VORNADO REALTY TRUST Page Number Overview
35
Overview - Leasing Activity
41
Critical Accounting Policies
44
Net Operating Income At Share by Segment for the Years Ended
46
Results of Operations for the Year Ended
49
Supplemental Information:
Net Operating Income At Share by Segment for the Three Months Ended
56
Three Months Ended
61
Three Months Ended
66
Liquidity and Capital Resources
66
Financing Activities and Contractual Obligations
67
Certain Future Cash Requirements
69
Cash Flows for the Year Ended
71
Capital Expenditures for the Year EndedDecember 31, 2019
73
Capital Expenditures for the Year EndedDecember 31, 2018
74
Funds From Operations for the Three Months and Years EndedDecember 31, 2019 and 2018 74 34
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Introduction
The following discussion should be read in conjunction with the financial
statements and related notes included under Part II, Item 8 of this Annual
Report on Form 10-K.
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") within this section is focused on the years ended December
31, 2019 and 2018, including year-to-year comparisons between these years. Our
MD&A for the year ended December 31, 2017 , including year-to-year comparisons
between 2018 and 2017, can be found in Part II, Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations in the Company's
Annual Report on Form 10-K for the year ended December 31, 2018 .
Overview
Vornado Realty Trust ("Vornado") is a fullyintegrated real estate investment
trust ("REIT") and conducts its business through, and substantially all of its
interests in properties are held by, Vornado Realty L.P. , a Delaware limited
partnership (the "Operating Partnership"). Accordingly, Vornado's cash flow and
ability to pay dividends to its shareholders are dependent upon the cash flow of
the Operating Partnership and the ability of its direct and indirect
subsidiaries to first satisfy their obligations to creditors. Vornado is the
sole general partner of, and owned approximately 93.1% of the common limited
partnership interest in the Operating Partnership as of December 31, 2019 . All
references to the "Company," "we," "us" and "our" mean collectively Vornado, the
Operating Partnership and those subsidiaries consolidated by Vornado.
We own and operate office and retail properties with a concentration in the New
York City metropolitan area. In addition, we have a 32.4% interest in
Alexander's, Inc. ("Alexander's") (NYSE: ALX), which owns seven properties in
the greater New York metropolitan area, as well as interests in other real
estate and investments.
Our business objective is to maximize Vornado shareholder value, which we
measure by the total return provided to our shareholders. Below is a table
comparing Vornado's performance to the FTSE NAREIT Office Index ("Office REIT")
and the MSCI US REIT Index ("MSCI") for the following periods ended December 31,
2019 :
Total Return(1)
Vornado Office REIT MSCI
Three-month 5.8 % 7.0 % (0.8 )%
One-year 12.0 % 31.4 % 25.8 %
Three-year (11.9 )% 18.3 % 26.2 %
Five-year (9.2 )% 34.2 % 40.5 %
Ten-year 82.2 % 139.2 % 208.7 %
____________________
(1) Past performance is not necessarily indicative of future performance.
We intend to achieve this objective by continuing to pursue our investment philosophy and to execute our operating strategies through: • maintaining a superior team of operating and investment professionals
and an entrepreneurial spirit;
• investing in properties in select markets, such as
we believe there is a high likelihood of capital appreciation;
• acquiring quality properties at a discount to replacement cost and
where there is a significant potential for higher rents;
• developing and redeveloping our existing properties to increase returns
and maximize value; and
• investing in operating companies that have a significant real estate
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 Vornado common or preferred shares or
Operating Partnership units in exchange for property and may repurchase or
otherwise reacquire these securities in the future.
We compete with a large number of real estate investors, 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 employment
trends. See "Risk Factors" in Item 1A for additional information regarding these
factors.
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--------------------------------------------------------------------------------Overview - continued
Quarter EndedDecember 31, 2019 Financial Results Summary Net income attributable to common shareholders for the quarter endedDecember 31, 2019 was$193,217,000 , or$1.01 per diluted share, compared to$100,494,000 , or$0.53 per diluted share, for the prior year's quarter. The quarters endedDecember 31, 2019 and 2018 include certain items that impact net income attributable to common shareholders, which are listed in the table on the following page. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders by$136,836,000 , or$0.72 per diluted share, for the quarter endedDecember 31, 2019 and$51,058,000 , or$0.27 per diluted share, for the quarter endedDecember 31, 2018 . Funds From Operations ("FFO") attributable to common shareholders plus assumed conversions for the quarter endedDecember 31, 2019 was$311,876,000 , or$1.63 per diluted share, compared to$210,100,000 , or$1.10 per diluted share, for the prior year's quarter. The quarters endedDecember 31, 2019 and 2018 include certain items that impact FFO, which are listed in the table on the following page. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by$140,846,000 , or$0.74 per diluted share, for the quarter endedDecember 31, 2019 and$40,226,000 , or$0.21 per diluted share, for the quarter endedDecember 31, 2018 . Year EndedDecember 31, 2019 Financial Results Summary Net income attributable to common shareholders for the year endedDecember 31, 2019 was$3,097,806,000 , or$16.21 per diluted share, compared to$384,832,000 , or$2.01 per diluted share, for the year endedDecember 31, 2018 . The years endedDecember 31, 2019 and 2018 include certain items that impact net income attributable to common shareholders, which are listed in the table on the following page. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders by$2,921,090,000 , or$15.29 per diluted share, for the year endedDecember 31, 2019 and$146,132,000 , or$0.76 per diluted share, for the year endedDecember 31, 2018 . The increase in net income attributable to common shareholders was partially offset by (i)$10,447,000 , or$0.05 per diluted share, of non-cash expense for the time-based equity compensation granted in connection with the new leadership group announced inApril 2019 , (ii)$9,416,000 (at share), or$0.05 per diluted share, from the non-cash write-off of straight-line rent receivables, and (iii)$8,477,000 , or$0.04 per share, of non-cash expense for the accelerated vesting of previously issued restrictedOperating Partnership units ("OP Units") and Vornado restricted stock due to the removal of the time-based vesting requirement for participants who have reached 65 years of age. FFO attributable to common shareholders plus assumed conversions for the year endedDecember 31, 2019 was$1,003,398,000 , or$5.25 per diluted share, compared to$729,740,000 , or$3.82 per diluted share, for the year endedDecember 31, 2018 . The years endedDecember 31, 2019 and 2018 include certain items that impact FFO, which are listed in the table on the following page. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by$337,191,000 , or$1.76 per diluted share, for the year endedDecember 31, 2019 and$16,252,000 , or$0.09 per diluted share, for the year endedDecember 31, 2018 . The increase in FFO attributable to common shareholders plus assumed conversions was partially offset by (i)$10,447,000 , or$0.05 per diluted share, of non-cash expense for the time-based equity compensation granted in connection with the new leadership group announced inApril 2019 , (ii)$9,416,000 (at share), or$0.05 per diluted share, from the non-cash write-off of straight-line rent receivables, and (iii)$8,477,000 , or$0.04 per share, of non-cash expense for the accelerated vesting of previously issued OP Units and Vornado restricted stock due to the removal of the time-based vesting requirement for participants who have reached 65 years of age. 36 --------------------------------------------------------------------------------
Overview - continued
The following table reconciles the difference between our net income
attributable to common shareholders and our net income attributable to common
shareholders, as adjusted:
(Amounts in thousands) For the Three Months Ended For the Year Ended
December 31, December 31,
2019 2018 2019 2018
Certain (income) expense items that
impact net income attributable to common
shareholders:
After-tax net gain on sale of 220 Central
Park South ("220 CPS") condominium units $ (173,655 ) $ (67,336 ) $ (502,565 ) $ (67,336 )
Our share of loss from real estate fund
investments 26,600 24,366 48,808 23,749
Mark-to-market decrease in Pennsylvania
Real Estate Investment Trust ("PREIT")
common shares (accounted for as a
marketable security from March 12, 2019) 2,438 - 21,649 -
Non-cash impairment losses and related
write-offs (primarily 608 Fifth Avenue in
2019) 565 12,000 109,157 12,000
After-tax purchase price fair value
adjustment related to the increase in
ownership of the Farley joint venture - (27,289 ) - (27,289 )
Mark-to-market decrease (increase) in
Lexington Realty Trust ("Lexington")
common shares (sold on March 1, 2019) - 1,662 (16,068 ) 26,596
Previously capitalized internal leasing
costs(1) - (1,655 ) - (5,538 )
Net gain on transfer to Fifth Avenue and
Times Square retail JV on April 18, 2019 ,
net of $11,945 attributable to
noncontrolling interests - - (2,559,154 ) -
Net gains on sale of real estate
(primarily our 25% interest in 330
Madison Avenue in 2019) - - (178,769 ) (27,786 )
Net gain from sale of Urban Edge
Properties ("UE") common shares (sold on
March 4, 2019) - - (62,395 ) -
Prepayment penalty in connection with
redemption of $400 million 5.00% senior
unsecured notes due January 2022 - - 22,540 -
Net gain on sale of our ownership
interests in 666 Fifth Avenue Office
Condominium - - - (134,032 )
Our share of additional New York City
transfer taxes - - - 23,503
Preferred share issuance costs - - - 14,486
Other (2,034 ) 3,825 (2,892 ) 5,886
(146,086 ) (54,427 ) (3,119,689 ) (155,761 )
Noncontrolling interests' share of above
adjustments 9,250 3,369 198,599 9,629
Total of certain (income) expense items
that impact net income attributable to
common shareholders $ (136,836 ) $ (51,058 ) _______________________________________
See note below.
