) attributable to Vornado Realty L.P. | Net income (loss) attributable to Vornado Realty L.P. | 86,577 | 87,111 | 25,328 | (25,862) | |||||||||||||||||||||||||||||||
Interest and debt expense(2) | Interest and debt expense(2) | 183,116 | 59,344 | 30,717 | 12,119 | 38,435 | 42,501 | Interest and debt expense(2) | 170,952 | 58,068 | 22,798 | 90,086 | ||||||||||||||||||||||||
Depreciation and amortization(2) | Depreciation and amortization(2) | 172,756 | 67,294 | 35,403 | 17,573 | 32,176 | 20,310 | Depreciation and amortization(2) | 196,339 | 87,587 | 36,150 | 72,602 | ||||||||||||||||||||||||
Income tax (benefit) expense (2) | (20,292) | 67 | 828 | 731 | (22,690) | 772 | ||||||||||||||||||||||||||||||
Income tax expense (benefit)(2) | Income tax expense (benefit)(2) | 19,831 | 1,032 | (189) | 18,988 | |||||||||||||||||||||||||||||||
EBITDA(1) | EBITDA(1) | $ | 443,998 | $ | 251,030 | (3) | $ | 86,942 | (4) | $ | 74,581 | (5) | $ | 13,712 | $ | 17,733 | (6) | EBITDA(1) | $ | 473,699 | $ | 233,798 | (3) | $ | 84,087 | (4) | $ | 155,814 | (5) |
_____________________________
See notes on the following page.
4641
Net Income and EBITDA by Segment for the Three Months Ended September 30,March 31, 2015 and 2014 and 2013 - continued
Notes to preceding tabular information: | ||||||||||||||||||||||||||
Notes to preceding tabular information: | ||||||||||||||||||||||||||
(1) | EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies. | EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies. | ||||||||||||||||||||||||
(2) | Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities. | Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities. | ||||||||||||||||||||||||
(3) | The elements of "New York" EBITDA are summarized below. | The elements of "New York" EBITDA are summarized below. | ||||||||||||||||||||||||
For the Three Months Ended September 30, | For the Three Months Ended March 31, | |||||||||||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | (Amounts in thousands) | 2015 | 2014 | |||||||||||||||||||||
Office(a) | $ | 159,568 | $ | 172,367 | Office | $ | 159,359 | $ | 157,879 | |||||||||||||||||
Retail | 71,327 | 59,782 | Retail | 81,305 | 66,195 | |||||||||||||||||||||
Alexander's | 10,387 | 10,387 | Alexander's | 10,407 | 10,430 | |||||||||||||||||||||
Hotel Pennsylvania | 9,301 | 8,494 | Hotel Pennsylvania | (2,126) | (706) | |||||||||||||||||||||
Total New York | $ | 250,583 | $ | 251,030 | Total New York | $ | 248,945 | $ | 233,798 | |||||||||||||||||
(a) | Includes $12,121 of termination fee income, net, from a tenant at 1290 Avenue of the Americas and $2,368 from discontinued operations in the three months ended September 30, 2013. Excluding these items, EBITDA for the three months ended September 30, 2013 was $157,878. | |||||||||||||||||||||||||
(4) | The elements of "Washington, DC" EBITDA are summarized below. | The elements of "Washington, DC" EBITDA are summarized below. | ||||||||||||||||||||||||
For the Three Months Ended September 30, | For the Three Months Ended March 31, | |||||||||||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | (Amounts in thousands) | 2015 | 2014 | |||||||||||||||||||||
Office, excluding the Skyline Properties | $ | 65,904 | $ | 69,220 | Office, excluding the Skyline Properties | $ | 67,385 | $ | 67,257 | |||||||||||||||||
Skyline properties | 7,698 | 6,841 | Skyline properties | 6,055 | 6,499 | |||||||||||||||||||||
Total Office | 73,602 | 76,061 | Total Office | 73,440 | 73,756 | |||||||||||||||||||||
Residential | 10,117 | 10,881 | Residential | 9,817 | 10,331 | |||||||||||||||||||||
Total Washington, DC | $ | 83,719 | $ | 86,942 | Total Washington, DC | $ | 83,257 | $ | 84,087 | |||||||||||||||||
(5) | The elements of "Retail Properties" EBITDA are summarized below. | |||||||||||||||||||||||||
For the Three Months Ended September 30, | ||||||||||||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | ||||||||||||||||||||||||
Strip shopping centers(a) | $ | 97,122 | $ | 59,175 | ||||||||||||||||||||||
Regional malls(b) | 15,062 | 15,406 | ||||||||||||||||||||||||
Total Retail properties | $ | 112,184 | $ | 74,581 | ||||||||||||||||||||||
(a) | Includes discontinued operations and other gains and losses that affect comparability, aggregating $57,676 and $19,352 for the three months ended September 30, 2014 and 2013, respectively. Excluding these items, EBITDA was $39,446 and $39,823, respectively. | |||||||||||||||||||||||||
(b) | Includes discontinued operations and other gains and losses that affect comparability, aggregating to a loss of $177 and income of $2,140 for the three months ended September 30, 2014 and 2013, respectively. Excluding these items, EBITDA was $15,239 and $13,266, respectively. |
4742
Net Income and EBITDA by Segment for the Three Months Ended September 30,March 31, 2015 and 2014 and 2013 - continued
Notes to preceding tabular information - continued: | |||||||||||||
(6) | The elements of "other" EBITDA are summarized below. | ||||||||||||
For the Three Months Ended September 30, | |||||||||||||
(Amounts in thousands) | 2014 | 2013 | |||||||||||
Our share of Real Estate Fund: | |||||||||||||
Income before net realized/unrealized gains | $ | 2,059 | $ | 2,086 | |||||||||
Net realized gains on exited investments | 12,896 | 2,046 | |||||||||||
Previously recorded unrealized gains on exited investments | (12,397) | - | |||||||||||
Net unrealized gains on held investments | 4,583 | 3,092 | |||||||||||
Carried interest | 8,431 | 267 | |||||||||||
Total | 15,572 | 7,491 | |||||||||||
The Mart and trade shows | 19,497 | 14,925 | |||||||||||
555 California Street | 11,994 | 10,720 | |||||||||||
India real estate ventures | 2,651 | 695 | |||||||||||
Other investments | 4,618 | 5,330 | |||||||||||
54,332 | 39,161 | ||||||||||||
Corporate general and administrative expenses(a) | (22,948) | (23,467) | |||||||||||
Investment income and other, net(a) | 6,659 | 11,108 | |||||||||||
Impairment loss and loan loss reserve on investment in Suffolk Downs | (10,263) | - | |||||||||||
Acquisition and transaction related costs(b) | (7,105) | (2,818) | |||||||||||
Net gain on sale of residential condominiums and a land parcel | 2,665 | 134 | |||||||||||
Net gain on sale of marketable securities | - | 31,741 | |||||||||||
Loss from the mark-to-market of J.C. Penney derivative position | - | (20,012) | |||||||||||
Loss on sale of J.C. Penney common shares | - | (18,114) | |||||||||||
$ | 23,340 | $ | 17,733 | ||||||||||
(a) | The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $1,352 and $269 for the three months ended September 30, 2014 and 2013, respectively. | ||||||||||||
(b) | The three months ended September 30, 2014, includes $5,828 of transaction costs related to the spin-off of our strip shopping centers and malls. |
Notes to preceding tabular information - continued: | |||||||||||||
(5) | The elements of "other" EBITDA are summarized below. | ||||||||||||
For the Three Months Ended March 31, | |||||||||||||
(Amounts in thousands) | 2015 | 2014 | |||||||||||
Our share of Real Estate Fund: | |||||||||||||
Income before net realized/unrealized gains | $ | 1,614 | $ | 1,982 | |||||||||
Net realized/unrealized gains on investments | 5,548 | 3,542 | |||||||||||
Carried interest | 3,388 | 1,775 | |||||||||||
Total | 10,550 | 7,299 | |||||||||||
The Mart and trade shows | 21,041 | 19,087 | |||||||||||
555 California Street | 12,401 | 12,066 | |||||||||||
India real estate ventures | 1,841 | 1,824 | |||||||||||
Our share of Toys "R" Us(a) | - | 83,550 | |||||||||||
Other investments | 9,109 | 9,447 | |||||||||||
54,942 | 133,273 | ||||||||||||
Corporate general and administrative expenses(b) | (35,942) | (25,982) | |||||||||||
Investment income and other, net(b) | 8,762 | 8,073 | |||||||||||
Urban Edge Properties and residual retail properties discontinued operations(c) | 19,907 | 32,100 | |||||||||||
Acquisition and transaction related costs | (1,981) | (1,285) | |||||||||||
Net gain on sale of residential condominiums and a land parcel | 1,860 | 9,635 | |||||||||||
$ | 47,548 | $ | 155,814 | ||||||||||
(a) | As a result of our investment being reduced to zero, we suspended equity method accounting in the third quarter of 2014. The three months ended March 31, 2014 includes an impairment loss of $75,196. | ||||||||||||
(b) | The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $2,859 and $4,400 for the three months ended March 31, 2015 and 2014, respectively. The three months ended March 31, 2015 include $8,817 from the acceleration of the recognition of compensation expense related to 2013-2015 Out-Performance Plans due to the modification of the vesting criteria of awards such that they will fully vest at age 65. The accelerated expense will result in lower general and administrative expense for the remainder of 2015 of $2,600 and $6,217 thereafter. | ||||||||||||
(c) | The three months ended March 31, 2015 and 2014, include $22,645 and $499, respectively, of transaction costs related to the spin-off of our strip shopping centers and malls. | ||||||||||||
EBITDA by Region
Below is a summary of the percentages of EBITDA by geographic region, (excludingexcluding discontinued operations and other gains and lossesitems that affect comparability and our Toys and Other Segments).comparability.