The following table reconciles the difference between our FFO attributable to
common shareholders plus assumed conversions and our FFO attributable to common
shareholders plus assumed conversions, as adjusted:
(Amounts in thousands) For the Three Months Ended For the Year Ended
December 31, December 31,
2019 2018 2019 2018
Certain (income) expense items that
impact FFO attributable to common
shareholders plus assumed conversions:
After-tax net gain on sale of 220 CPS
condominium units $ (173,655 ) $ (67,336 ) $ (502,565 ) $ (67,336 )
Our share of loss from real estate fund
investments 26,600 24,366 48,808 23,749
Previously capitalized internal leasing
costs(1) - (1,655 ) - (5,538 )
Non-cash impairment loss and related
write-offs on 608 Fifth Avenue - - 77,156 -
Prepayment penalty in connection with
redemption of $400 million 5.00% senior
unsecured notes due January 2022 - - 22,540 -
Our share of additional New York City
transfer taxes - - - 23,503
Preferred share issuance costs - - - 14,486
Other (3,187 ) 1,745 (6,119 ) (6,109 )
(150,242 ) (42,880 ) (360,180 ) (17,245 )
Noncontrolling interests' share of above
adjustments 9,396 2,654 22,989 993
Total of certain (income) expense items
that impact FFO attributable to common
shareholders plus assumed conversions,
net $ (140,846 ) $ (40,226 ) _______________________________________
(1) The three months and year ended
and
to present 2018 "as adjusted" financial results on a comparable basis with
the current year as a result of the
accounting standard under which internal leasing costs can no longer be
capitalized.
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Overview - continued
Same Store Net Operating Income ("NOI") At Share
The percentage increase (decrease) in same store NOI at share and same store NOI
at share - cash basis of our New York segment, theMART and 555 California Street
are summarized below.
555 California
Total New York(1) theMART Street
Same store NOI at share % increase
(decrease):
Year ended December 31, 2019 compared to (2)
December 31, 2018 2.1 % 0.5 % 15.9 % 9.7 % Three months endedDecember 31, 2019
(3)
compared to December 31, 2018 7.1 % 2.6 % 114.3 % 3.3 % Three months endedDecember 31, 2019 compared to September 30, 2019 1.7 % 3.0 %
(7.4 )% (4.8 )%
Same store NOI at share - cash basis % increase (decrease): Year endedDecember 31, 2019 compared to
(2)
December 31, 2018 3.6 % 1.6 % 18.6 % 12.7 % Three months endedDecember 31, 2019
(3)
compared to December 31, 2018 6.6 % 1.7 % 100.0 % 4.1 % Three months endedDecember 31, 2019 compared to September 30, 2019 2.6 % 3.9 %
(4.8 )% (5.4 )%
________________________________________
(1)
increase:
Year ended December 31, 2019 compared to December 31, 2018 0.9 %
Three months ended December 31, 2019 compared to December 31,
2018 2.6 %
Three months ended December 31, 2019 compared to September 30,
2019 1.7 %
Excluding Hotel Pennsylvania , same store NOI at share - cash
basis % increase:
Year ended December 31, 2019 compared to December 31, 2018 2.2 %
Three months ended December 31, 2019 compared to December 31,
2018 1.8 %
Three months ended December 31, 2019 compared to September 30,
2019 2.6 %
(2) Primarily due to
related to real estate tax expense accrued in 2018.
(3) The three months ended
real estate tax expense accrual due to an increase in the tax-assessed value
of theMART.
Calculations of same store NOI at share, reconciliations of our net income to NOI at share, NOI at share - cash basis and FFO 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. 220 CPS During the three months endedDecember 31, 2019 , we closed on the sale of 17 condominium units at 220 CPS for net proceeds of$565,863,000 resulting in a financial statement net gain of$203,893,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with these sales,$30,238,000 of income tax expense was recognized on our consolidated statements of income. During the year endedDecember 31, 2019 , we closed on the sale of 54 condominium units at 220 CPS for net proceeds of$1,605,356,000 resulting in a financial statement net gain of$604,393,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with these sales,$101,828,000 of income tax expense was recognized on our consolidated statements of income. From inception toDecember 31, 2019 , we closed on the sale of 65 units for aggregate net proceeds of$1,820,132,000 . During the year endedDecember 31, 2019 , we repaid the remaining$737,000,000 of the$950,000,000 220 CPS loan. Dispositions Lexington OnMarch 1, 2019 , we sold all of our 18,468,969 common shares of Lexington, realizing net proceeds of$167,698,000 . We recorded a$16,068,000 gain (mark-to-market increase), which is included in "interest and other investment income, net" on our consolidated statements of income for the year endedDecember 31, 2019 . UE OnMarch 4, 2019 , we converted to common shares and sold all of our 5,717,184 partnership units of UE, realizing net proceeds of$108,512,000 . The sale resulted in a net gain of$62,395,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income for the year endedDecember 31, 2019 . 38 --------------------------------------------------------------------------------
Overview - continued
Dispositions - continuedFifth Avenue and Times Square JV OnApril 18, 2019 (the "Closing Date"), we entered into a transaction agreement (the "Transaction Agreement") with a group of institutional investors (the "Investors"). The Transaction Agreement provides for a series of transactions (collectively, the "Transaction") pursuant to which (i) prior to the Closing Date, we contributed our interests in properties located at640 Fifth Avenue ,655 Fifth Avenue ,666 Fifth Avenue ,689 Fifth Avenue ,697-703 Fifth Avenue ,1535 Broadway and1540 Broadway (collectively, the "Properties") to subsidiaries of a newly formed joint venture ("Fifth Avenue and Times Square JV") and (ii) on the Closing Date, transferred a 48.5% common interest inFifth Avenue andTimes Square JV to the Investors. The 48.5% common interest in the joint venture represents an effective 47.2% interest in the Properties (of which 45.4% was transferred from Vornado). The Properties include approximately 489,000 square feet of retail space, 327,000 square feet of office space, signage associated with 1535 and1540 Broadway , the parking garage at1540 Broadway and the theater at1535 Broadway . We retained the remaining 51.5% common interest inFifth Avenue andTimes Square JV which represents an effective 51.0% interest in the Properties and an aggregate$1.828 billion of preferred equity interests in certain of the properties. We also provided$500,000,000 of temporary preferred equity on640 Fifth Avenue untilMay 23, 2019 when mortgage financing was completed. All of the preferred equity has an annual coupon of 4.25% for the first five years, increasing to 4.75% for the next five years and thereafter at a formulaic rate. It can be redeemed under certain conditions on a tax deferred basis. Net cash proceeds from the Transaction were$1.179 billion , after (i) deductions for the defeasance of a$390,000,000 mortgage loan on666 Fifth Avenue and the repayment of a$140,000,000 mortgage loan on655 Fifth Avenue , (ii) proceeds from a$500,000,000 mortgage loan on640 Fifth Avenue , described below, (iii) approximately$23,000,000 used to purchase noncontrolling investors' interests and (iv) approximately$53,000,000 of transaction costs (including$17,000,000 of costs related to the defeasance of the666 Fifth Avenue mortgage loan). We continue to manage and lease the Properties. We share control with the Investors over major decisions of the joint venture, including decisions regarding leasing, operating and capital budgets, and refinancings. Accordingly, we no longer hold a controlling financial interest in the Properties which has been transferred to the joint venture. As a result, our investment inFifth Avenue and Times Square JV is accounted for under the equity method from the date of transfer. The Transaction valued the Properties at$5.556 billion resulting in a financial statement net gain of$2.571 billion , before noncontrolling interest of$11,945,000 , including the related step up in our basis of the retained portion of the assets to fair value. The net gain is included in "net gain on transfer toFifth Avenue and Times Square JV" on our consolidated statements of income for the year endedDecember 31, 2019 . The gain for tax purposes was approximately$735,000,000 . OnMay 23, 2019 , we received$500,000,000 from the redemption of our temporary preferred equity in640 Fifth Avenue . The temporary preferred equity was redeemed from the proceeds of a$500,000,000 mortgage financing that was completed on the property. The five-year loan, which is guaranteed by us, is interest-only at LIBOR plus 1.01%. The interest rate was swapped for four years to a fixed rate of 3.07%.330 Madison Avenue OnJuly 11, 2019 , we sold our 25% interest in330 Madison Avenue to our joint venture partner. We received net proceeds of approximately$100,000,000 after deducting our share of the existing$500,000,000 mortgage loan resulting in a financial statement net gain of$159,292,000 . The net gain is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income for the year endedDecember 31, 2019 . The gain for tax purposes was approximately$139,000,000 .3040 M Street OnSeptember 18, 2019 , we completed the$49,750,000 sale of3040 M Street , a 44,000 square foot retail building inWashington, DC , which resulted in a net gain of$19,477,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income for year endedDecember 31, 2019 . The gain for tax purposes was approximately$19,000,000 . PREIT OnJanuary 23, 2020 , we sold all of our 6,250,000 common shares of PREIT, realizing net proceeds of$28,375,000 . A$4,938,000 loss (mark-to-market decrease) will be recorded in the first quarter of 2020. Financings Senior Unsecured Notes OnMarch 1, 2019 , we called for redemption all of our$400,000,000 5.00% senior unsecured notes. The notes, which were scheduled to mature inJanuary 2022 , were redeemed onApril 1, 2019 at a redemption price of 105.51% of the principal amount plus accrued interest. In connection therewith, we expensed$22,540,000 relating to debt prepayment costs which is included in "interest and debt expense" on our consolidated statements of income for the year endedDecember 31, 2019 . 39 --------------------------------------------------------------------------------
Overview - continued Financings - continued Unsecured Revolving Credit OnMarch 26, 2019 , we increased to$1.5 billion (from$1.25 billion ) and extended toMarch 2024 (as fully extended) fromFebruary 2022 one of our two unsecured revolving credit facilities. The interest rate on the extended facility was lowered from LIBOR plus 1.00% to LIBOR plus 0.90%. The facility fee remains unchanged at 20 basis points. Other Financings OnJanuary 28, 2019 , a joint venture in which we have a 45.1% interest, completed a$167,500,000 refinancing of61 Ninth Avenue , a 166,000 square footManhattan office and retail property. The seven-year interest-only loan carries a rate of LIBOR plus 1.35% (3.07% as ofDecember 31, 2019 ) and matures inJanuary 2026 . We realized net proceeds of approximately$31,000,000 . The loan replaces the previous$90,000,000 construction loan that bore interest at LIBOR plus 3.05% and was scheduled to mature inDecember 2021 . OnFebruary 4, 2019 , we completed a$95,700,000 refinancing of435 Seventh Avenue , a 43,000 square footManhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.30% (3.00% as ofDecember 31, 2019 ) and matures inFebruary 2024 . The recourse loan replaces the previous$95,700,000 loan that bore interest at LIBOR plus 2.25% and was scheduled to mature inAugust 2019 . OnFebruary 12, 2019 , we completed a$580,000,000 refinancing of100 West 33rd Street , a 1.1 million square footManhattan property comprised of 859,000 square feet of office space and the 256,000 square footManhattan Mall . The interest-only loan carries a rate of LIBOR plus 1.55% (3.25% as ofDecember 31, 2019 ) and matures inApril 2024 , with two one-year extension options. The loan replaces the previous$580,000,000 loan that bore interest at LIBOR plus 1.65% and was scheduled to mature inJuly 2020 . OnMay 24, 2019 , we extended our$375,000,000 mortgage loan on888 Seventh Avenue , a 885,000 square footManhattan office building, fromDecember 2020 toDecember 2025 . The interest rate on the new amortizing mortgage loan is LIBOR plus 1.70% (3.44% as ofDecember 31, 2019 ). Pursuant to an existing swap agreement, the interest rate on the$375,000,000 mortgage loan has been swapped to 3.25% throughDecember 2020 . OnJune 28, 2019 , a joint venture in which we have a 55% interest, completed a$145,700,000 refinancing of512 West 22nd Street , a 173,000 square footManhattan office building, of which$109,565,000 was outstanding as ofDecember 31, 2019 . The four-year interest-only loan carries a rate of LIBOR plus 2.00% (3.72% as ofDecember 31, 2019 ) and matures inJune 2023 with a one-year extension option. The loan replaces the previous$126,000,000 construction loan that bore interest at LIBOR plus 2.65% and was scheduled to mature inNovember 2019 . OnJuly 25, 2019 , a joint venture in which we have a 50% interest, completed a$60,000,000 refinancing of825 Seventh Avenue , a 165,000 square footManhattan office building, of which$31,889,000 was outstanding as ofDecember 31, 2019 . The interest-only loan carries a rate of LIBOR plus 1.65% (3.40% as ofDecember 31, 2019 ) and matures inJuly 2022 with a one-year extension option. The loan replaces the previous$20,500,000 loan that bore interest at LIBOR plus 1.40% and was scheduled to mature inSeptember 2019 . OnSeptember 5, 2019 , a consolidated joint venture, in which we have a 50% interest, completed a$75,000,000 refinancing of606 Broadway , a 36,000 square footManhattan office and retail building, of which$67,804,000 was outstanding as ofDecember 31, 2019 . The interest-only loan carries a rate of LIBOR plus 1.80% (3.52% as ofDecember 31, 2019 ) and matures inSeptember 2024 . In connection therewith, the joint venture purchased an interest rate cap that caps LIBOR at a rate of 4.00%. The loan replaces the previous$65,000,000 construction loan. The construction loan bore interest at LIBOR plus 3.00% and was scheduled to mature inMay 2021 . OnSeptember 27, 2019 , we repaid the$575,000,000 mortgage loan on PENN2 with proceeds from our unsecured revolving credit facilities. The mortgage loan was scheduled to mature inDecember 2019 . PENN2 is a 1,795,000 square foot (as expanded)Manhattan office building currently under redevelopment. OnNovember 6, 2019 , the Fund completed a$145,075,000 refinancing of Lucida, a 155,000 square footManhattan retail and residential property. The three-year interest-only loan carries a rate of LIBOR plus 1.85% (3.54% as ofDecember 31, 2019 ) with two one-year extension options. The loan replaces the previous$146,000,000 loan that bore interest at LIBOR plus 1.55% and was scheduled to mature inDecember 2019 . OnNovember 26, 2019 , a joint venture in which we have a 20.1% interest, completed a$800,000,000 refinancing of650 Madison Avenue , a 601,000 square footManhattan office and retail property. The ten-year interest-only loan carries a fixed rate of 3.49% and matures inDecember 2029 . The loan replaces the previous$800,000,000 loan that bore interest at a fixed rate of 4.39% and was scheduled to mature inOctober 2020 . OnDecember 23, 2019 , a joint venture in which we have a 49.9% interest, completed a$85,500,000 refinancing, of which$82,500,000 was outstanding as ofDecember 31, 2019 , of50-70 West 93rd Street , a 325-unitManhattan residential complex. The five-year interest-only loan carries an interest rate of LIBOR plus 1.53%, which was swapped to a fixed rate of 3.14%, and matures inDecember 2024 . The loan replaces the previous$80,000,000 loan that bore interest at LIBOR plus 1.70% and was scheduled to mature inAugust 2021 , as extended. 40 --------------------------------------------------------------------------------
Overview - continued