For the Three Months | ||||||||
Ended September 30, | ||||||||
2014 | 2013 | |||||||
Region: | ||||||||
New York City metropolitan area | 75% | 74% | ||||||
Washington, DC / Northern Virginia metropolitan area | 22% | 23% | ||||||
Puerto Rico | 1% | 1% | ||||||
Other geographies | 2% | 2% | ||||||
100% | 100% |
For the Three Months | ||||||||
Ended March 31, | ||||||||
2015 | 2014 | |||||||
Region: | ||||||||
New York City metropolitan area | 68% | 66% | ||||||
Washington, DC / Northern Virginia metropolitan area | 23% | 25% | ||||||
Chicago, IL | 6% | 5% | ||||||
San Francisco, CA | 3% | 4% | ||||||
100% | 100% |
4843
Results of Operations – Three Months Ended September 30, 2014March 31, 2015 Compared to September 30, 2013March 31, 2014
Our revenues, which consist primarily of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $670,909,000 in$606,802,000 for the three months ended September 30, 2014,March 31, 2015, compared to $668,989,000$562,381,000 in the prior year’s quarter,three months, an increase of $1,920,000.$44,421,000. Below are the details of the increase (decrease) by segment:
(Amounts in thousands) | (Amounts in thousands) | (Amounts in thousands) | ||||||||||||||||||||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||||||||||||||
Increase (decrease) due to: | Increase (decrease) due to: | Total | New York | Washington, DC | Properties | Other | Increase (decrease) due to: | Total | New York | Washington, DC | Other | |||||||||||||||||||||||||||||
Property rentals: | Property rentals: | Property rentals: | ||||||||||||||||||||||||||||||||||||||
Acquisitions and other | $ | 3,565 | $ | 4,822 | $ | (1,388) | $ | (65) | $ | 196 | Acquisitions and other | $ | 8,031 | $ | 7,145 | $ | 886 | $ | - | |||||||||||||||||||||
Properties taken out of / placed into | Properties placed into (taken out of) service | |||||||||||||||||||||||||||||||||||||||
service for redevelopment | (3,366) | (1,221) | (497) | 426 | (2,074) | for redevelopment | 10,441 | 10,543 | (679) | 577 | ||||||||||||||||||||||||||||||
Hotel Pennsylvania | 1,009 | 1,009 | - | - | - | Hotel Pennsylvania | (1,126) | (1,126) | - | - | ||||||||||||||||||||||||||||||
Trade Shows | 1,714 | - | - | - | 1,714 | Trade Shows | 2,945 | - | - | 2,945 | ||||||||||||||||||||||||||||||
Same store operations | 13,813 | 8,473 | 1,485 | 988 | 2,867 | Same store operations | 12,843 | 10,110 | 815 | 1,918 | ||||||||||||||||||||||||||||||
16,735 | 13,083 | (400) | 1,349 | 2,703 | 33,134 | 26,672 | 1,022 | 5,440 | ||||||||||||||||||||||||||||||||
Tenant expense reimbursements: | Tenant expense reimbursements: | Tenant expense reimbursements: | ||||||||||||||||||||||||||||||||||||||
Acquisitions and other | 624 | 311 | 286 | (4) | 31 | Acquisitions and other | 206 | 206 | - | - | ||||||||||||||||||||||||||||||
Properties placed into / taken out of | Properties placed into (taken out of) service | |||||||||||||||||||||||||||||||||||||||
service for redevelopment | (814) | (530) | 43 | (165) | (162) | for redevelopment | 828 | 795 | 38 | (5) | ||||||||||||||||||||||||||||||
Same store operations | 4,706 | 5,287 | (890) | (446) | 755 | Same store operations | 6,586 | 4,607 | (104) | 2,083 | ||||||||||||||||||||||||||||||
4,516 | 5,068 | (561) | (615) | 624 | 7,620 | 5,608 | (66) | 2,078 | ||||||||||||||||||||||||||||||||
Cleveland Medical Mart development | ||||||||||||||||||||||||||||||||||||||||
project | (4,893) | (1) | - | - | - | (4,893) | (1) | |||||||||||||||||||||||||||||||||
Fee and other income: | Fee and other income: | Fee and other income: | ||||||||||||||||||||||||||||||||||||||
BMS cleaning fees | 6,569 | 6,075 | - | - | 494 | (2) | ||||||||||||||||||||||||||||||||||
Signage revenue | (1,040) | (1,040) | - | - | - | BMS cleaning fees | 3,677 | 3,345 | - | 332 | (1) | |||||||||||||||||||||||||||||
Management and leasing fees | (3,315) | (1,203) | (2,199) | 25 | 62 | Management and leasing fees | (1,636) | (1,617) | 60 | (79) | ||||||||||||||||||||||||||||||
Lease termination fees | (16,579) | (16,387) | (3) | (659) | 464 | 3 | Lease termination fees | 170 | 2,704 | (2,367) | (167) | |||||||||||||||||||||||||||||
Other income | (73) | 236 | (244) | (220) | 155 | Other income (loss) | 1,456 | 1,617 | 41 | (202) | ||||||||||||||||||||||||||||||
(14,438) | (12,319) | (3,102) | 269 | 714 | 3,667 | 6,049 | (2,266) | (116) | ||||||||||||||||||||||||||||||||
Total increase (decrease) in revenues | Total increase (decrease) in revenues | $ | 1,920 | $ | 5,832 | $ | (4,063) | $ | 1,003 | $ | (852) | Total increase (decrease) in revenues | $ | 44,421 | $ | 38,329 | $ | (1,310) | $ | 7,402 | ||||||||||||||||||||
(1) | (1) | Due to completion of the project. This decrease in revenue is substantially offset by a decrease in development costs expensed in the period. See note (3) on page 50. | Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 45. | |||||||||||||||||||||||||||||||||||||
(2) | Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 50. | |||||||||||||||||||||||||||||||||||||||
(3) | Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas recognized during the third quarter of 2013. | |||||||||||||||||||||||||||||||||||||||
4944
Results of Operations – Three Months Ended September 30, 2014March 31, 2015 Compared to September 30, 2013March 31, 2014 - continued
Expenses
Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $450,310,000 in$439,088,000 for the three months ended September 30, 2014,March 31, 2015, compared to $434,138,000$417,140,000 in the prior year’s quarter,three months, an increase of $16,172,000.$21,948,000. Below are the details of the increase by segment:
(Amounts in thousands) | (Amounts in thousands) | (Amounts in thousands) | ||||||||||||||||||||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||||||||||||||
Increase (decrease) due to: | Increase (decrease) due to: | Total | New York | Washington, DC | Properties | Other | Increase (decrease) due to: | Total | New York | Washington, DC | Other | |||||||||||||||||||||||||||||
Operating: | Operating: | Operating: | ||||||||||||||||||||||||||||||||||||||
Acquisitions and other | $ | (928) | $ | (897) | $ | 45 | $ | (22) | $ | (54) | ||||||||||||||||||||||||||||||
Properties taken out of / placed into | Acquisitions and other | $ | 689 | $ | 698 | $ | (9) | $ | - | |||||||||||||||||||||||||||||||
service for redevelopment | (3,234) | (1,545) | (200) | 199 | (1,688) | Properties placed into (taken out of) service | ||||||||||||||||||||||||||||||||||
Non-reimbursable expenses, including | for redevelopment | 4,519 | 3,430 | (23) | 1,112 | |||||||||||||||||||||||||||||||||||
bad debt reserves | 1,734 | 2,049 | - | - | (315) | Non-reimbursable expenses, including bad debt reserves | 555 | - | - | 555 | ||||||||||||||||||||||||||||||
Hotel Pennsylvania | 250 | 250 | - | - | - | Hotel Pennsylvania | 375 | 375 | - | - | ||||||||||||||||||||||||||||||
Trade Shows | 339 | - | - | - | 339 | Trade Shows | 1,202 | - | - | 1,202 | ||||||||||||||||||||||||||||||
BMS expenses | 4,605 | 3,847 | - | - | 758 | (2) | BMS expenses | 3,474 | 3,091 | - | 383 | (2) | ||||||||||||||||||||||||||||
Same store operations | 3,908 | 7,105 | (352) | (613) | (2,232) | Same store operations | 7,118 | 5,481 | 571 | 1,066 | ||||||||||||||||||||||||||||||
6,674 | 10,809 | (507) | (436) | (3,192) | 17,932 | 13,075 | 539 | 4,318 | ||||||||||||||||||||||||||||||||
Depreciation and amortization: | Depreciation and amortization: | Depreciation and amortization: | ||||||||||||||||||||||||||||||||||||||
Acquisitions and other | 1,960 | 1,961 | - | (1) | - | Acquisitions and other | 5,202 | 5,202 | - | - | ||||||||||||||||||||||||||||||
Properties placed into / taken out of | Properties taken out of service | |||||||||||||||||||||||||||||||||||||||
service for redevelopment | 1,767 | 3,464 | (215) | (790) | (692) | for redevelopment | (19,077) | (11,313) | (206) | (7,558) | ||||||||||||||||||||||||||||||
Same store operations | 4,362 | 1,933 | 1,718 | 309 | 402 | Same store operations | 6,205 | 3,810 | 4,835 | (2,440) | ||||||||||||||||||||||||||||||
8,089 | 7,358 | 1,503 | (482) | (290) | (7,670) | (2,301) | 4,629 | (9,998) | ||||||||||||||||||||||||||||||||
General and administrative: | General and administrative: | General and administrative: | ||||||||||||||||||||||||||||||||||||||
Mark-to-market of deferred | Mark-to-market of deferred compensation plan liability (1) | (1,541) | - | - | (1,541) | |||||||||||||||||||||||||||||||||||
compensation plan liability (1) | 1,143 | - | - | - | 1,143 | Severance costs (primarily reduction in force at the Mart) | (120) | - | - | (120) | ||||||||||||||||||||||||||||||
Same store operations | (782) | 1,155 | (233) | (77) | (1,627) | Same store operations | 12,651 | (3) | 4,252 | (1,743) | 10,142 | |||||||||||||||||||||||||||||
361 | 1,155 | (233) | (77) | (484) | 10,990 | 4,252 | (1,743) | 8,481 | ||||||||||||||||||||||||||||||||
Cleveland Medical Mart development | ||||||||||||||||||||||||||||||||||||||||
Acquisition and transaction related costs | Acquisition and transaction related costs | 696 | - | - | 696 | |||||||||||||||||||||||||||||||||||
Total increase in expenses | Total increase in expenses | $ | 21,948 | $ | 15,026 | $ | 3,425 | $ | 3,497 | |||||||||||||||||||||||||||||||
project | (3,239) | (3) | - | - | - | (3,239) | (3) | |||||||||||||||||||||||||||||||||
Acquisition and transaction related costs | 4,287 | - | - | - | 4,287 | |||||||||||||||||||||||||||||||||||
Total increase (decrease) in expenses | $ | 16,172 | $ | 19,322 | $ | 763 | $ | (995) | $ | (2,918) | ||||||||||||||||||||||||||||||
(1) | (1) | This increase in expense is entirely offset by a corresponding increase in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income, net” on our consolidated statements of income. | ||||||||||||||||||||||||||||||||||||||
| Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (1) on page 44. | |||||||||||||||||||||||||||||||||||||||
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| This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income (loss), net” on our consolidated statements of income. |
| Results primarily from the acceleration of the recognition of compensation expense of $11,065 related to 2013-2015 Out-Performance Plans due to the modification of the vesting criteria of awards such that they fully vest at age 65. The accelerated expense will result in lower general and administrative expense during the remainder of 2015 of $3,231 and $7,834 thereafter. | ||||||||||||||||||||||||||||||||||||
(2) | Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 49. | |||||||||||||||||||||||||||||||||||||||
(3) | Due to the completion of the project. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on page 49. | |||||||||||||||||||||||||||||||||||||||
5045
Results of Operations – Three Months Ended September 30, 2014March 31, 2015 Compared to September 30, 2013March 31, 2014 - continued
(Loss) Applicable to Toys
In the three months ended September 30, 2014, we recognized a net loss of $18,418,000 from our investment in Toys, comprised of$20,357,000for our share of Toys’ net loss, partially offset by$1,939,000of management fees earned and received.
In the three months ended September 30, 2013, we recognized a net loss of $34,209,000 from our investment in Toys, comprised of $36,056,000 for our share of Toys’ net loss, partially offset by $1,847,000 of management fees earned and received.
(Loss) Income from Partially Owned Entities
Summarized below are the components of (loss) income from partially owned entities for the three months ended September 30, 2014March 31, 2015 and 2013.
2014.
Percentage | For the Three Months Ended | |||||||||||||||
Ownership at | September 30, | |||||||||||||||
(Amounts in thousands) | September 30, 2014 | 2014 | 2013 | |||||||||||||
Equity in Net (Loss) Income: | ||||||||||||||||
Alexander's | 32.4% | $ | 7,192 | $ | 5,975 | |||||||||||
India real estate ventures | 4.1%-36.5% | (262) | (1,449) | |||||||||||||
Partially owned office buildings (1) | Various | 18 | 38 | |||||||||||||
Other investments (2) | Various | (14,193) | (3,111) | |||||||||||||
$ | (7,245) | $ | 1,453 | |||||||||||||
(1) | Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others. | |||||||||||||||
(2) | Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. The three months ended September 30, 2014 includes a $10,263 non-cash impairment loss and loan loss reserve on our equity and debt investments in Suffolk Downs race track and adjacent land. | |||||||||||||||
Percentage | For the Three Months Ended | |||||||||||||||
Ownership at | March 31, | |||||||||||||||
(Amounts in thousands) | March 31, 2015 | 2015 | 2014 | |||||||||||||
Equity in Net (Loss) Income: | ||||||||||||||||
Partially owned office buildings (1) | Various | $ | (9,296) | $ | (2,395) | |||||||||||
Alexander's | 32.4% | 7,691 | 6,385 | |||||||||||||
Toys (2) | 32.6% | 1,454 | 1,847 | |||||||||||||
Urban Edge (3) | 5.4% | 584 | - | |||||||||||||
India real estate ventures | 4.1%-36.5% | (109) | (137) | |||||||||||||
Other investments (4) | Various | (2,729) | (3,721) | |||||||||||||
$ | (2,405) | $ | 1,979 | |||||||||||||
(1) | Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others. | |||||||||||||||
(2) | In the three months ended March 31, 2015, we recognized net income of $1,454 from our investment in Toys, representing management fees earned and received, compared to $1,847 for the three months ended March 31, 2014. In the three months ended March 31, 2014, we recognized our share of the equity in earnings of Toys’ fourth quarter totaling $75,196 and a corresponding non-cash impairment loss of the same amount. | |||||||||||||||
(3) | Represents fees earned pursuant to our transition services agreement with UE. | |||||||||||||||
(4) | Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. | |||||||||||||||
Income from Real Estate Fund Investments
Below are the components of the income from our Real Estate Fundreal estate fund investments for the three months ended September 30, 2014March 31, 2015 and 2013.
2014.
(Amounts in thousands) | For the Three Months Ended September 30, | ||||||||
2014 | 2013 | ||||||||
Net investment income | $ | 3,829 | $ | 2,362 | |||||
Net realized gains on exited investments | 51,584 | 8,184 | |||||||
Previously recorded unrealized gains on exited investments | (49,586) | - | |||||||
Net unrealized gains on held investments | 18,333 | 12,367 | |||||||
Income from Real Estate Fund | 24,160 | 22,913 | |||||||
Less income attributable to noncontrolling interests | (8,588) | (15,422) | |||||||
Income from Real Estate Fund attributable to Vornado Realty L.P. (1) | $ | 15,572 | $ | 7,491 | |||||
(1) | Excludes management, leasing and development fees of $759and $770 for the three months ended September 30, 2014 and 2013, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. | ||||||||
(Amounts in thousands) | For the Three Months Ended March 31, | ||||||||
2015 | 2014 | ||||||||
Net investment income | $ | 6,450 | $ | 3,979 | |||||
Net realized gains on exited investments | 24,705 | - | |||||||
Previously recorded unrealized gains on exited investments | (23,279) | - | |||||||
Net unrealized gains on held investments | 16,213 | 14,169 | |||||||
Income from real estate fund investments | 24,089 | 18,148 | |||||||
Less income attributable to noncontrolling interests | (13,539) | (10,849) | |||||||
Income from real estate fund investments attributable to Vornado Realty L.P.(1) | $ | 10,550 | $ | 7,299 | |||||
___________________________________ | |||||||||
(1) | Excludes property management, leasing and development fees of $704 and $618 for the three months ended March 31, 2015 and 2014, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. | ||||||||
5146
Results of Operations – Three Months Ended September 30, 2014March 31, 2015 Compared to September 30, 2013March 31, 2014 - continued
Interest and Other Investment Income, (Loss), net
Interest and other investment income, (loss), net was income of $7,602,000 $10,792,000 in the three months ended September 30, 2014,March 31, 2015, compared to a loss of $10,275,000$11,850,000 in the prior year’s quarter, anthree months, a decrease of $1,058,000. This decrease resulted primarily from a lower increase in incomethe value of $17,877,000. Thisinvestments in our deferred compensation plan (offset by a corresponding increase resulted from:
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in the liability for plan assets in general and administrative expenses).