Leasing Activity The leasing activity and related statistics in the tables below are based on leases signed during the period and are not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). Second generation relet space represents square footage that has not been vacant for more than nine months and tenant improvements and leasing commissions are based on our share of square feet leased during the period. (Square feet in thousands) New York 555 California Office Retail theMART Street Quarter EndedDecember 31, 2019 : Total square feet leased 173 94 52 30 Our share of square feet leased 117 73 52 21 Initial rent(1)$ 101.67 $ 233.55 $ 50.26 $ 94.00 Weighted average lease term (years) 6.6 9.4 5.0 5.0 Second generation relet space: Square feet 54 52 50 21 GAAP basis: Straight-line rent(2)$ 93.62 $ 309.06 $ 50.96 $ 99.81 Prior straight-line rent$ 97.06 $ 308.17 $ 49.41 $ 49.77 Percentage (decrease) increase (3.5 )% 0.3 % 3.1 % 100.5 % Cash basis: Initial rent(1)$ 94.90 $ 335.00 $ 50.02 $ 94.00 Prior escalated rent$ 100.06 $ 300.90 $
51.21
72.5 %
Tenant improvements and leasing
commissions:
Per square foot $ 89.30 $ 100.79 $ 26.91 $ 36.38
Per square foot per annum: $ 13.53 $ 10.72 $ 5.38 $ 7.28
Percentage of initial rent 13.3 % 4.6 % 10.7 % 7.7 %
Year Ended December 31, 2019 :
Total square feet leased 987 238 286 172
Our share of square feet leased 793 207 286 120
Initial rent(1) $ 82.17 $ 175.35 $ 49.43 $ 88.70
Weighted average lease term (years) 7.7 10.9 6.1 6.1
Second generation relet space:
Square feet 553 171 280 115
GAAP basis:
Straight-line rent(2) $ 76.12 $ 198.05 $ 48.71 $ 93.86
Prior straight-line rent $ 72.18 $ 175.46 $ 44.01 $ 56.93
Percentage increase 5.5 % 12.9 % 10.7 % 64.9 %
Cash basis:
Initial rent(1) $ 77.51 $ 197.12 $ 49.25 $ 88.54
Prior escalated rent $ 74.10 $ 179.49 $ 47.08 $ 64.11
Percentage increase 4.6 % 9.8 % 4.6 % 38.1 %
Tenant improvements and leasing commissions:
Per square foot $ 83.82 $ 68.59 $ 33.87 $ 53.93
Per square foot per annum: $ 10.89 $ 6.29 $ 5.55 $ 8.84
Percentage of initial rent 13.3 % 3.6 % 11.2 % 10.0 %
____________________See notes on the following page.
41
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Overview - continued
Leasing Activity - continued
(Square feet in thousands) New York
555 California
Office Retail theMART Street
Year Ended December 31, 2018 :
Total square feet leased 1,827 255 243 249
Our share of square feet leased: 1,627 236 243 174
Initial rent(1) $ 79.03 $ 171.25 $ 53.47 $ 89.28
Weighted average lease term
(years) 9.6 5.5 5.8 10.3
Second generation relet space:
Square feet 1,347 216 232 62
GAAP basis:
Straight-line rent(2) $ 81.57 $ 180.01 $ 54.11 $ 104.06
Prior straight-line rent $ 60.99 $ 232.98 $ 44.77 $ 77.46
Percentage increase (decrease) 33.7 % (22.7 )% 20.9 % 34.3 %
Cash basis:
Initial rent(1) $ 79.22 $ 164.74 $ 53.49 $ 97.28
Prior escalated rent $ 64.59 $ 166.35 $
47.48
13.4 %
Tenant improvements and leasing
commissions:
Per square foot $ 92.69 $ 59.17 $ 17.63 $ 94.98
Per square foot per annum: $ 9.66 $ 10.76 $ 3.04 $ 9.22
Percentage of initial rent 12.2 % 6.3 % 5.7 % 10.3 %
______________________________________
(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.
42--------------------------------------------------------------------------------
Overview - continued
Square footage (in service) and Occupancy as ofDecember 31, 2019 : (Square feet in thousands) Square Feet (in service) Number of Total Our properties Portfolio Share Occupancy %New York : Office 35 19,070 16,195 96.9 % Retail (includes retail properties that are in the base of our office properties) 70 2,300 1,842 94.5 % Residential - 1,679 units 9 1,526 793 97.0 % Alexander's, including 312 residential units 7 2,230 723 96.5 % Hotel Pennsylvania 1 1,400 1,400 26,526 20,953 96.7 % Other: theMART 4 3,826 3,817 94.6 % 555 California Street 3 1,741 1,218 99.8 % Other 10 2,533 1,198 92.7 % 8,100 6,233 Total square feet at December 31, 2019 34,626
27,186
Square footage (in service) and Occupancy as ofDecember 31, 2018 : (Square feet in thousands) Square Feet (in service) Number of Total Our properties Portfolio Share Occupancy %New York : Office 36 19,858 16,632 97.2 % Retail (includes retail properties that are in the base of our office properties) 71 2,648 2,419 97.3 % Residential - 1,687 units 10 1,533 800 96.6 % Alexander's, including 312 residential units 7 2,437 790 91.4 % Hotel Pennsylvania 1 1,400 1,400 27,876 22,041 97.0 % Other: theMART 3 3,694 3,685 94.7 % 555 California Street 3 1,743 1,220 99.4 % Other 10 2,522 1,187 92.8 % 7,959 6,092 Total square feet at December 31, 2018 35,835 28,133 43
--------------------------------------------------------------------------------
Critical Accounting Policies
In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of 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. Set forth below is a summary of the accounting policies that we believe are critical to the preparation of our consolidated financial statements. The summary should be read in conjunction with the more complete discussion of our accounting policies included in Note 2 - Basis of Presentation and Significant Accounting Policies, Note 3 - Revenue Recognition and Note 20 - Leases to our consolidated financial statements in this Annual Report on Form 10-K. Real Estate Real estate is carried at cost, net of accumulated depreciation and amortization. Betterments, major renewals and certain costs directly related to the improvement and leasing of real estate are capitalized. Maintenance and repairs are expensed as incurred. For redevelopment of existing operating properties, the net book value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when complete. If the cost of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of the redeveloped property, the excess is charged to expense. Depreciation is recognized on a straight-line basis over the estimated useful lives which range from 7 to 40 years. Tenant allowances are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets. Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and acquired liabilities and we allocate the purchase price based on these assessments which are on a relative fair value basis. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired. As ofDecember 31, 2019 and 2018, the carrying amounts of real estate, net of accumulated depreciation and amortization, were$10.1 billion and$13.1 billion , respectively. As ofDecember 31, 2019 and 2018, the carrying amounts of identified intangible assets (including acquired above-market leases, tenant relationships and acquired in-place leases) were$30,965,000 and$136,781,000 , respectively, and the carrying amounts of identified intangible liabilities, a component of "deferred revenue" on our consolidated balance sheets, were$53,539,000 and$161,594,000 , respectively. Our properties, including any related right-of-use assets and intangible assets, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the property's carrying amount over its estimated fair value. Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows, or market conditions change, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated discounted cash flows is subjective and is based, in part, on estimates and assumptions regarding future occupancy, rental rates, capital requirements, capitalization rates and discount rates that could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses. Partially Owned Entities We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider (i) whether the entity is a variable interest entity ("VIE") in which we are the primary beneficiary or (ii) whether the entity is a voting interest entity in which we have a majority of the voting interests of the entity. We are deemed to be the primary beneficiary of a VIE when we have (i) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (ii) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. We generally do not control a partially owned entity if the approval of all of the partners/members is contractually required with respect to decisions that most significantly impact the performance of the partially owned entity. This includes decisions regarding operating/capital budgets, and the placement of new or additional financing secured by the assets of the venture, among others. We account for investments under the equity method when the requirements for consolidation are not met, and we have significant influence over the operations of the investee. Equity method investments are initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. Investments that do not qualify for consolidation or equity method accounting are accounted for under the cost method. 44 --------------------------------------------------------------------------------
Critical Accounting Policies - continued