Interest and Debt Expense
Interest and debt expense was $115,120,000$91,674,000 in the three months ended September 30, 2014,March 31, 2015, compared to $119,676,000$96,312,000 in the prior year’s quarter,three months, a decrease of $4,556,000.$4,638,000. This decrease was primarily due to (i) $5,803,000 of higher capitalized interest in the current year’s quarter and (ii) $6,314,000 (i) $9,130,000 of interest savings from the restructuringredemption of the Skyline properties mortgage loan in October 2013,$445,000,000 principal amount of the outstanding 7.875% senior unsecured notes during the fourth quarter of 2014, (ii) $5,313,000 of interest savings from the redemption of the $500,000,000 principal amount of the outstanding 4.25% senior unsecured notes on January 1, 2015, partially offset by (iii) $3,522,000of interest expense from the $600,000,000 financing of our 220 Central Park South development site in January 2014 and (iv) $2,899,000$2,898,000 of interest expense from the issuance of $450,000,000 of senior unsecured notes in June 2014.2014, and (iv) $6,907,000 of higher deferred financing costs amortization and other.
Net Gain (Loss) on Disposition of Wholly Owned and Partially Owned Assets
In the three months ended September 30, 2014, we recognized net gains of $2,665,000 from the sale of residential condominiums. In the three months ended September 30, 2013,March 31, 2015, we recognized a $15,138,000$1,860,000 net gain on disposition of wholly owned and partially owned assets, primarily from a $31,741,000 net gain onthe sale of residential condominiums, compared to $9,635,000 in the prior year’s three months composed of the sale of a marketable security, partially offset by an $18,114,000 net loss on sale of the remaining 13,400,000 J.C. Penney common shares.land parcel and residential condominiums.
Income Tax Expense
Income tax expense related to our taxable REIT subsidiaries was $3,177,000$971,000 in the three months ended September 30, 2014,March 31, 2015, compared to $2,222,000$851,000 in the prior year’s quarter,three months, an increase of $955,000. This increase was primarily attributable to higher income from our taxable REIT subsidiaries.$120,000.
Income from Discontinued Operations
We have reclassified the revenues and expenses of the properties that were sold or are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements. The table below sets forth the combined results of assets related to discontinued operations for the three months ended September 30, 2014 and 2013.
For the Three Months Ended September 30, | ||||||||||
(Amounts in thousands) | 2014 | 2013 | ||||||||
Total revenues | $ | 836 | $ | 17,354 | ||||||
Total expenses | 501 | 11,352 | ||||||||
335 | 6,002 | |||||||||
Net gain on sale of Beverly Connection | 44,155 | - | ||||||||
Net gains on sale of other real estate | 13,641 | 18,996 | ||||||||
Impairment losses | - | (720) | ||||||||
Income from discontinued operations | $ | 58,131 | $ | 24,278 |
5247
Results of Operations – Three Months Ended September 30, 2014March 31, 2015 Compared to September 30, 2013March 31, 2014 - continued
Income from Discontinued Operations
The table below sets forth the combined results of assets related to discontinued operations for the three months ended March 31, 2015 and 2014.
For the Three Months Ended March 31, | |||||||||||
(Amounts in thousands) | 2015 | 2014 | |||||||||
Total revenues | $ | 19,958 | $ | 106,563 | |||||||
Total expenses | 13,373 | 76,025 | |||||||||
6,585 | 30,538 | ||||||||||
Net gain on sale of lease position in Geary Street, CA | 21,376 | - | |||||||||
Net gains on sale of real estate | 10,867 | - | |||||||||
Transaction related costs | (22,645) | (499) | |||||||||
Impairment losses | (256) | (20,842) | |||||||||
Pretax income from discontinued operations | 15,927 | 9,197 | |||||||||
Income tax expense | (86) | (731) | |||||||||
Income from discontinued operations | $ | 15,841 | $ | 8,466 |
Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries
Net income attributable to noncontrolling interests in consolidated subsidiaries was $9,685,000$15,882,000 in the three months ended September 30, 2014,March 31, 2015, compared to $23,833,000$11,579,000 in the prior year’s quarter, a decreasethree months, an increase of $14,148,000.$4,303,000. This decreaseincrease resulted primarily from lowerhigher net income allocated to the noncontrolling interests, including noncontrolling interests of our Real Estate Fund.
Preferred Unit Distributions
Preferred unit distributions were $20,378,000$19,496,000 in the three months ended September 30, 2014,March 31, 2015, compared to $20,381,000$20,380,000 in the prior year’s quarter,three months, a decrease of $3,000$884,000. .
53
Results of Operations – Three Months Ended September 30, 2014 Compared to September 30, 2013 - continued
Same Store EBITDA
Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods. Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items. We also present same store EBITDA on a cash basis which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies.
Below are reconciliations of EBITDA to same store EBITDA for each of our segments for the three months ended September 30, 2014, compared to the three months ended September 30, 2013.
(Amounts in thousands) | New York | Washington, DC | Retail Properties | ||||||||||
EBITDA for the three months ended September 30, 2014 | $ | 250,583 | $ | 83,719 | $ | 112,184 | |||||||
Add-back: | |||||||||||||
Non-property level overhead expenses included above | 7,986 | 6,454 | 4,163 | ||||||||||
Less EBITDA from: | |||||||||||||
Acquisitions | (8,640) | - | - | ||||||||||
Dispositions, including net gains on sale | - | (73) | (57,501) | ||||||||||
Properties taken out-of-service for redevelopment | (5,897) | (994) | (1,638) | ||||||||||
Other non-operating income | (3,078) | (421) | (4,217) | ||||||||||
Same store EBITDA for the three months ended September 30, 2014 | $ | 240,954 | $ | 88,685 | $ | 52,991 | |||||||
EBITDA for the three months ended September 30, 2013 | $ | 251,030 | $ | 86,942 | $ | 74,581 | |||||||
Add-back: | |||||||||||||
Non-property level overhead expenses included above | 6,831 | 6,687 | 4,240 | ||||||||||
Less EBITDA from: | |||||||||||||
Acquisitions | (11) | - | - | ||||||||||
Dispositions, including net gains on sale | (2,481) | - | (21,543) | ||||||||||
Properties taken out-of-service for redevelopment | (5,412) | (1,592) | (1,512) | ||||||||||
Other non-operating income | (19,543) | (914) | (3,342) | ||||||||||
Same store EBITDA for the three months ended September 30, 2013 | $ | 230,414 | $ | 91,123 | $ | 52,424 | |||||||
Increase (decrease) in same store EBITDA - | |||||||||||||
Three months ended September 30, 2014 vs. September 30, 2013(1) | $ | 10,540 | $ | (2,438) | $ | 567 | |||||||
% increase (decrease) in same store EBITDA | 4.6% | (2.7%) | 1.1% | ||||||||||
(1) | See notes on following page |
54
Results of Operations – Three Months Ended September 30, 2014 Compared to September 30, 2013 - continued
Notes to preceding tabular information
New York:
The $10,540,000 increase in New York same store EBITDA resulted primarily from increases in Retail and Office of $5,064,000 and $4,698,000, respectively. The Retail and Office increases resulted primarily from higher average rent per square foot, partially offset by higher operating expenses, net of reimbursements, of $1,818,000.
Washington, DC:
The $2,438,000 decrease in Washington, DC same store EBITDA resulted primarily from a lower leasing fee in 2014.
Retail Properties:
The $567,000 increase in Retail Properties same store EBITDA resulted primarily from an increase in rental revenue of $988,000, primarily due to an increase in average annual rents per square foot and same store occupancy, partially offset by an increase in operating expenses, net of reimbursements.
Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA
(Amounts in thousands) | New York | Washington, DC | Retail Properties | ||||||||||
Same store EBITDA for the three months ended September 30, 2014 | $ | 240,954 | $ | 88,685 | $ | 52,991 | |||||||
Less: Adjustments for straight line rents, amortization of acquired | |||||||||||||
below-market leases, net, and other non-cash adjustments | (28,363) | (2,771) | (2,019) | ||||||||||
Cash basis same store EBITDA for the three months ended | |||||||||||||
September 30, 2014 | $ | 212,591 | $ | 85,914 | $ | 50,972 | |||||||
Same store EBITDA for the three months ended September 30, 2013 | $ | 230,414 | $ | 91,123 | $ | 52,424 | |||||||
Less: Adjustments for straight line rents, amortization of acquired | |||||||||||||
below-market leases, net, and other non-cash adjustments | (28,345) | (1,514) | (2,329) | ||||||||||
Cash basis same store EBITDA for the three months ended | |||||||||||||
September 30, 2013 | $ | 202,069 | $ | 89,609 | $ | 50,095 | |||||||
Increase (decrease) in Cash basis same store EBITDA - | |||||||||||||
Three months ended September 30, 2014 vs. September 30, 2013 | $ | 10,522 | $ | (3,695) | $ | 877 | |||||||
% increase (decrease) in Cash basis same store EBITDA | 5.2% | (4.1%) | 1.8% | ||||||||||
55
Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2014 and 2013
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the nine months ended September 30, 2014 and 2013.
(Amounts in thousands) | For the Nine Months Ended September 30, 2014 | ||||||||||||||||||||
Retail | |||||||||||||||||||||
Total | New York | Washington, DC | Properties | Toys | Other | ||||||||||||||||
Total revenues | $ | 1,997,702 | $ | 1,151,395 | $ | 403,645 | $ | 253,623 | $ | - | $ | 189,039 | |||||||||
Total expenses | 1,383,618 | 716,125 | 265,299 | 173,945 | - | 228,249 | |||||||||||||||
Operating income (loss) | 614,084 | 435,270 | 138,346 | 79,678 | - | (39,210) | |||||||||||||||
(Loss) income from partially owned | |||||||||||||||||||||
entities, including Toys | (77,426) | 16,372 | (4,925) | 1,250 | (74,162) | (15,961) | |||||||||||||||
Income from Real Estate Fund | 142,418 | - | - | - | - | 142,418 | |||||||||||||||
Interest and other investment income, net | 28,930 | 4,979 | 93 | 26 | - | 23,832 | |||||||||||||||
Interest and debt expense | (341,613) | (134,970) | (56,692) | (28,565) | - | (121,386) | |||||||||||||||
Net gain on disposition of wholly | |||||||||||||||||||||
owned and partially owned assets | 13,205 | - | - | - | - | 13,205 | |||||||||||||||
Income (loss) before income taxes | 379,598 | 321,651 | 76,822 | 52,389 | (74,162) | 2,898 | |||||||||||||||
Income tax expense | (8,358) | (2,997) | (46) | (1,575) | - | (3,740) | |||||||||||||||
Income (loss) from continuing operations | 371,240 | 318,654 | 76,776 | 50,814 | (74,162) | (842) | |||||||||||||||
Income from discontinued operations | 61,800 | - | - | 60,993 | - | 807 | |||||||||||||||
Net income (loss) | 433,040 | 318,654 | 76,776 | 111,807 | (74,162) | (35) | |||||||||||||||
Less net income attributable to noncontrolling | |||||||||||||||||||||
interests in consolidated subsidiaries | (85,239) | (7,203) | - | (114) | - | (77,922) | |||||||||||||||
Net income (loss) attributable to | |||||||||||||||||||||
Vornado Realty L.P. | 347,801 | 311,451 | 76,776 | 111,693 | (74,162) | (77,957) | |||||||||||||||
Interest and debt expense(2) | 510,724 | 180,150 | 67,469 | 31,989 | 100,549 | 130,567 | |||||||||||||||
Depreciation and amortization(2) | 530,052 | 241,040 | 108,367 | 56,387 | 64,533 | 59,725 | |||||||||||||||
Income tax expense (2) | 21,489 | 3,069 | 88 | 1,575 | 12,106 | 4,651 | |||||||||||||||
EBITDA(1) | $ | 1,410,066 | $ | 735,710 | (3) | $ | 252,700 | (4) | $ | 201,644 | (5) | $ | 103,026 | $ | 116,986 | (6) |
(Amounts in thousands) | For the Nine Months Ended September 30, 2013 | ||||||||||||||||||||
Retail | |||||||||||||||||||||
Total | New York | Washington, DC | Properties | Toys | Other | ||||||||||||||||
Total revenues | $ | 2,058,525 | $ | 1,129,248 | $ | 406,652 | $ | 303,704 | $ | - | $ | 218,921 | |||||||||
Total expenses | 1,362,975 | 700,652 | 258,591 | 140,343 | - | 263,389 | |||||||||||||||
Operating income (loss) | 695,550 | 428,596 | 148,061 | 163,361 | - | (44,468) | |||||||||||||||
(Loss) income from partially owned | |||||||||||||||||||||
entities, including Toys | (45,620) | 14,020 | (6,545) | 1,512 | (69,311) | 14,704 | |||||||||||||||
Income from Real Estate Fund | 73,947 | - | - | - | - | 73,947 | |||||||||||||||
Interest and other investment (loss) income, net | (32,935) | 4,076 | 99 | 3 | - | (37,113) | |||||||||||||||
Interest and debt expense | (360,679) | (125,428) | (83,350) | (32,637) | - | (119,264) | |||||||||||||||
Net (loss) gain on disposition of wholly | |||||||||||||||||||||
owned and partially owned assets | (20,581) | - | - | 1,377 | - | (21,958) | |||||||||||||||
Income (loss) before income taxes | 309,682 | 321,264 | 58,265 | 133,616 | (69,311) | (134,152) | |||||||||||||||
Income tax expense | (6,172) | (1,298) | (1,949) | (1,480) | - | (1,445) | |||||||||||||||
Income (loss) from continuing operations | 303,510 | 319,966 | 56,316 | 132,136 | (69,311) | (135,597) | |||||||||||||||
Income (loss) from discontinued operations | 299,989 | 8,539 | - | 292,279 | - | (829) | |||||||||||||||
Net income (loss) | 603,499 | 328,505 | 56,316 | 424,415 | (69,311) | (136,426) | |||||||||||||||
Less net income attributable to noncontrolling | |||||||||||||||||||||
interests in consolidated subsidiaries | (50,049) | (9,518) | - | (3,079) | - | (37,452) | |||||||||||||||
Net income (loss) attributable to | |||||||||||||||||||||
Vornado Realty L.P. | 553,450 | 318,987 | 56,316 | 421,336 | (69,311) | (173,878) | |||||||||||||||
Interest and debt expense(2) | 551,357 | 163,579 | 93,715 | 40,057 | 119,347 | 134,659 | |||||||||||||||
Depreciation and amortization(2) | 549,072 | 220,280 | 105,799 | 52,440 | 103,732 | 66,821 | |||||||||||||||
Income tax expense(2) | 18,101 | 1,444 | 2,134 | 1,480 | 10,959 | 2,084 | |||||||||||||||
EBITDA(1) | $ | 1,671,980 | $ | 704,290 | (3) | $ | 257,964 | (4) | $ | 515,313 | (5) | $ | 164,727 | $ | 29,686 | (6) |
_____________________________
See notes on the following page.
56
Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2014 and 2013 - continued
Notes to preceding tabular information: | |||||||||||||
(1) | EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies. | ||||||||||||
(2) | Interest and debt expense, depreciation and amortization and income tax expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities. | ||||||||||||
(3) | The elements of "New York" EBITDA are summarized below. | ||||||||||||
For the Nine Months Ended September 30, | |||||||||||||
(Amounts in thousands) | 2014 | 2013 | |||||||||||
Office(a) | $ | 480,280 | $ | 476,849 | |||||||||
Retail | 205,469 | 177,394 | |||||||||||
Alexander's | 31,088 | 31,141 | |||||||||||
Hotel Pennsylvania | 18,873 | 18,906 | |||||||||||
Total New York | $ | 735,710 | $ | 704,290 | |||||||||
(a) | Includes $12,121 of termination fee income, net, from a tenant at 1290 Avenue of the Americas and $7,207 from discontinued operations in the nine months ended September 30, 2013. Excluding these items, EBITDA for the nine months ended September 30, 2013 was $457,521. | ||||||||||||
(4) | The elements of "Washington, DC" EBITDA are summarized below. | ||||||||||||
For the Nine Months Ended September 30, | |||||||||||||
(Amounts in thousands) | 2014 | 2013 | |||||||||||
Office, excluding the Skyline Properties | $ | 200,218 | $ | 202,463 | |||||||||
Skyline properties | 21,270 | 22,546 | |||||||||||
Total Office | 221,488 | 225,009 | |||||||||||
Residential | 31,212 | 32,955 | |||||||||||
Total Washington, DC | $ | 252,700 | $ | 257,964 | |||||||||
(5) | The elements of "Retail Properties" EBITDA are summarized below. | ||||||||||||
For the Nine Months Ended September 30, | |||||||||||||
(Amounts in thousands) | 2014 | 2013 | |||||||||||
Strip shopping centers(a) | $ | 178,499 | $ | 264,065 | |||||||||
Regional malls(b) | 23,145 | 251,248 | |||||||||||
Total Retail properties | $ | 201,644 | $ | 515,313 | |||||||||
| (a) | Includes discontinued operations and other gains and losses that affect comparability, aggregating $62,479 and $152,522 for the nine months ended September 30, 2014 and 2013, respectively. Excluding these items, EBITDA was $116,020 and $111,543, respectively. | |||||||||||
| (b) | Includes discontinued operations and other gains and losses that affect comparability, aggregating to a loss of $20,016 and income of $209,332 for the nine months ended September 30, 2014 and 2013, respectively. Excluding these items, EBITDA was $43,161 and $41,916, respectively. |
57
Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2014 and 2013 - continued
Notes to preceding tabular information - continued: | |||||||||||||
(6) | The elements of "other" EBITDA are summarized below. | ||||||||||||
For the Nine Months Ended September 30, | |||||||||||||
(Amounts in thousands) | 2014 | 2013 | |||||||||||
Our share of Real Estate Fund: | |||||||||||||
Income before net realized/unrealized gains | $ | 6,676 | $ | 5,737 | |||||||||
Net realized gains on exited investments | 31,663 | 2,046 | |||||||||||
Previously recorded unrealized gains on exited investments | (12,579) | - | |||||||||||
Net unrealized gains on held investments | 13,805 | 14,869 | |||||||||||
Carried interest | 21,636 | 11,974 | |||||||||||
Total | 61,201 | 34,626 | |||||||||||
The Mart and trade shows | 61,038 | 54,232 | |||||||||||
555 California Street | 35,566 | 32,371 | |||||||||||
India real estate ventures | 4,574 | 4,708 | |||||||||||
LNR(a) | - | 20,443 | |||||||||||
Other investments | 13,825 | 21,138 | |||||||||||
176,204 | 167,518 | ||||||||||||
Corporate general and administrative expenses(b) | (71,952) | (71,054) | |||||||||||
Investment income and other, net(b) | 22,764 | 39,153 | |||||||||||
Net gain on sale of residential condominiums and a land parcel | 13,205 | 1,139 | |||||||||||
Acquisition and transaction related costs(c) | (12,972) | (6,769) | |||||||||||
Impairment loss and loan loss reserve on investment in Suffolk Downs | (10,263) | - | |||||||||||
Loss on sale of J.C. Penney common shares | - | (54,914) | |||||||||||
Non-cash impairment loss on J.C. Penney common shares | - | (39,487) | |||||||||||
Loss from the mark-to-market of J.C. Penney derivative position | - | (33,487) | |||||||||||
Net gain on sale of marketable securities | - | 31,741 | |||||||||||
Severance costs (primarily reduction-in-force at the Mart) | - | (4,154) | |||||||||||
$ | 116,986 | $ | 29,686 | ||||||||||
(a) | On April 19, 2013, LNR was sold for $1.053 billion. | ||||||||||||
(b) | The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $8,132 and $6,207 for the nine months ended September 30, 2014 and 2013, respectively. | ||||||||||||
(c) | The nine months ended September 30, 2014, includes $9,343 of transaction costs related to the spin-off of our strip shopping centers and malls. | ||||||||||||
EBITDA by Region
Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations, other gains and losses that affect comparability and our Toys and Other Segments).
For the Nine Months | ||||||||
Ended September 30, | ||||||||
2014 | 2013 | |||||||
Region: | ||||||||
New York City metropolitan area | 74% | 73% | ||||||
Washington, DC / Northern Virginia metropolitan area | 23% | 24% | ||||||
Puerto Rico | 2% | 2% | ||||||
Other geographies | 1% | 1% | ||||||
100% | 100% |
58
Results of Operations – Nine Months Ended September 30, 2014 Compared to September 30, 2013
Revenues
Our revenues, which consist primarily of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $1,997,702,000 for the nine months ended September 30, 2014, compared to $2,058,525,000 in the prior year’s nine months, a decrease of $60,823,000. This decrease was primarily attributable to income in the prior year of $59,599,000 pursuant to a settlement agreement with Stop & Shop, $34,026,000 related to the Cleveland Medical Mart development project and $23,992,000 from the deconsolidation of Independence Plaza. Excluding these items, revenues increased by $56,794,000 from the prior year’s nine months. Below are the details of the (decrease) increase by segment:
(Amounts in thousands) | ||||||||||||||||||||||
Retail | ||||||||||||||||||||||
(Decrease) increase due to: | Total | New York | Washington, DC | Properties | Other | |||||||||||||||||
Property rentals: | ||||||||||||||||||||||
Acquisitions and other | $ | 11,916 | $ | 15,152 | $ | (844) | $ | (1,113) | $ | (1,279) | ||||||||||||
Deconsolidation of Independence Plaza | (23,992) | (23,992) | - | - | - | |||||||||||||||||
Properties taken out of / placed into | ||||||||||||||||||||||
service for redevelopment | (10,017) | (3,156) | (1,163) | 676 | (6,374) | |||||||||||||||||
Hotel Pennsylvania | 1,220 | 1,220 | - | - | - | |||||||||||||||||
Trade Shows | 2,525 | - | - | - | 2,525 | |||||||||||||||||
Same store operations | 35,430 | 25,528 | (2,567) | 3,248 | 9,221 | |||||||||||||||||
17,082 | 14,752 | (4,574) | 2,811 | 4,093 | ||||||||||||||||||
Tenant expense reimbursements: | ||||||||||||||||||||||
Acquisitions and other | (55) | (29) | 204 | (36) | (194) | |||||||||||||||||
Properties placed into / taken out of | ||||||||||||||||||||||
service for redevelopment | (2,103) | (1,603) | 86 | (69) | (517) | |||||||||||||||||
Same store operations | 21,184 | 12,197 | (125) | 6,614 | 2,498 | |||||||||||||||||
19,026 | 10,565 | 165 | 6,509 | 1,787 | ||||||||||||||||||
Cleveland Medical Mart development | ||||||||||||||||||||||
project | (34,026) | (1) | - | - | - | (34,026) | (1) | |||||||||||||||
Fee and other income: | ||||||||||||||||||||||
BMS cleaning fees | 14,547 | 14,956 | - | - | (409) | (2) | ||||||||||||||||
Signage revenue | 2,323 | 2,323 | - | - | - | |||||||||||||||||
Management and leasing fees | (2,634) | (236) | (2,450) | (2) | 54 | |||||||||||||||||
Lease termination fees | (75,250) | (18,312) | (3) | 2,536 | (59,117) | (4) | (357) | |||||||||||||||
Other income | (1,891) | (1,901) | 1,316 | (282) | (1,024) | |||||||||||||||||
(62,905) | (3,170) | 1,402 | (59,401) | (1,736) | ||||||||||||||||||
Total (decrease) increase in revenues | $ | (60,823) | $ | 22,147 | $ | (3,007) | $ | (50,081) | $ | (29,882) | ||||||||||||
(1) | Due to the completion of the project. This decrease in revenue is substantially offset by a decrease in development costs expensed in the period. See note (3) on page 60. | |||||||||||||||||||||
(2) | Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 60. | |||||||||||||||||||||
(3) | Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas recognized in the third quarter of 2013. | |||||||||||||||||||||
(4) | Results primarily from $59,599 of income recognized in the first quarter of 2013 pursuant to a settlement agreement with Stop & Shop. | |||||||||||||||||||||
59
Results of Operations – Nine Months Ended September 30, 2014 Compared to September 30, 2013 - continued
Expenses
Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $1,383,618,000 for the nine months ended September 30, 2014, compared to $1,362,975,000 in the prior year’s nine months, an increase of $20,643,000. Excluding expenses of $20,000,000 for a non-cash impairment loss on the Springfield Town Center in 2014, $29,764,000 related to the Cleveland Medical Mart development project in 2013 and $25,899,000 from the deconsolidation of Independence Plaza, expenses increased by $56,306,000 from the prior year’s nine months. Below are the details of the increase (decrease) by segment:
(Amounts in thousands) | ||||||||||||||||||||||
Retail | ||||||||||||||||||||||
Increase (decrease) due to: | Total | New York | Washington, DC | Properties | Other | |||||||||||||||||
Operating: | ||||||||||||||||||||||
Acquisitions and other | $ | (2,156) | $ | (572) | $ | 8 | $ | (155) | $ | (1,437) | ||||||||||||
Deconsolidation of Independence Plaza | (9,592) | (9,592) | - | - | - | |||||||||||||||||
Properties taken out of / placed into | ||||||||||||||||||||||
service for redevelopment | (10,892) | (5,007) | (380) | (422) | (5,083) | |||||||||||||||||
Non-reimbursable expenses, including | ||||||||||||||||||||||
bad debt reserves | (813) | 1,300 | - | (825) | (1,288) | |||||||||||||||||
Hotel Pennsylvania | 1,458 | 1,458 | - | - | - | |||||||||||||||||
Trade Shows | 554 | - | - | - | 554 | |||||||||||||||||
BMS expenses | 8,566 | 8,975 | - | - | (409) | (2) | ||||||||||||||||
Same store operations | 29,388 | 18,090 | 3,278 | 7,241 | 779 | |||||||||||||||||
16,513 | 14,652 | 2,906 | 5,839 | (6,884) | ||||||||||||||||||
Depreciation and amortization: | ||||||||||||||||||||||
Acquisitions and other | 6,368 | 6,489 | - | (110) | (11) | |||||||||||||||||
Deconsolidation of Independence Plaza | (16,307) | (16,307) | - | - | - | |||||||||||||||||
Properties placed into / taken out of | ||||||||||||||||||||||
service for redevelopment | 25,806 | 20,856 | (366) | 7,544 | (2,228) | |||||||||||||||||
Same store operations | (3,578) | (10,753) | 3,907 | 2,224 | 1,044 | |||||||||||||||||
12,289 | 285 | 3,541 | 9,658 | (1,195) | ||||||||||||||||||
General and administrative: | ||||||||||||||||||||||
Mark-to-market of deferred | ||||||||||||||||||||||
compensation plan liability (1) | 1,985 | - | - | - | 1,985 | |||||||||||||||||
Severance costs (primarily reduction | ||||||||||||||||||||||
in force at the Mart) | (4,154) | - | - | - | (4,154) | |||||||||||||||||
Same store operations | (2,429) | 536 | 261 | (1,895) | (1,331) | |||||||||||||||||
(4,598) | 536 | 261 | (1,895) | (3,500) | ||||||||||||||||||
Cleveland Medical Mart development | ||||||||||||||||||||||
project | (29,764) | (3) | - | - | - | (29,764) | (3) | |||||||||||||||
Impairment losses, acquisition and | ||||||||||||||||||||||
transaction related costs | 26,203 | - | - | 20,000 | (4) | 6,203 | ||||||||||||||||
Total increase (decrease) in expenses | $ | 20,643 | $ | 15,473 | $ | 6,708 | $ | 33,602 | $ | (35,140) | ||||||||||||
(1) | This increase in expense is entirely offset by a corresponding increase in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income (loss), net” on our consolidated statements of income. | |||||||||||||||||||||
(2) | Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 59. | |||||||||||||||||||||
(3) | Due to the completion of the project. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on page 59. | |||||||||||||||||||||
(4) | Represents a non-cash impairment loss on the Springfield Town Center in the first quarter of 2014. | |||||||||||||||||||||
60
Results of Operations – Nine Months Ended September 30, 2014 Compared to September 30, 2013 - continued
(Loss) Applicable to Toys
In the nine months ended September 30, 2014, we recognized a net loss of $74,162,000 from our investment in Toys, comprised of (i) $4,691,000 for our share of Toys’ net loss and a (ii) $75,196,000 non-cash impairment loss, partially offset by (iii) $5,725,000 of management fees earned and received.