Partially Owned Entities - continued Investments in partially owned entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recorded when there is a decline in the fair value below the carrying value and we conclude such decline is other-than-temporary. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are prepared. The ultimate realization of our investments in partially owned entities is dependent on a number of factors, including the performance of each investment and market conditions. If our estimates of the projected future cash flows, the nature of development activities for properties for which such activities are planned and the estimated fair value of the investment change based on market conditions or otherwise, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on estimates and assumptions regarding future occupancy, rental rates, capital requirements, capitalization rates and discount rates that could differ materially from actual results. As ofDecember 31, 2019 and 2018, the carrying amounts of investments in partially owned entities were$4.0 billion and$0.9 billion , respectively. Revenue Recognition We have the following revenue sources and revenue recognition policies: • Rental revenues include revenues from the leasing of space at our properties to tenants, lease termination income, revenues from theHotel Pennsylvania , trade shows and tenant services. • Revenues from the leasing of space at our properties to tenants includes (i) lease components, including fixed and variable lease payments, and nonlease components which include reimbursement of common area maintenance expenses, and (ii) reimbursement of real estate taxes and insurance expenses. As lessor, we have elected to combine the lease and nonlease components of our operating lease agreements and account for the components as a single lease component. Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease, together with renewal options that are reasonably certain of being exercised. We commence rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of real estate taxes, insurance
expenses and
common area maintenance expenses are generally recognized in the
same period as the related expenses are incurred.
• Lease termination income is recognized immediately if a tenant
vacates or is recognized on a straight-line basis over the shortened
remaining lease term.
• Hotel revenue arising from the operation of Hotel
consists of room revenue, food and beverage revenue, and banquet
revenue. Room revenue is recognized when the rooms are made
available for the guest.
• Trade shows revenue arising from the operation of trade shows is
primarily booth rentals. This revenue is recognized upon the
occurrence of the trade shows when the trade show booths are made
available for use by the exhibitors.
• Tenant services revenue arises from sub-metered electric, elevator,
trash removal and other services provided to tenants at their
request. This revenue is recognized as the services aretransferred.
• Fee and other income includes management, leasing and other revenue
arising from contractual agreements with third parties or with partially
owned entities and includes
cleaning, engineering and security services. This revenue is recognized as
the services are transferred.
We assess, on an individual lease basis, whether it is probable that we will
collect the future lease payments. We consider the tenant's payment history and
current credit status when assessing collectability. When collectability is not
deemed probable, we write off the tenant's receivables, including straight-line
rent receivables, and limit lease income to cash received. Changes to the
collectability of our operating leases are recorded as adjustments to "rental
revenues" on our consolidated statements of income. If our assessment of the
collectability of revenue changes, the impact on our consolidated financial
statements could be material.
Income Taxes
Vornado operates in a manner intended to enable it to continue to qualify as a
REIT under Sections 856860 of the Internal Revenue Code of 1986, as amended.
Under those sections, a REIT which distributes at least 90% of its REIT taxable
income as a dividend to its shareholders each year and which meets certain other
conditions will not be taxed on that portion of its taxable income which is
distributed to its shareholders. Vornado distributes to its shareholders 100% of
its REIT taxable income and therefore, no provision for Federal income taxes is
required. If Vornado fails to distribute the required amount of income to its
shareholders, or fails to meet other REIT requirements, it may fail to qualify
as a REIT which may result in substantial adverse tax consequences.
Recent Accounting Pronouncements
See Note 2 - Basis of Presentation and Significant Accounting Policies to our
consolidated financial statements in this Annual Report on Form 10-K for a
discussion concerning recent accounting pronouncements.
45
--------------------------------------------------------------------------------
NOI At Share by Segment for the Years Ended December 31, 2019 and 2018
NOI at share represents total revenues less operating expenses including our
share of partially owned entities. NOI at share - cash basis represents NOI at
share adjusted to exclude straight-line rental income and expense, amortization
of acquired below and above market leases, net and other non-cash adjustments.
We consider NOI at share - cash basis to be the primary 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 NOI at share - cash
basis, we utilize this measure to make investment decisions as well as to
compare the performance of our assets to that of our peers. NOI at share and NOI
at share - cash basis should not be considered alternatives to net income or
cash flow from operations and may not be comparable to similarly titled measures
employed by other companies.
Below is a summary of NOI at share and NOI at share - cash basis by segment for
the years ended December 31, 2019 and 2018.
(Amounts in thousands) For the Year Ended December 31, 2019
Total New York(1) Other
Total revenues $ 1,924,700 $ 1,577,860 $ 346,840
Operating expenses (917,981 ) (758,304 ) (159,677 )
NOI - consolidated 1,006,719 819,556 187,163
Deduct: NOI attributable to noncontrolling
interests in consolidated subsidiaries (69,332 ) (40,896 ) (28,436 )
Add: NOI from partially owned entities 322,390 294,168 28,222
NOI at share 1,259,777 1,072,828 186,949
Non-cash adjustments for straight-line rents,
amortization of acquired below-market leases,
net and other (6,060 ) (12,318 ) 6,258
NOI at share - cash basis $ 1,253,717 $ 1,060,510 $ 193,207 ________________________________________
(1) Reflects the transfer of 45.4% of common equity in the properties contributed
to the
(Amounts in thousands) For the Year Ended December 31, 2018
Total New York Other
Total revenues $ 2,163,720 $ 1,836,036 $ 327,684
Operating expenses (963,478 ) (806,464 ) (157,014 )
NOI - consolidated 1,200,242 1,029,572 170,670
Deduct: NOI attributable to noncontrolling
interests in consolidated subsidiaries (71,186 ) (48,490 ) (22,696 )
Add: NOI from partially owned entities 253,564 195,908 57,656
NOI at share 1,382,620 1,176,990 205,630
Non-cash adjustments for straight-line rents,
amortization of acquired below-market leases,
net and other (44,704 ) (45,427 ) 723
NOI at share - cash basis $ 1,337,916 $ 1,131,563 $ 206,353
46-------------------------------------------------------------------------------- NOI At Share by Segment for the Years EndedDecember 31, 2019 and 2018 - continued The elements of ourNew York and Other NOI at share for the years endedDecember 31, 2019 and 2018 are summarized below. (Amounts in thousands) For the Year Ended December 31, 2019 2018New York : Office(1) $ 724,526$ 743,001 Retail(1) 273,217 353,425 Residential 23,363 23,515 Alexander's 44,325 45,133 Hotel Pennsylvania 7,397 11,916 Total New York 1,072,828 1,176,990 Other: theMART(2) 102,071 90,929 555 California Street 59,657 54,691 Other investments(3) 25,221 60,010 Total Other 186,949 205,630 NOI at share$ 1,259,777 $ 1,382,620
________________________________________
(1) Reflects the transfer of 45.4% of common equity in the properties contributed
to the
(2) 2019 includes
tax expense accrued in 2018.