In the nine months ended September 30, 2013, we recognized a net loss of $69,311,000 from our investment in Toys, comprised of (i) $3,778,000 for our share of Toys’ equity in earnings and (ii) $5,453,000 of management fees earned and received, partially offset by (iii) a $78,542,000 non-cash impairment loss.
(Loss) Income from Partially Owned Entities
Summarized below are the components of (loss) income from partially owned entities for the nine months ended September 30, 2014 and 2013.
Percentage | For the Nine Months Ended | |||||||||||||||
Ownership at | September 30, | |||||||||||||||
(Amounts in thousands) | September 30, 2014 | 2014 | 2013 | |||||||||||||
Equity in Net (Loss) Income: | ||||||||||||||||
Alexander's | 32.4% | $ | 20,471 | $ | 17,802 | |||||||||||
India real estate ventures | 4.1%-36.5% | (2,440) | (2,630) | |||||||||||||
Partially owned office buildings (1) | Various | (1,387) | (1,586) | |||||||||||||
Other investments (2) | Various | (19,908) | (8,626) | |||||||||||||
LNR (3) | n/a | - | 18,731 | |||||||||||||
$ | (3,264) | $ | 23,691 | |||||||||||||
(1) | Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others. | |||||||||||||||
(2) | Includes interests in Independence Plaza, Monmouth Mall, 85 10th Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In the third quarter of 2014, we recognized a $10,263 non-cash impairment loss and loan loss reserve on our equity and debt investments in Suffolk Downs race track and adjacent land. | |||||||||||||||
(3) | On April 19, 2013, LNR was sold for $1.053 billion. | |||||||||||||||
6148
Results of Operations – NineThree Months Ended September 30, 2014March 31, 2015 Compared to September 30, 2013 - continued
Income from Real Estate Fund
Below are the components of the income from our Real Estate Fund for the nine months ended September 30,March 31, 2014 and 2013.
(Amounts in thousands) | For the Nine Months Ended September 30, | ||||||||
2014 | 2013 | ||||||||
Net investment income | $ | 10,860 | $ | 6,287 | |||||
Net realized gains on exited investments | 126,653 | 8,184 | |||||||
Previously recorded unrealized gains on exited investments | (50,316) | - | |||||||
Net unrealized gains on held investments | 55,221 | 59,476 | |||||||
Income from Real Estate Fund | 142,418 | 73,947 | |||||||
Less income attributable to noncontrolling interests | (81,217) | (39,321) | |||||||
Income from Real Estate Fund attributable to Vornado Realty L.P. (1) | $ | 61,201 | $ | 34,626 | |||||
(1) | Excludes management, leasing and development fees of $2,208 and $2,446 for the nine months ended September 30, 2014 and 2013, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. | ||||||||
Interest and Other Investment Income (Loss), net
Interest and other investment income (loss), net was incomeof $28,930,000in the nine months ended September 30, 2014, compared to a loss of $32,935,000 in the prior year’s nine months, an increase in income of $61,865,000. This increase resulted from:
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Interest and Debt Expense
Interest and debt expense was $341,613,000 in the nine months ended September 30, 2014, compared to $360,679,000 in the prior year’s nine months, a decrease of $19,066,000. This decrease was primarily due to(i) $18,493,000of higher capitalized interest in the current year’s nine months and(ii) $18,318,000of interest savings from the restructuring of the Skyline properties mortgage loan in October 2013, partially offset by (iii) $5,589,000of defeasance cost in connection with the refinancing of 909 Third Avenue, (iv) $8,945,000 of interest expense from the $600,000,000 financing of our 220 Central Park South development site in January 2014 and (v) $3,367,000 of interest expense from the issuance of $450,000,000 of senior unsecured notes in June 2014.
Net Gain (Loss) on Disposition of Wholly Owned and Partially Owned Assets
In the nine months ended September 30, 2014, we recognized a $13,205,000 net gain on disposition of wholly owned and partially owned assets, primarily from the sale of residential condominiums and a land parcel, compared to a $20,581,000 net loss in the prior year’s nine months, primarily from a $54,914,000 net loss on the sale of the J.C. Penney common shares, partially offset by a $31,741,000 net gain on the sale of a marketable security.
Income Tax Expense
Income tax expense was $8,358,000 in the nine months ended September 30, 2014, compared to $6,172,000 in the prior year’s nine months, an increase of $2,186,000. This increase was primarily attributable to higher income from our taxable REIT subsidiaries.
62
Results of Operations – Nine Months Ended September 30, 2014 Compared to September 30, 2013 - continued
Income from Discontinued Operations
We have reclassified the revenues and expenses of the properties that were sold or are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements. The table below sets forth the combined results of assets related to discontinued operations for the nine months ended September 30, 2014 and 2013.
For the Nine Months Ended September 30, | |||||||||||
(Amounts in thousands) | 2014 | 2013 | |||||||||
Total revenues | $ | 13,473 | $ | 63,048 | |||||||
Total expenses | 8,627 | 45,322 | |||||||||
4,846 | 17,726 | ||||||||||
Net gain on sale of Beverly Connection | 44,155 | - | |||||||||
Net gain on sale of Green Acres Mall | - | 202,275 | |||||||||
Net gains on sales of other real estate | 13,641 | 84,715 | |||||||||
Impairment losses | (842) | (4,727) | |||||||||
Income from discontinued operations | $ | 61,800 | $ | 299,989 |
Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries
Net income attributable to noncontrolling interests in consolidated subsidiaries was $85,239,000 in the nine months ended September 30, 2014, compared to $50,049,000 in the prior year’s nine months, an increase of $35,190,000. This increase resulted primarily fromhigher net income allocated to the noncontrolling interests, including noncontrolling interests of our Real Estate Fund.
Preferred Unit Distribution
Preferred unit distributions were $61,137,000 in the nine months ended September 30, 2014, compared to $63,585,000 in the prior year’s nine months, a decrease of $2,448,000. The decrease resulted from the redemption of the 6.75% Series F and Series H preferred units in February 2013 and the redemption of 6.875% Series D-15 cumulative redeemable preferred units in May 2013.
Preferred Unit Redemptions
In the nine months ended September 30, 2013, we recognized $1,130,000 of expense in connection with preferred unit redemptions, comprised of $9,230,000 of expense from the redemption of the 6.75% Series F and Series H cumulative redeemable preferred units in February 2013, partially offset by $8,100,000 of income from the redemption of all the 6.875% Series D-15 cumulative redeemable preferred units in May 2013.
63
Results of Operations – Nine Months Ended September 30, 2014 Compared to September 30, 2013 - continued
Same Store EBITDA
Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods. Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items. We also present same store EBITDA on cash basis (which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments). We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies.
Below are reconciliations of EBITDA to same store EBITDA for each of our segments for the ninethree months ended September 30, 2014,March 31, 2015, compared to ninethree months ended September 30, 2013.March 31, 2014.
(Amounts in thousands) | New York | Washington, DC | Retail Properties | ||||||||||
EBITDA for the nine months ended September 30, 2014 | $ | 735,710 | $ | 252,700 | $ | 201,644 | |||||||
Add-back: | |||||||||||||
Non-property level overhead expenses included above | 22,424 | 20,473 | 12,929 | ||||||||||
Less EBITDA from: | |||||||||||||
Acquisitions | (24,213) | - | - | ||||||||||
Dispositions, including net gains on sale | - | (73) | (62,478) | ||||||||||
Properties taken out-of-service for redevelopment | (17,295) | (2,872) | (3,131) | ||||||||||
Other non-operating (income) expense | (6,378) | (4,109) | 9,652 | ||||||||||
Same store EBITDA for the nine months ended September 30, 2014 | $ | 710,248 | $ | 266,119 | $ | 158,616 | |||||||
EBITDA for the nine months ended September 30, 2013 | $ | 704,290 | $ | 257,964 | $ | 515,313 | |||||||
Add-back: | |||||||||||||
Non-property level overhead expenses included above | 21,888 | 20,212 | 14,824 | ||||||||||
Less EBITDA from: | |||||||||||||
Acquisitions | (239) | - | - | ||||||||||
Dispositions, including net gains on sale | (7,522) | (117) | (302,266) | ||||||||||
Properties taken out-of-service for redevelopment | (14,744) | (4,640) | (2,094) | ||||||||||
Other non-operating income | (29,051) | (813) | (69,354) | ||||||||||
Same store EBITDA for the nine months ended September 30, 2013 | $ | 674,622 | $ | 272,606 | $ | 156,423 | |||||||
Increase (decrease) in same store EBITDA - | |||||||||||||
Nine months ended September 30, 2014 vs. September 30, 2013(1) | $ | 35,626 | $ | (6,487) | $ | 2,193 | |||||||
% increase (decrease) in same store EBITDA | 5.3% | (2.4%) | 1.4% | ||||||||||
(1) | See notes on following page. |
(Amounts in thousands) | New York | Washington, DC | ||||||||
EBITDA for the three months ended March 31, 2015 | $ | 248,945 | $ | 83,257 | ||||||
Add-back: | ||||||||||
Non-property level overhead expenses included above | 12,044 | 5,704 | ||||||||
Less EBITDA from: | ||||||||||
Acquisitions | (7,930) | - | ||||||||
Dispositions, including net gains on sale | 35 | (59) | ||||||||
Properties taken out-of-service for redevelopment | (13,374) | (82) | ||||||||
Other non-operating income | (4,008) | (129) | ||||||||
Same store EBITDA for the three months ended March 31, 2015 | $ | 235,712 | $ | 88,691 | ||||||
EBITDA for the three months ended March 31, 2014 | $ | 233,798 | $ | 84,087 | ||||||
Add-back: | ||||||||||
Non-property level overhead expenses included above | 7,792 | 7,447 | ||||||||
Less EBITDA from: | ||||||||||
Acquisitions | - | - | ||||||||
Dispositions, including net gains on sale | (6,102) | 2 | ||||||||
Properties taken out-of-service for redevelopment | (5,559) | (857) | ||||||||
Other non-operating income | (1,532) | (1,804) | ||||||||
Same store EBITDA for the three months ended March 31, 2014 | $ | 228,397 | $ | 88,875 | ||||||
Increase (decrease) in same store EBITDA - | ||||||||||
Three months ended March 31, 2015 vs. March 31, 2014(1) | $ | 7,315 | $ | (184) | ||||||
% increase (decrease) in same store EBITDA | 3.2% | (0.2%) | ||||||||
(1) See notes on following page. |
6449
Results of Operations – NineThree Months Ended September 30, 2014March 31, 2015 Compared to September 30, 2013March 31, 2014 - continued
Notes to preceding tabular information
New York:
The $35,626,000$7,315,000 increase in New York same store EBITDA resulted primarily from increases in Office and Retail of $23,755,000$2,261,000 and $11,953,000,$6,470,000, respectively. The Office and Retail increases resulted primarily from higher (i) rental revenue of $25,860,000$10,110,000 (primarily due to an increase in average rentrents per square foot), and (ii) cleaning fees and signage revenue of $4,000,000,$3,345,000, partially offset by (iii) higher operating expenses, net of reimbursements.
Washington, DC:
The $6,487,000$184,000 decrease in Washington, DC same store EBITDA resulted primarily from lower management and leasing fee income of $2,450,000 and(i) higher operating expenses net of reimbursements.
Retail Properties:
The $2,193,000 increase$571,000, and (ii) lower EBITDA from investments in Retail Properties same store EBITDA resulted primarily from an increase inpartially owned entities of $585,000, partially offset by (iii) higher rental revenue of $3,248,000, primarily due to an increase in average same store occupancy, partially offset by higher operating expenses, net of reimbursements.$815,000.
Reconciliation of Same Store EBITDA to Cash basisBasis Same Store EBITDA
(Amounts in thousands) | New York | Washington, DC | Retail Properties | ||||||||||
Same store EBITDA for the nine months ended September 30, 2014 | $ | 710,248 | $ | 266,119 | $ | 158,616 | |||||||
Less: Adjustments for straight line rents, amortization of acquired | |||||||||||||
below-market leases, net, and other non-cash adjustments | (79,715) | (6,435) | (5,425) | ||||||||||
Cash basis same store EBITDA for the nine months ended | |||||||||||||
September 30, 2014 | $ | 630,533 | $ | 259,684 | $ | 153,191 | |||||||
Same store EBITDA for the nine months ended September 30, 2013 | $ | 674,622 | $ | 272,606 | $ | 156,423 | |||||||
Less: Adjustments for straight line rents, amortization of acquired | |||||||||||||
below-market leases, net, and other non-cash adjustments | (87,603) | (8,281) | (6,387) | ||||||||||
Cash basis same store EBITDA for the nine months ended | |||||||||||||
September 30, 2013 | $ | 587,019 | $ | 264,325 | $ | 150,036 | |||||||
Increase (decrease) in Cash basis same store EBITDA - | |||||||||||||
Nine months ended September 30, 2014 vs. September 30, 2013 | $ | 43,514 | $ | (4,641) | $ | 3,155 | |||||||
% increase (decrease) in Cash basis same store EBITDA | 7.4% | (1.8%) | 2.1% |
(Amounts in thousands) | New York | Washington, DC | ||||||||
Same store EBITDA for the three months ended March 31, 2015 | $ | 235,712 | $ | 88,691 | ||||||
Less: Adjustments for straight line rents, amortization of acquired | ||||||||||
below-market leases, net, and other non-cash adjustments | (24,900) | (5,876) | ||||||||
Cash basis same store EBITDA for the three months ended | ||||||||||
March 31, 2015 | $ | 210,812 | $ | 82,815 | ||||||
Same store EBITDA for the three months ended March 31, 2014 | $ | 228,397 | $ | 88,875 | ||||||
Less: Adjustments for straight line rents, amortization of acquired | ||||||||||
below-market leases, net, and other non-cash adjustments | (28,557) | (1,194) | ||||||||
Cash basis same store EBITDA for the three months ended | ||||||||||
March 31, 2014 | $ | 199,840 | $ | 87,681 | ||||||
Increase (decrease) in cash basis same store EBITDA - | ||||||||||
Three months ended March 31, 2015 vs. March 31, 2014 | $ | 10,972 | $ | (4,866) | ||||||
% increase (decrease) in cash basis same store EBITDA | 5.5% | (5.5%) |
6550
SUPPLEMENTAL INFORMATION
Reconciliation of Net Income to EBITDA for the Three Months Ended June 30,December 31, 2014
(Amounts in thousands) | (Amounts in thousands) | New York | Washington, DC | Retail Properties | (Amounts in thousands) | New York | Washington, DC | ||||||||||||||||
Net income attributable to Vornado Realty L.P. for the three | |||||||||||||||||||||||
months ended June 30, 2014 | $ | 111,959 | $ | 26,493 | $ | 27,625 | |||||||||||||||||
Net income attributable to Vornado Realty L.P. for the three months ended December 31, 2014 | Net income attributable to Vornado Realty L.P. for the three months ended December 31, 2014 | $ | 557,145 | $ | 23,225 | ||||||||||||||||||
Interest and debt expense | Interest and debt expense | 64,072 | 22,463 | 10,433 | Interest and debt expense | 61,809 | 21,979 | ||||||||||||||||
Depreciation and amortization | Depreciation and amortization | 74,007 | 35,806 | 15,803 | Depreciation and amortization | 83,199 | 37,486 | ||||||||||||||||
Income tax expense | Income tax expense | 1,291 | 132 | 319 | Income tax expense | 1,326 | 200 | ||||||||||||||||
EBITDA for the three months ended June 30, 2014 | $ | 251,329 | $ | 84,894 | $ | 54,180 | |||||||||||||||||
EBITDA for the three months ended December 31, 2014 | EBITDA for the three months ended December 31, 2014 | $ | 703,479 | $ | 82,890 | ||||||||||||||||||
Reconciliation of EBITDA to Same Store EBITDA – Three Months Ended September 30, 2014March 31, 2015 compared to June 30,December 31, 2014
(Amounts in thousands) | New York | Washington, DC | Retail Properties | ||||||||||
EBITDA for the three months ended September 30, 2014 | $ | 250,583 | $ | 83,719 | $ | 112,184 | |||||||
Add-back: | |||||||||||||
Non-property level overhead expenses included above | 7,986 | 6,454 | 4,163 | ||||||||||
Less EBITDA from: | |||||||||||||
Acquisitions | (1,850) | - | - | ||||||||||
Dispositions, including net gains on sale | - | (73) | (57,501) | ||||||||||
Properties taken out-of-service for redevelopment | (5,897) | (994) | (1,638) | ||||||||||
Other non-operating income | (3,078) | (421) | (4,217) | ||||||||||
Same store EBITDA for the three months ended September 30, 2014 | $ | 247,744 | $ | 88,685 | $ | 52,991 | |||||||
EBITDA for the three months ended June 30, 2014 | $ | 251,329 | $ | 84,894 | $ | 54,180 | |||||||
Add-back: | |||||||||||||
Non-property level overhead expenses included above | 6,646 | 6,572 | 4,110 | ||||||||||
Less EBITDA from: | |||||||||||||
Acquisitions | - | - | - | ||||||||||
Dispositions, including net gains on sale | - | (2) | (2,120) | ||||||||||
Properties taken out-of-service for redevelopment | (6,093) | (606) | (637) | ||||||||||
Other non-operating income | (1,862) | (1,659) | (2,684) | ||||||||||
Same store EBITDA for the three months ended June 30, 2014 | $ | 250,020 | $ | 89,199 | $ | 52,849 | |||||||
(Decrease) increase in same store EBITDA - | |||||||||||||
Three months ended September 30, 2014 vs. June 30, 2014 | $ | (2,276) | $ | (514) | $ | 142 | |||||||
% (decrease) increase in same store EBITDA | (0.9%) | (0.6%) | 0.3% |
(Amounts in thousands) | New York | Washington, DC | ||||||||
EBITDA for the three months ended March 31, 2015 | $ | 248,945 | $ | 83,257 | ||||||
Add-back: | ||||||||||
Non-property level overhead expenses included above | 12,044 | 5,704 | ||||||||
Less EBITDA from: | ||||||||||
Acquisitions | (6,329) | - | ||||||||
Dispositions, including net gains on sale | 35 | (59) | ||||||||
Properties taken out-of-service for redevelopment | (13,374) | (82) | ||||||||
Other non-operating income | (4,008) | (129) | ||||||||
Same store EBITDA for the three months ended March 31, 2015 | $ | 237,313 | $ | 88,691 | ||||||
EBITDA for the three months ended December 31, 2014 | $ | 703,479 | $ | 82,890 | ||||||
Add-back: | ||||||||||
Non-property level overhead expenses included above | 6,055 | 6,866 | ||||||||
Less EBITDA from: | ||||||||||
Acquisitions | (4,264) | - | ||||||||
Dispositions, including net gains on sale | (446,020) | (1,785) | ||||||||
Properties taken out-of-service for redevelopment | (8,926) | (47) | ||||||||
Other non-operating income | (2,467) | (1,336) | ||||||||
Same store EBITDA for the three months ended December 31, 2014 | $ | 247,857 | $ | 86,588 | ||||||
(Decrease) increase in same store EBITDA - | ||||||||||
Three months ended March 31, 2015 vs. December 31, 2014 | $ | (10,544) | $ | 2,103 | ||||||
% (decrease) increase in same store EBITDA | (4.3%) | 2.4% |
6651
SUPPLEMENTAL INFORMATION – CONTINUED
Reconciliation of Same Store EBITDA to Cash basisBasis Same Store EBITDA – Three Months Ended September 30, 2014March 31, 2015 Compared to June 30,December 31, 2014
(Amounts in thousands) | (Amounts in thousands) | New York | Washington, DC | Retail Properties | (Amounts in thousands) | New York | Washington, DC | ||||||||||||||||
Same store EBITDA for the three months ended September 30, 2014 | $ | 247,744 | $ | 88,685 | $ | 52,991 | |||||||||||||||||
Same store EBITDA for the three months ended March 31, 2015 | Same store EBITDA for the three months ended March 31, 2015 | $ | 237,313 | $ | 88,691 | ||||||||||||||||||
Less: Adjustments for straight line rents, amortization of acquired | Less: Adjustments for straight line rents, amortization of acquired | Less: Adjustments for straight line rents, amortization of acquired | |||||||||||||||||||||
below-market leases, net, and other non-cash adjustments | (31,139) | (2,771) | (2,019) | below-market leases, net, and other non-cash adjustments | (25,255) | (5,876) | |||||||||||||||||
Cash basis same store EBITDA for the three months ended | Cash basis same store EBITDA for the three months ended | Cash basis same store EBITDA for the three months ended | |||||||||||||||||||||
September 30, 2014 | $ | 216,605 | $ | 85,914 | $ | 50,972 | March 31, 2015 | $ | 212,058 | $ | 82,815 | ||||||||||||
Same store EBITDA for the three months ended June 30, 2014 | $ | 250,020 | $ | 89,199 | $ | 52,849 | |||||||||||||||||
Same store EBITDA for the three months ended December 31, 2014 | Same store EBITDA for the three months ended December 31, 2014 | $ | 247,857 | $ | 86,588 | ||||||||||||||||||
Less: Adjustments for straight line rents, amortization of acquired | Less: Adjustments for straight line rents, amortization of acquired | Less: Adjustments for straight line rents, amortization of acquired | |||||||||||||||||||||
below-market leases, net, and other non-cash adjustments | (30,790) | (2,462) | (1,758) | below-market leases, net, and other non-cash adjustments | (27,225) | (3,142) | |||||||||||||||||
Cash basis same store EBITDA for the three months ended | Cash basis same store EBITDA for the three months ended | Cash basis same store EBITDA for the three months ended | |||||||||||||||||||||
June 30, 2014 | $ | 219,230 | $ | 86,737 | $ | 51,091 | December 31, 2014 | $ | 220,632 | $ | 83,446 | ||||||||||||
Decrease in Cash basis same store EBITDA - | |||||||||||||||||||||||
Decrease in cash basis same store EBITDA - | Decrease in cash basis same store EBITDA - | ||||||||||||||||||||||
Three months ended September 30, 2014 vs. June 30, 2014 | $ | (2,625) | $ | (823) | $ | (119) | Three months ended March 31, 2015 vs. December 31, 2014 | $ | (8,574) | $ | (631) | ||||||||||||
% decrease in Cash basis same store EBITDA | (1.2%) | (0.9%) | (0.2%) | ||||||||||||||||||||
% decrease in cash basis same store EBITDA | % decrease in cash basis same store EBITDA | (3.9%) | (0.8%) |
6752
Liquidity and Capital Resources
Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties. Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, distributions to unitholders, as well as acquisition and development costs. Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans, senior unsecured borrowings, and our revolving credit facilities; proceeds from the issuance of equity securities; and asset sales.
We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders, debt amortization and recurring capital expenditures. Capital requirements for development expenditures and acquisitions may require funding from borrowings and/or equity offerings.
We may from time to time purchase or retire outstanding debt securities or redeem our equity securities. Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
Cash Flows for the NineThree Months Ended September 30, 2014March 31, 2015
Our cash and cash equivalents were $1,683,142,000$1,067,568,000 at September 30, 2014,March 31, 2015, a $1,099,852,000 increase$130,909,000 decrease over the balance at December 31, 2013.2014. Our consolidated outstanding debt was $11,153,337,000$9,564,125,000 at September 30, 2014,March 31, 2015, a $1,174,619,000 increase$46,199,000 decrease over the balance at December 31, 2013.2014. As of September 30, 2014March 31, 2015 and December 31, 2013, $88,138,0002014, $400,000,000 and $295,870,000,$0, respectively, was outstanding under our revolving credit facilities. During the remainder of 2014 and 2015, $0$229,132,000 and $744,248,000,$1,410,209,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it.
Cash flows provided by operating activities of $828,569,000$194,516,000 was comprised of (i) net income of $433,040,000,$125,246,000, (ii) $264,302,000return of capital from real estate fund investments of $72,208,000, (iii) $55,668,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net loss offrom partially owned entities and impairment losses on real estate, (iii) proceeds from Real Estate Fund investments of $215,676,000 and (iv) distributions of income from partially owned entities of $42,164,000,$15,874,000, partially offset by (v) the net change in operating assets and liabilities of $126,613,000, including $3,392,000 related to Real Estate Fund investments.$74,480,000 (including the acquisition of real estate fund investments of $95,022,000).