(3) The year ended
as a marketable security beginning
Avenue Office Condominium (sold on
on
The elements of ourNew York and Other NOI at share - cash basis for the years endedDecember 31, 2019 and 2018 are summarized below. (Amounts in thousands) For the Year Ended December 31, 2019 2018New York : Office(1) $ 718,734$ 726,108 Retail(1) 267,655 324,219 Residential 21,894 22,076 Alexander's 45,093 47,040 Hotel Pennsylvania 7,134 12,120 Total New York 1,060,510 1,131,563 Other: theMART(2) 108,130 94,070 555 California Street 60,156 53,488 Other investments(3) 24,921 58,795 Total Other 193,207 206,353 NOI at share - cash basis$ 1,253,717 $ 1,337,916
________________________________________
(1) Reflects the transfer of 45.4% of common equity in the properties contributed
to the
(2) 2019 includes
tax expense accrued in 2018.
(3) The year ended
as a marketable security beginning
Avenue Office Condominium (sold on
on March 4, 2019 ).
47-------------------------------------------------------------------------------- Reconciliation of Net Income to NOI At Share and NOI At Share - Cash Basis for the Years EndedDecember 31, 2019 and 2018 (Amounts in thousands) For the Year Ended December 31, 2019 2018 Net income$ 3,334,262 $ 422,603 Depreciation and amortization expense 419,107 446,570 General and administrative expense 169,920 141,871 Transaction related costs, impairment losses and other 106,538 31,320 Income from partially owned entities (78,865 ) (9,149 ) Loss from real estate fund investments 104,082 89,231 Interest and other investment income, net (21,819 ) (17,057 ) Interest and debt expense 286,623 347,949
Net gain on transfer to
-
Purchase price fair value adjustment - (44,060 )
Net gains on disposition of wholly owned and partially owned assets
(845,499 ) (246,031 )
Income tax expense 103,439 37,633
Loss (income) from discontinued operations 30 (638 )
NOI from partially owned entities 322,390 253,564
NOI attributable to noncontrolling interests in
consolidated subsidiaries (69,332 ) (71,186 )
NOI at share 1,259,777 1,382,620
Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(6,060 ) (44,704 )
NOI at share - cash basis $ 1,253,717 $ 1,337,916
NOI At Share by Region
For the Year Ended December 31,
2019 2018
Region:
New York City metropolitan area 87 % 89 %
Chicago, IL 8 % 7 %
San Francisco, CA 5 % 4 %
100 % 100 %
48-------------------------------------------------------------------------------- Results of Operations - Year EndedDecember 31, 2019 Compared toDecember 31, 2018 Revenues Our revenues, which consist of rental revenues and fee and other income, were$1,924,700,000 for the year endedDecember 31, 2019 compared to$2,163,720,000 in the prior year, a decrease of$239,020,000 . Below are the details of the (decrease) increase by segment: (Amounts in thousands) (Decrease) increase due to: Total New York
Other
Rental revenues: Acquisitions, dispositions and other$ (8,877 ) $ (8,195 ) $ (682 ) Development and redevelopment (17,613 ) (17,991 ) 378 Hotel Pennsylvania (4,034 ) (4,034 ) - Trade shows (1,959 ) - (1,959 ) Properties transferred toFifth Avenue and Times Square JV (208,360 ) (208,360 ) - Same store operations 732 (20,406 ) (1) 21,138 (240,111 ) (258,986 ) 18,875 Fee and other income: BMS cleaning fees 4,317 4,270 47 Management and leasing fees 218 1,491 (1,273 ) Properties transferred toFifth Avenue and Times Square JV (833 ) (833 ) - Other income (2,611 ) (4,118 ) 1,507 1,091 810 281
Total (decrease) increase in revenues
________________________________________
(1) Primarily due to (i)
in 2019 as a result of
and (ii)
related to Topshop at 478-486 Broadway in 2019.
49-------------------------------------------------------------------------------- Results of Operations - Year EndedDecember 31, 2019 Compared toDecember 31, 2018 - continued Expenses Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative, expense from deferred compensation plan liability, and transaction related costs, impairment losses and other, were$1,625,155,000 for the year endedDecember 31, 2019 compared to$1,580,759,000 in the prior year, an increase of$44,396,000 . Below are the details of the increase by segment: (Amounts in thousands) Increase (decrease) due to: Total New York Other Operating: Acquisitions, dispositions and other$ (1,659 ) $ (3,901 ) $ 2,242 Development and redevelopment (4,831 ) (5,480 ) 649 Non-reimbursable expenses (14,190 ) (13,222 ) (968 ) Hotel Pennsylvania 495 495 - Trade shows 535 - 535 BMS expenses 3,188 3,141 47 Properties transferred to Fifth Avenue and Times Square JV (41,583 ) (41,583 ) - Same store operations 12,548 12,390 158 (45,497 ) (48,160 ) 2,663 Depreciation and amortization: Acquisitions, dispositions and other 598 586 12 Development and redevelopment (6,454 ) (6,683 ) 229 Properties transferred to Fifth Avenue and Times Square JV (56,545 ) (56,545 ) - Same store operations 34,938 31,636 3,302 (27,463 ) (31,006 ) 3,543 General and administrative 28,049 (1) 19,376 8,673 Expense from deferred compensation plan liability 14,089 - 14,089 Transaction related costs, impairment losses and other 75,218 75,846 (2) (628 ) Total increase in expenses$ 44,396 $ 16,056 $ 28,340 ____________________
(1) 2019 includes (i)
the time-based equity compensation granted in connection with the new
leadership group announced in
associated with these awards will be
in 2022 and
expense for the accelerated vesting of previously issued OP Units and Vornado
restricted stock due to the removal of the time-based vesting requirement for
participants who have reached 65 years of age, and (iii)
capitalized internal leasing costs as a result of the
adoption of Accounting Standard Update 2016-02, Leases, under which internal
leasing costs can no longer be capitalized.
(2) 2019 includes
primarily 608 Fifth Avenue , partially offset by (i) $12,000 non-cash
impairment loss in 2018 and (ii) $13,103 additional New York City real
property transfer tax ("Transfer Tax") recognized in the first quarter of
2018 related to the acquisition of
owns
recognized this expense based on the precedent established by the
Avenue. See Note 4 - Real Estate Fund Investments to the consolidated
financial statements in Part II, Item 8 of this Annual Report on Form 10-K
for additional information regarding this matter.
50-------------------------------------------------------------------------------- Results of Operations - Year EndedDecember 31, 2019 Compared toDecember 31, 2018 - continued Income from Partially Owned Entities Below are the components of income (loss) from partially owned entities for the years endedDecember 31, 2019 and 2018. (Amounts in thousands) Percentage For the Year Ended December 31, Ownership at December 31, 2019 2019 2018 Our share of net income (loss):Fifth Avenue and Times Square JV(1): Equity in net income 51.5%$ 31,130 $ - Return on preferred equity, net of our share of the expense 27,586 - 58,716 - Alexander's(2) 32.4% 23,779 15,045 Partially owned office buildings(3) Various (3,443 ) (3,085 ) Other investments(4) Various (187 ) (2,811 )$ 78,865 $ 9,149 ____________________
(1) The year ended
Avenue and Times Square JV since
Partially Owned Entities to the consolidated financial statements in Part II,
Item 8 of this Annual Report on Form 10-K for additional information.
(2) 2018 includes our
to the
Alexander's recorded this expense based on the precedent established by the
Fund Investments to the consolidated financial statements in Part II, Item 8
of this Annual Report on Form 10-K for additional information regarding this
matter.
(3) Includes interests in
Street,
share of additional Transfer Tax related to the
financial statements in Part II, Item 8 of this Annual Report on Form 10-K
for additional information regarding this matter.