Net cash used inprovided by investing activities of $197,139,000$149,871,000 was comprised of (i) $368,571,000 of development costs and construction in progress, (ii) $171,660,000 of additions to real estate, (iii) $95,546,000 of acquisitions of real estate and other, (iv) $91,697,000 of investments in partially owned entities, and (v) $11,380,000 of investment in mortgage and mezzanine loans receivable and other, partially offset by (vi) $335,489,000$334,725,000 of proceeds from sales of real estate and related investments, (vii) $101,592,000 of changes in restricted cash, (viii) $96,504,000(ii) $16,763,000 of proceeds from repayments of mortgage and mezzanine loans receivable and other, and (ix) $8,130,000(iii) $13,409,000 of capital distributions from partially owned entities, and (iv) $1,282,000 of changes in restricted cash, partially offset by (v) $88,052,000 of development costs and construction in progress, (vi) $54,466,000 of additions to real estate, (vii) $49,878,000 of acquisitions of real estate and other, and (viii) $23,912,000 of investments in partially owned entities.
Net cash provided byused in financing activities of $468,422,000$475,296,000 was comprised of (i) $1,713,285,000 of proceeds from borrowings, (ii) $13,738,000 of proceeds received from the exercise of Vornado stock options, and (iii) $5,297,000 of contributions from noncontrolling interests in consolidated subsidiaries, partially offset by (iv) $410,724,000 of distributions to Vornado, (v) $343,354,000$907,431,000 for the repayments of borrowings, (vi) $208,773,000(ii) $225,000,000 of distributions in connection with the spin-off of Urban Edge Properties, (iii) $118,447,000 of distributions to Vornado, (iv) $60,287,000 of distributions to redeemable security holders and noncontrolling interests, (vii) purchase of marketable securities in connection with the defeasance of mortgage notes payable of $198,884,000, (viii) $61,102,000(v) $19,484,000 of distributions to preferred unitholders, (ix) $40,424,000(vi) $5,076,000 of debt issuance costscost, and (x) $637,000(vii) $2,939,000 for the repurchase of Class A units related to stock compensation agreements and/or related tax withholdings.withholdings, partially offset by (viii) $800,000,000 of proceeds from borrowings, (ix) $51,350,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (x) $12,018,000 of proceeds received from the exercise of Vornado stock options.
Capital Expenditures
Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions. Recurring capital expenditures include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital improvements include expenditures to lease space that has been vacant for more than nine months and expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition, as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property.
6853
Liquidity and Capital Resources – continued
Capital Expenditures - continued
Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the ninethree months ended September 30, 2014.March 31, 2015.
Retail | |||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Total | New York | Washington, DC | Properties | Other | (Amounts in thousands) | Total | New York | Washington, DC | Other | ||||||||||||||||||||
Expenditures to maintain assets | Expenditures to maintain assets | $ | 61,235 | $ | 33,464 | $ | 9,815 | $ | 4,848 | $ | 13,108 | Expenditures to maintain assets | $ | 20,935 | $ | 12,810 | $ | 1,986 | $ | 6,139 | |||||||||||
Tenant improvements | Tenant improvements | 135,999 | 102,411 | 16,280 | 390 | 16,918 | Tenant improvements | 50,900 | 9,762 | 37,011 | 4,127 | ||||||||||||||||||||
Leasing commissions | Leasing commissions | 59,322 | 50,173 | 3,555 | 145 | 5,449 | Leasing commissions | 8,281 | 3,744 | 3,748 | 789 | ||||||||||||||||||||
Non-recurring capital expenditures | Non-recurring capital expenditures | 67,016 | 25,038 | 23,428 | 8,456 | 10,094 | Non-recurring capital expenditures | 35,987 | 19,774 | 16,129 | 84 | ||||||||||||||||||||
Total capital expenditures and leasing | |||||||||||||||||||||||||||||||
commissions (accrual basis) | 323,572 | 211,086 | 53,078 | 13,839 | 45,569 | ||||||||||||||||||||||||||
Total capital expenditures and leasing commissions (accrual basis) | Total capital expenditures and leasing commissions (accrual basis) | 116,103 | 46,090 | 58,874 | 11,139 | ||||||||||||||||||||||||||
Adjustments to reconcile to cash basis: | Adjustments to reconcile to cash basis: | Adjustments to reconcile to cash basis: | |||||||||||||||||||||||||||||
Expenditures in the current year | Expenditures in the current year applicable to prior periods | 40,209 | 26,220 | 6,924 | 7,065 | ||||||||||||||||||||||||||
applicable to prior periods | 110,934 | 40,117 | 48,294 | 3,873 | 18,650 | Expenditures to be made in future periods for the current period | (88,136) | (28,594) | (54,612) | (4,930) | |||||||||||||||||||||
Expenditures to be made in future | |||||||||||||||||||||||||||||||
periods for the current period | (209,157) | (132,814) | (35,664) | (8,766) | (31,913) | ||||||||||||||||||||||||||
Total capital expenditures and leasing | |||||||||||||||||||||||||||||||
commissions (cash basis) | $ | 225,349 | $ | 118,389 | $ | 65,708 | $ | 8,946 | $ | 32,306 | |||||||||||||||||||||
Total capital expenditures and leasing commissions (cash basis) | Total capital expenditures and leasing commissions (cash basis) | $ | 68,176 | $ | 43,716 | $ | 11,186 | $ | 13,274 | ||||||||||||||||||||||
Tenant improvements and leasing commissions: | Tenant improvements and leasing commissions: | Tenant improvements and leasing commissions: | |||||||||||||||||||||||||||||
Per square foot per annum | $ | 5.75 | $ | 6.80 | $ | 5.09 | $ | 1.66 | $ | n/a | Per square foot per annum | $ | 8.04 | $ | 8.95 | $ | 7.60 | $ | n/a | ||||||||||||
Percentage of initial rent | 10.6% | 9.5% | 12.9% | 8.3% | n/a | Percentage of initial rent | 15.2% | 10.8% | 21.7% | n/a | |||||||||||||||||||||
Development and Redevelopment Expenditures
Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including capitalized interest, debt and operating costs until the property is substantially completed and ready for its intended use.
On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE: PEI) (“PREIT’) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership units. The incremental development cost of this project was approximately $250,000,000, of which $202,000,000 has been expended as of September 30, 2014. The redevelopment was completed in October 2014 and the closing will be no later than March 31, 2015.
We are in the process of redeveloping and substantially expanding the existing retail space at the Marriott Marquis Times Square Hotel, including converting the below grade parking garage into retail, which is expected to be completed by the end of 2015. The retail space includes 20,000 square feet on grade and creating24,000 square feet below grade. As part of the redevelopment, we have completed the construction of a six-story, 300 foot wide block front, dynamic LED sign, all of which is expected to be completed bywas lit for the end offirst time in November 2014. Upon completion of the redevelopment, the retail space will include 20,000 square feet on grade and 20,000 square feet below grade. The incremental development cost of this project is approximately $210,000,000,$220,000,000, of which $136,000,000$179,000,000 has been expended as of September 30, 2014.March 31, 2015.
We are constructing a residential condominium tower containing 472,000 zoning square feet on our 220 Central Park South development site. The incremental development cost of this project is approximately $1.0 billion, of which $106,000,000$130,000,000 has been expended as of September 30, 2014.March 31, 2015. In January 2014, we completed a $600,000,000 loan secured by this site. On August 26, 2014, we obtained a standby commitment for up to $500,000,000 of five-year mezzanine loan financing to fund a portion of the development expenditures at 220 Central Park South.
We are developing The Bartlett, a 699-unit residential project in Pentagon City, which is expected to be completed in 2016. The project will include a 37,000 square foot Whole Foods Market at the base of the building. The incremental development cost of this project is approximately $250,000,000, of which $29,000,000$67,000,000 has been expended as of September 30, 2014.March 31, 2015.
We plan to redevelop an existing 165,000 square foot office building in Crystal City (2221 S. Clark Street), which we have leased to WeWork, into approximately 250 rental residential units. The incremental development cost of this project is approximately $40,000,000. The redevelopment is expected to be completed in the second half of 2015.
We have substantially completed the repositioning of 280 Park Avenue (50% owned). Our share of the incremental development costs of this project is approximately $63,000,000, of which $59,000,000 was expended as of March 31, 2015.
We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including the Penn Plaza District, and in Washington, including Crystal City, Rosslyn and Pentagon City.
There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be completed, or completed on schedule or within budget.
6954
Liquidity and Capital Resources – continued
Development and Redevelopment Expenditures - continued
Below is a summary of development and redevelopment expenditures incurred in the ninethree months ended September 30, 2014.March 31, 2015. These expenditures include interest of $46,517,000,$11,110,000, payroll of $5,460,000$1,026,000 and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $46,799,000,$29,134,000, that were capitalized in connection with the development and redevelopment of these projects.
Retail | |||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Total | New York | Washington, DC | Properties | Other | (Amounts in thousands) | Total | New York | Washington, DC | Other | ||||||||||||||||||||
220 Central Park South | 220 Central Park South | $ | 20,277 | $ | - | $ | - | $ | 20,277 | ||||||||||||||||||||||
Springfield Town Center | Springfield Town Center | $ | 92,696 | $ | - | $ | - | $ | 92,696 | $ | - | Springfield Town Center | 14,478 | - | - | 14,478 | |||||||||||||||
The Bartlett | The Bartlett | 13,791 | - | 13,791 | - | ||||||||||||||||||||||||||
330 West 34th Street | 330 West 34th Street | 11,902 | 11,902 | - | - | ||||||||||||||||||||||||||
Marriott Marquis Times Square - retail and signage | Marriott Marquis Times Square - retail and signage | 71,566 | 71,566 | - | - | - | Marriott Marquis Times Square - retail and signage | 10,651 | 10,651 | - | - | ||||||||||||||||||||
220 Central Park South | 54,543 | - | - | - | 54,543 | ||||||||||||||||||||||||||
330 West 34th Street | 32,014 | 32,014 | - | - | - | ||||||||||||||||||||||||||
The Bartlett | 20,300 | - | 20,300 | - | - | ||||||||||||||||||||||||||
608 Fifth Avenue | 18,127 | 18,127 | - | - | - | ||||||||||||||||||||||||||
90 Park Avenue | 90 Park Avenue | 5,173 | 5,173 | - | - | ||||||||||||||||||||||||||
Wayne Towne Center | Wayne Towne Center | 16,109 | - | 16,109 | - | Wayne Towne Center | 2,362 | - | - | 2,362 | |||||||||||||||||||||
7 West 34th Street | 9,454 | 9,454 | - | - | - | ||||||||||||||||||||||||||
90 Park Avenue | 6,293 | 6,293 | - | - | - | ||||||||||||||||||||||||||
Penn Plaza | Penn Plaza | 1,163 | 1,163 | - | - | ||||||||||||||||||||||||||
2221 South Clark Street | 2221 South Clark Street | 1,127 | - | 1,127 | - | ||||||||||||||||||||||||||
Other | Other | 47,469 | 13,347 | 23,443 | 5,856 | 4,823 | Other | 7,128 | 2,254 | 4,628 | 246 | ||||||||||||||||||||
$ | 368,571 | $ | 150,801 | $ | 43,743 | $ | 114,661 | $ | 59,366 | $ | 88,052 | $ | 31,143 | $ | 19,546 | $ | 37,363 |
In addition to the development and redevelopment projects above, we are in the process of repositioning and re-tenanting 280 Park Avenue (49.5% owned). Our share of the incremental development cost of this project is approximately $62,000,000, of which $34,700,000 was expended prior to 2014, and $16,900,000has been expended in 2014.
We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including the Hotel Pennsylvania and in Washington, including 1900 Crystal Drive, Rosslyn and Pentagon City.
There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be completed, or completed on schedule or within budget.
70
Liquidity and Capital Resources – continued
Cash Flows for the NineThree Months Ended September 30, 2013March 31, 2014
Our cash and cash equivalents were $872,323,000$1,156,727,000 at September 30, 2013, an $87,996,000 decreaseMarch 31, 2014, a $573,437,000 increase over the balance at December 31, 2012. This decrease2013. The increase is primarily due to cash flows from operating, financing, activities, partially offset by cash flows from operating and investing activities, as discussed below.
Cash flows provided by operating activities of $789,592,000$309,131,000 was comprised of (i) net income of $603,499,000,$98,156,000, (ii) $188,740,000$135,433,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income offrom partially owned entities and net gainsimpairment losses on sale of real estate, (iii) proceeds from Real Estate Fundthe net change in operating assets and liabilities of $62,576,000, including $123,000 related to real estate fund investments, of $56,664,000, and (iv) distributions of income from partially owned entities of $34,350,000, partially offset by (v) the net change in operating assets and liabilities of $93,661,000, including $32,392,000 related to Real Estate Fund investments.$12,966,000.
Net cash provided by investing activities of $1,020,400,000$82,761,000 was comprised of (i) $734,427,000$120,270,000 of proceeds from sales of real estate and related investments, (ii) $378,676,000 of proceeds from the sales of marketable securities, (iii) $287,944,000 of capital distributions from partially owned entities, (iv) $240,474,000 from the sale of LNR, (v) $101,150,000 from the return of the J.C. Penney derivative collateral, (vi) $49,452,000$69,347,000 of proceeds from repayments of mortgage and mezzanine loans receivable and other, and (vii) $21,883,000(iii) $52,256,000 of changes in restricted cash, and (iv) $1,277,000 of capital distributions from partially owned entities, partially offset by (viii) $212,624,000 of investments in partially owned entities, (ix) $186,079,000 for the funding of the J.C. Penney derivative collateral and settlement of derivative, (x) $170,424,000 of additions to real estate, (xi) $149,010,000(v) $90,653,000 of development costs and construction in progress, (xii) $75,079,000(vi) $53,103,000 of acquisitions ofadditions to real estate, and other, and (xiii) $390,000(vii) $16,633,000 of investmentinvestments in mortgage and mezzanine loans receivable and other.partially owned entities.