(4) Includes interests in
Tower,
Condominium (sold on
(accounted for as a marketable security from
Loss from Real Estate Fund Investments Below are the components of the loss from our real estate fund investments for the years endedDecember 31, 2019 and 2018. (Amounts in thousands) For the Year Ended December 31, 2019 2018 Net investment income $ 2,027 $ 6,105 Net unrealized loss on held investments (106,109 ) (83,794 ) Net realized loss on exited investments - (912 ) Transfer tax - (10,630 ) (1) Loss from real estate fund investments (104,082 )
(89,231 ) Less loss attributable to noncontrolling interests in consolidated subsidiaries
55,274 61,230
Loss from real estate fund investments net of controlling interests in consolidated subsidiaries(2)$ (48,808 ) $ (28,001 ) ____________________
(1) Due to the additional Transfer Tax related to the
One
in the first quarter of 2018. We appealed the
("Appellate Division"). Our appeal was heard on
2019, the Appellate Division entered a unanimous decision and order that
confirmed the decision of the
20, 2019, we filed a motion to reargue the Appellate Division's decision or
for leave to appeal to the
denied on
(2) 2018 includes
taxes and reduction in carried interest.
51-------------------------------------------------------------------------------- Results of Operations - Year EndedDecember 31, 2019 Compared toDecember 31, 2018 - continued Interest and Other Investment Income, net Below are the components of interest and other investment, net for the years endedDecember 31, 2019 and 2018. (Amounts in thousands) For the Year
Ended
2019 2018
Interest on cash and cash equivalents and restricted cash
$ 15,827 Interest on loans receivable(1) 6,326 10,298 Decrease in fair value of marketable securities (5,533 ) (26,453 ) Dividends on marketable securities 3,938 13,339 Other, net 3,708 4,046$ 21,819 $ 17,057 ____________________
(1) 2018 includes
in a mezzanine loan which was previously repaid to us.
Interest and Debt Expense Interest and debt expense was$286,623,000 for the year endedDecember 31, 2019 , compared to$347,949,000 in the prior year, a decrease of$61,326,000 . This decrease was primarily due to (i)$30,245,000 of lower interest expense resulting from the repayment of the 220 CPS loan, (ii)$30,029,000 of lower interest expense resulting from the deconsolidation of mortgages payable of the properties contributed toFifth Avenue and Times Square JV inApril 2019 , (iii)$15,137,000 of lower interest from the redemption of the$400,000,000 5.00% senior unsecured notes inApril 2019 , and (iv)$13,077,000 lower capital lease interest due to the acquisition of the fee interest in1535 Broadway inSeptember 2018 , partially offset by (v)$22,540,000 of expense from debt prepayment costs relating to redemption of the senior unsecured notes, and (vi)$5,457,000 of higher interest from the interest rate swap on our$750,000,000 unsecured term loan.Net Gain on Transfer toFifth Avenue and Times Square JV InApril 2019 , we recognized a$2,571,099,000 net gain from the transfer of common equity in the properties contributed toFifth Avenue and Times Square JV, including the related step-up in our basis of the retained portion of the assets to fair value. Purchase Price Fair Value Adjustment The purchase price fair value adjustment of$44,060,000 for the year endedDecember 31, 2018 represents the difference between the estimated fair market value and the book basis of our 50.1% interest in the joint venture that is developing theFarley Office and Retail Building as a result of our increased ownership in the joint venture to 95.0% from 50.1%.Net Gains on Disposition of Wholly Owned and Partially Owned Assets Net gains on disposition of wholly owned and partially owned assets of$845,499,000 for the year endedDecember 31, 2019 primarily consists of (i)$604,393,000 of net gains on sale of 220 CPS condominium units, (ii)$159,292,000 net gain on sale of our 25% interest in330 Madison Avenue , (iii)$62,395,000 net gain from the sale of all of our UE partnership units, and (iv)$19,477,000 net gain on sale of3040 M Street . Net gains of$246,031,000 for the year endedDecember 31, 2018 primarily consists of (i)$134,032,000 net gain on the sale of our 49.5% interests in 666 Fifth Avenue Office Condominium, (ii)$81,224,000 net gain on sale of 220 CPS condominium units, (iii)$23,559,000 net gain on sale of27 Washington Square North , and (iv)$7,308,000 net gain from repayment of our interest on the mortgage loan on 666 Fifth Avenue Office Condominium. Income Tax Expense For the year endedDecember 31, 2019 , we had income tax expense of$103,439,000 , compared to$37,633,000 in the prior year, an increase of$65,806,000 . This increase was primarily due to$87,940,000 of higher income tax expense on the sale of 220 CPS condominium units, partially offset by$16,771,000 of expense in the year endedDecember 31, 2018 due to the$44,060,000 purchase price fair value adjustment recognized as a result of our increased ownership in theFarley Office and Retail Building joint venture. 52 -------------------------------------------------------------------------------- Results of Operations - Year EndedDecember 31, 2019 Compared toDecember 31, 2018 - continued (Loss) Income from Discontinued Operations Loss from discontinued operations for the year endedDecember 31, 2019 was$30,000 compared to income of$638,000 in the prior year, a decrease in income of$668,000 . Net Loss Attributable to Noncontrolling Interests in Consolidated Subsidiaries Net loss attributable to noncontrolling interests in consolidated subsidiaries was$24,547,000 for the year endedDecember 31, 2019 , compared to$53,023,000 in the prior year, a decrease of$28,476,000 . This decrease resulted primarily from (i)$11,945,000 net gain on transfer toFifth Avenue and Times Square JV attributable to noncontrolling interests for the year endedDecember 31, 2019 , (ii)$6,538,000 of additional Transfer Tax allocated to noncontrolling interests related to the acquisition ofIndependence Plaza for the year endedDecember 31, 2018 , and (iii)$5,956,000 of lower net loss allocated to the noncontrolling interests of our real estate fund investments, Net Income Attributable to Noncontrolling Interests in theOperating Partnership (Vornado Realty Trust ) Net income attributable to noncontrolling interests in theOperating Partnership was$210,872,000 for the year endedDecember 31, 2019 , compared to$25,672,000 in the prior year, an increase of$185,200,000 . The increase resulted primarily from higher net income subject to allocation to Class A unitholders due to the net gain on transfer toFifth Avenue and Times Square JV. Preferred Share Dividends ofVornado Realty Trust Preferred share dividends were$50,131,000 for the year endedDecember 31, 2019 , compared to$50,636,000 in the prior year, a decrease of$505,000 . Preferred Unit Distributions ofVornado Realty L.P. Preferred unit distributions were$50,296,000 for the year endedDecember 31, 2019 , compared to$50,830,000 in the prior year, a decrease of$534,000 . Preferred Share/Unit Issuance Costs For the year endedDecember 31, 2018 , we recognized preferred share/unit issuance costs of$14,486,000 representing the write-off of issuance costs upon the redemption of all the outstanding Series G and Series I cumulative redeemable preferred shares/units inJanuary 2018 . 53 -------------------------------------------------------------------------------- Results of Operations - Year EndedDecember 31, 2019 Compared toDecember 31, 2018 - continued Same Store Net Operating Income At Share Same store NOI at share represents NOI at share from operations which are in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is same store NOI at share adjusted to exclude straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store NOI at share and same store NOI at share - cash basis should not be considered alternatives to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. Below are reconciliations of NOI at share to same store NOI at share for ourNew York segment, theMART,555 California Street and other investments for the year endedDecember 31, 2019 compared toDecember 31, 2018 . (Amounts in thousands) 555 California Total New York theMART Street Other NOI at share for the year ended December 31, 2019$ 1,259,777 $ 1,072,828 $ 102,071 $ 59,657 $ 25,221 Less NOI at share from: Acquisitions (334 ) (334 ) - - - Change in ownership interests in properties contributed to Fifth Avenue and Times Square JV (5,479 ) (5,479 ) - - - Dispositions (7,420 ) (7,420 ) - - - Development properties (54,099 ) (54,099 ) - - - Other non-same store (income) expense, net (33,028 ) (5,585 ) (2,635 ) 413 (25,221 ) Same store NOI at share for the year ended December 31, 2019$ 1,159,417 $ 999,911
NOI at share for the year ended December 31, 2018$ 1,382,620 $ 1,176,990 $ 90,929 $ 54,691 $ 60,010 Less NOI at share from: Acquisitions (121 ) (121 ) - - - Change in ownership interests in properties contributed to Fifth Avenue and Times Square JV (84,020 ) (84,020 ) - - - Dispositions (14,949 ) (14,949 ) - - - Development properties (74,720 ) (74,720 ) - - - Other non-same store (income) expense, net (72,930 ) (7,825 ) (5,155 ) 60 (60,010 ) Same store NOI at share for the year ended December 31, 2018$ 1,135,880 $ 995,355
Increase in same store NOI at share for the year endedDecember 31, 2019 compared to December 31, 2018$ 23,537 $ 4,556
% increase in same store NOI at share 2.1 % 0.5 % (1) 15.9 % (2) 9.7 % - %
____________________
(1)
(2) Primarily due to
related to real estate tax expense accrued in 2018.