Net cash used inprovided by financing activities of $1,897,988,000$181,545,000 was comprised of (i) $2,851,420,000$600,000,000 of proceeds from borrowings, and (ii) $3,676,000 of proceeds received from the exercise of Vornado stock options, partially offset by (iii) $233,198,000 for the repayments of borrowings, (ii) $409,332,000(iv) $136,761,000 of distributions to Vornado, (iii) $299,400,000 for purchases(v) $20,752,000 of outstandingdebt issuance costs, (vi) $20,368,000 of distributions to preferred units, (iv) $200,667,000unitholders, (vii) $10,474,000 of distributions to redeemable security holders and noncontrolling interests, (v) $62,820,000 of distributions to preferred unitholders, (vi) $9,982,000 of debt issuance costs, and (vii) $332,000(viii) $578,000 for the repurchase of Class A units related to stock compensation agreements and/or related tax withholdings, partially offset by (viii) $1,600,357,000 of proceeds from borrowings, (ix) $290,536,000 of proceeds from the issuance of preferred units, (x) $40,015,000 of contributions from noncontrolling interests, and (xi) $5,057,000 of proceeds received from the exercise of Vornado stock options.withholdings.
7155
Liquidity and Capital Resources – continued
Capital Expenditures in the ninethree months ended September 30, 2013March 31, 2014
Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the ninethree months ended September 30, 2013.March 31, 2014.
Retail | |||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Total | New York | Washington, DC | Properties | Other | (Amounts in thousands) | Total | New York | Washington, DC | Other | ||||||||||||||||||||
Expenditures to maintain assets | Expenditures to maintain assets | $ | 39,322 | $ | 20,665 | $ | 9,244 | $ | 3,160 | $ | 6,253 | Expenditures to maintain assets | $ | 12,208 | $ | 8,931 | $ | 1,521 | $ | 1,756 | |||||||||||
Tenant improvements | Tenant improvements | 117,088 | 67,476 | 32,087 | 11,075 | 6,450 | Tenant improvements | 57,964 | 40,311 | 11,680 | 5,973 | ||||||||||||||||||||
Leasing commissions | Leasing commissions | 42,341 | 31,324 | 8,030 | 1,686 | 1,301 | Leasing commissions | 18,095 | 14,018 | 2,322 | 1,755 | ||||||||||||||||||||
Non-recurring capital expenditures | Non-recurring capital expenditures | 6,454 | 6,183 | - | - | 271 | Non-recurring capital expenditures | 84 | 84 | - | - | ||||||||||||||||||||
Total capital expenditures and leasing | |||||||||||||||||||||||||||||||
commissions (accrual basis) | 205,205 | 125,648 | 49,361 | 15,921 | 14,275 | ||||||||||||||||||||||||||
Total capital expenditures and leasing commissions (accrual basis) | Total capital expenditures and leasing commissions (accrual basis) | 88,351 | 63,344 | 15,523 | 9,484 | ||||||||||||||||||||||||||
Adjustments to reconcile to cash basis: | Adjustments to reconcile to cash basis: | Adjustments to reconcile to cash basis: | |||||||||||||||||||||||||||||
Expenditures in the current year | Expenditures in the current year applicable to prior periods | 40,186 | 18,716 | 12,186 | 9,284 | ||||||||||||||||||||||||||
applicable to prior periods | 111,984 | 43,536 | 22,228 | 4,577 | 41,643 | Expenditures to be made in future periods for the current period | (56,023) | (40,184) | (12,807) | (3,032) | |||||||||||||||||||||
Expenditures to be made in future | |||||||||||||||||||||||||||||||
periods for the current period | (116,655) | (68,813) | (34,191) | (12,556) | (1,095) | ||||||||||||||||||||||||||
Total capital expenditures and leasing | |||||||||||||||||||||||||||||||
commissions (cash basis) | $ | 200,534 | $ | 100,371 | $ | 37,398 | $ | 7,942 | $ | 54,823 | |||||||||||||||||||||
Total capital expenditures and leasing commissions (cash basis) | Total capital expenditures and leasing commissions (cash basis) | $ | 72,514 | $ | 41,876 | $ | 14,902 | $ | 15,736 | ||||||||||||||||||||||
Tenant improvements and leasing commissions: | Tenant improvements and leasing commissions: | Tenant improvements and leasing commissions: | |||||||||||||||||||||||||||||
Per square foot per annum | $ | 4.19 | $ | 5.54 | $ | 4.71 | $ | 1.52 | $ | n/a | Per square foot per annum | $ | 5.95 | $ | 6.19 | $ | 5.23 | $ | n/a | ||||||||||||
Percentage of initial rent | 9.7% | 8.0% | 11.8% | 7.9% | n/a | Percentage of initial rent | 10.4% | 9.8% | 12.3% | n/a | |||||||||||||||||||||
Development and Redevelopment Expenditures in the ninethree months ended September 30, 2013March 31, 2014
Below is a summary of development and redevelopment expenditures incurred in the ninethree months ended September 30, 2013.March 31, 2014. These expenditures include interest of $28,024,000,$13,622,000, payroll of $2,887,000$1,770,000 and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $18,293,000,$14,700,000, that were capitalized in connection with the development and redevelopment of these projects.
Retail | |||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Total | New York | Washington, DC | Properties | Other | (Amounts in thousands) | Total | New York | Washington, DC | Other | ||||||||||||||||||||
Springfield Town Center | Springfield Town Center | $ | 39,810 | $ | - | $ | - | $ | 39,810 | $ | - | Springfield Town Center | $ | 25,172 | $ | - | $ | - | $ | 25,172 | |||||||||||
Marriott Marquis Times Square - retail and signage | Marriott Marquis Times Square - retail and signage | 12,822 | 12,822 | - | - | ||||||||||||||||||||||||||
330 West 34th Street | 330 West 34th Street | 9,541 | 9,541 | - | - | ||||||||||||||||||||||||||
220 Central Park South | 220 Central Park South | 23,946 | - | - | - | 23,946 | 220 Central Park South | 9,034 | - | - | 9,034 | ||||||||||||||||||||
Marriott Marquis Times Square - retail and signage | 13,920 | 13,920 | - | - | - | ||||||||||||||||||||||||||
1290 Avenue of the Americas | 11,374 | 11,374 | - | - | - | ||||||||||||||||||||||||||
608 Fifth Avenue | 608 Fifth Avenue | 7,248 | 7,248 | - | - | ||||||||||||||||||||||||||
The Bartlett | The Bartlett | 5,054 | - | 5,054 | - | - | The Bartlett | 4,517 | - | 4,517 | - | ||||||||||||||||||||
LED Signage | 4,589 | 4,589 | - | - | - | ||||||||||||||||||||||||||
1540 Broadway | 4,267 | 4,267 | - | - | - | ||||||||||||||||||||||||||
1851 South Bell Street (1900 Crystal Drive) | 3,739 | - | 3,739 | - | - | ||||||||||||||||||||||||||
7 West 34th Street | 7 West 34th Street | 3,044 | 3,044 | - | - | ||||||||||||||||||||||||||
Wayne Towne Center | Wayne Towne Center | 2,419 | - | - | 2,419 | ||||||||||||||||||||||||||
Other | Other | 42,311 | 7,949 | 15,039 | 15,910 | 3,413 | Other | 16,856 | 6,526 | 7,068 | 3,262 | ||||||||||||||||||||
$ | 149,010 | $ | 42,099 | $ | 23,832 | $ | 55,720 | $ | 27,359 | $ | 90,653 | $ | 39,181 | $ | 11,585 | $ | 39,887 |
7256
Liquidity and Capital Resources – continued
Other Commitments and Contingencies
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
Our mortgage loans are non-recourse to us. However, in certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. As of September 30, 2014,March 31, 2015, the aggregate dollar amount of these guarantees and master leases is approximately $360,000,000.$349,000,000.
At September 30, 2014, $39,947,000March 31, 2015, $39,632,000 of letters of credit were outstanding under one of our revolving credit facilities. Our revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.
As of September 30, 2014,March 31, 2015, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $111,000,000.$78,000,000.
7357
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to fluctuations in market interest rates. Market interest rates are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates on our consolidated and non-consolidated debt (all of which arises out of non-trading activity) is as follows:
(Amounts in thousands, except per unit amounts) | (Amounts in thousands, except per unit amounts) | 2014 | 2013 | (Amounts in thousands, except per unit amounts) | 2015 | 2014 | ||||||||||||||||||||||||
Weighted | Effect of 1% | Weighted | Weighted | Effect of 1% | Weighted | |||||||||||||||||||||||||
September 30, | Average | Change In | December 31, | Average | March 31, | Average | Change In | December 31, | Average | |||||||||||||||||||||
Consolidated debt: | Consolidated debt: | Balance | Interest Rate | Base Rates | Balance | Interest Rate | Consolidated debt: | Balance | Interest Rate | Base Rates | Balance | Interest Rate | ||||||||||||||||||
Variable rate | $ | 1,637,394 | 2.23% | $ | 16,374 | $ | 1,064,730 | 2.01% | Variable rate | $ | 2,162,869 | 2.32% | $ | 21,629 | $ | 1,763,769 | 2.20% | |||||||||||||
Fixed rate | 9,515,943 | 4.55% | - | 8,913,988 | 4.73% | Fixed rate | 7,401,256 | 4.37% | - | 7,846,555 | 4.36% | |||||||||||||||||||
$ | 11,153,337 | 4.21% | 16,374 | $ | 9,978,718 | 4.44% | $ | 9,564,125 | 3.91% | 21,629 | $ | 9,610,324 | 3.97% | |||||||||||||||||
Pro rata share of debt of non-consolidated | Pro rata share of debt of non-consolidated | Pro rata share of debt of non-consolidated | ||||||||||||||||||||||||||||
entities (non-recourse): | entities (non-recourse): | |||||||||||||||||||||||||||||
Variable rate – excluding Toys | $ | 303,145 | 1.75% | 3,031 | $ | 196,240 | 2.09% | Variable rate – excluding Toys | $ | 318,935 | 1.74% | 3,189 | $ | 319,387 | 1.72% | |||||||||||||||
Variable rate – Toys | 1,075,239 | 5.56% | 10,752 | 1,179,001 | 5.45% | Variable rate – Toys | 892,325 | 8.04% | 8,923 | 1,199,835 | 6.47% | |||||||||||||||||||
Fixed rate (including $683,616 and | Fixed rate (including $657,540 and | |||||||||||||||||||||||||||||
$682,484 of Toys debt in 2014 and 2013) | 2,778,274 | 6.47% | - | 2,814,162 | 6.46% | $674,443 of Toys debt in 2015 and 2014) | 2,745,890 | 6.47% | - | 2,754,410 | 6.45% | |||||||||||||||||||
$ | 4,156,658 | 5.89% | 13,783 | $ | 4,189,403 | 5.97% | $ | 3,957,150 | 6.44% | 12,112 | $ | 4,273,632 | 6.10% | |||||||||||||||||
Total change in annual net income | Total change in annual net income | $ | 30,157 | Total change in annual net income | $ | 33,741 | ||||||||||||||||||||||||
Per diluted unit | Per diluted unit | $ | 0.15 | Per diluted unit | $ | 0.17 | ||||||||||||||||||||||||
We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of September 30, 2014,March 31, 2015, we have an interest rate cap with a notional amount of $60,000,000 that caps LIBOR at a rate of 5.00%. In addition, we have anone interest rate swap on a $423,000,000$421,000,000 mortgage loan that swapped the rate from LIBOR plus 2.00% (2.15%1.65% (1.82% at September 30, 2014)March 31, 2015) to a fixed rate of 5.13% for the remaining four-year term of the loan.4.78% through March 2018.
Fair Value of Debt
The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the rate at which similar loans could be made currently to borrowers with similar credit ratings, for the remaining term of such debt. As of September 30, 2014,March 31, 2015, the estimated fair value of our consolidated debt was $11,120,000,000.
74$9,632,000,000.
Item 4. Controls and Procedures
Disclosure Controls and Procedures: Vornado’s management, with the participation of Vornado’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, Vornado’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2014,March 31, 2015, such disclosure controls and procedures were effective.
Internal Control Over Financial Reporting: There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
7558
Item 1. Legal Proceedings
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. Risk Factors
There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2013.2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the third quarter of 2014,ended March 31, 2015, we issued 28,177546,351 Class A unitsUnits to Vornado upon conversion, surrender or exchange of equity awards issued pursuant to Vornado’s omnibus share plans and consideration received included $11,680,953 in connection with Vornado’s issuance of 28,177 common shares upon the redemption of Class A units held by third parties. The Class A unitscash proceeds. Such Units were issued in reliance on thean exemption from registration under the Section 4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.
7659
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Stephen W. Theriot, Chief Financial Officer of Vornado Realty Trust, sole General Partner of Vornado Realty L.P. (duly authorized officer and principal financial and accounting officer) |
7760
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10.34 | ** | - | Waiver and Release between Vornado Realty Trust and Wendy A. Silverstein, dated | * | ||
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32.1 | - | Section 1350 Certification of the Chief Executive Officer | ||||
32.2 | - | Section 1350 Certification of the Chief Financial Officer | ||||
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101.DEF | - | XBRL Taxonomy Extension Definition Linkbase | ||||
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7861