54-------------------------------------------------------------------------------- Results of Operations - Year EndedDecember 31, 2019 Compared toDecember 31, 2018 - continued Same Store Net Operating Income At Share - continued Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for ourNew York segment, theMART,555 California Street and other investments for the year endedDecember 31, 2019 compared toDecember 31, 2018 . (Amounts in thousands) 555 California Total New York theMART Street Other NOI at share - cash basis for the year ended December 31, 2019$ 1,253,717 $ 1,060,510
Less NOI at share - cash basis
from:
Acquisitions (266 ) (266 ) - - -
Change in ownership interests in
properties contributed to Fifth
Avenue and Times Square JV (5,183 ) (5,183 ) - - -
Dispositions (8,219 ) (8,219 ) - - -
Development properties (64,359 ) (64,359 ) - - -
Other non-same store (income)
expense, net (52,594 ) (24,892 ) (2,973 ) 192 (24,921 )
Same store NOI at share - cash basis
for the year ended
NOI at share - cash basis for the year ended December 31, 2018$ 1,337,916 $ 1,131,563
Less NOI at share - cash basis
from:
Acquisitions (121 ) (121 ) - - -
Change in ownership interests in
properties contributed to Fifth
Avenue and Times Square JV (79,427 ) (79,427 ) - - -
Dispositions (14,764 ) (14,764 ) - - -
Development properties (81,137 ) (81,137 ) - - -
Other non-same store (income)
expense, net (78,119 ) (14,011 ) (5,373 ) 60 (58,795 )
Same store NOI at share - cash basis
for the year ended
Increase in same store NOI at share - cash basis for the year ended December 31, 2019 compared to December 31, 2018$ 38,748 $ 15,488 $ 16,460 $ 6,800 $ - % increase in same store NOI at share - cash basis 3.6 % 1.6 % (1) 18.6 % (2) 12.7 % - % ____________________
(1)
by 2.2%.
(2) Primarily due to
related to real estate tax expense accrued in 2018.
55-------------------------------------------------------------------------------- Supplemental Information NOI At Share by Segment for the Three Months EndedDecember 31, 2019 and 2018 Below is a summary of NOI at share by segment for the three months endedDecember 31, 2019 and 2018. (Amounts in thousands) For the Three Months Ended December 31, 2019 Total New York(1) Other Total revenues$ 460,968 $ 377,626 $ 83,342 Operating expenses (223,975 ) (184,231 ) (39,744 ) NOI - consolidated 236,993 193,395 43,598 Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries (17,417 ) (9,885 ) (7,532 ) Add: NOI from partially owned entities 85,990 82,774 3,216 NOI at share 305,566 266,284 39,282 Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other (6,590 ) (8,577 ) 1,987 NOI at share - cash basis$ 298,976 $ 257,707 $ 41,269
________________________________________
(1) Reflects the transfer of 45.4% of common equity in the properties contributed
to the
(Amounts in thousands) For the Three Months
Ended
Total New York Other
Total revenues $ 543,417 $ 466,554 $ 76,863
Operating expenses (254,320 ) (206,696 ) (47,624 )
NOI - consolidated 289,097 259,858 29,239
Deduct: NOI attributable to noncontrolling
interests in consolidated subsidiaries (19,771 ) (13,837 ) (5,934 )
Add: NOI from partially owned entities 60,205 49,178 11,027
NOI at share 329,531 295,199 34,332
Non-cash adjustments for straight-line rents,
amortization of acquired below-market leases,
net and other (5,532 ) (6,266 ) 734
NOI at share - cash basis $ 323,999 $ 288,933 $ 35,066
56--------------------------------------------------------------------------------
Supplemental Information - continued
NOI At Share by Segment for the Three Months EndedDecember 31, 2019 and 2018 - continued The elements of ourNew York and Other NOI at share for the three months endedDecember 31, 2019 and 2018 are summarized below. (Amounts in thousands) For the Three Months Ended December 31, 2019 2018New York : Office(1) $ 183,925$ 186,832 Retail(1) 59,728 85,549 Residential 5,835 5,834 Alexander's 10,626 11,023 Hotel Pennsylvania 6,170 5,961 Total New York 266,284 295,199 Other: theMART(2) 22,712 10,981 555 California Street 14,533 14,005 Other investments(3) 2,037 9,346 Total Other 39,282 34,332 NOI at share $ 305,566$ 329,531
________________________________________
(1) Reflects the transfer of 45.4% of common equity in the properties contributed
to the
(2) The three months ended
estate tax expense accrual due to an increase in the tax-assessed value of
theMART.
(3) The three months ended
(accounted for as a marketable security beginning
from UE (sold on
The elements of ourNew York and Other NOI at share - cash basis for the three months endedDecember 31, 2019 and 2018 are summarized below. (Amounts in thousands) For the Three Months Ended December 31, 2019 2018New York : Office(1) $ 180,762$ 185,624 Retail(1) 54,357 80,515 Residential 5,763 5,656 Alexander's 10,773 11,129 Hotel Pennsylvania 6,052 6,009 Total New York 257,707 288,933 Other: theMART(2) 24,646 12,758 555 California Street 14,491 13,784 Other investments(3) 2,132 8,524 Total Other 41,269 35,066 NOI at share - cash basis $ 298,976$ 323,999
________________________________________
(1) Reflects the transfer of 45.4% of common equity in the properties contributed
to the
(2) The three months ended
estate tax expense accrual due to an increase in the tax-assessed value of
theMART.
(3) The three months ended
(accounted for as a marketable security beginning
from UE (sold on March 4, 2019 ).
57--------------------------------------------------------------------------------
Supplemental Information - continued
Reconciliation of Net Income to NOI At Share and NOI At Share - Cash Basis for the Three Months EndedDecember 31, 2019 and 2018 (Amounts in thousands) For the Three Months Ended December 31, 2019 2018 Net income $ 160,676 $ 97,821 Depreciation and amortization expense 92,926 112,869 General and administrative expense 39,791 32,934 Transaction related costs, impairment losses and other 3,223 14,637 Income from partially owned entities (22,726 ) (3,090 ) Loss from real estate fund investments 90,302 51,258 Interest and other investment income, net (5,889 ) (7,656 ) Interest and debt expense 59,683 83,175 Purchase price fair value adjustment - (44,060 ) Net gains on disposition of wholly owned and partially owned assets (203,835 ) (81,203 ) Income tax expense 22,897 32,669 Income from discontinued operations (55 ) (257 ) NOI from partially owned entities 85,990 60,205 NOI attributable to noncontrolling interests in consolidated subsidiaries (17,417 ) (19,771 ) NOI at share 305,566 329,531 Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other (6,590 ) (5,532 ) NOI at share - cash basis $ 298,976 $ 323,999 NOI At Share by Region For the Three Months Ended December 31, 2019 2018 Region: New York City metropolitan area 88 % 92 % Chicago, IL 7 % 3 % San Francisco, CA 5 % 5 % 100 % 100 % 58
--------------------------------------------------------------------------------
Supplemental Information - continued
Three Months EndedDecember 31, 2019 Compared toDecember 31, 2018 Same Store Net Operating Income At Share Below are reconciliations of NOI at share to same store NOI at share for ourNew York segment, theMART,555 California Street and other investments for the three months endedDecember 31, 2019 compared toDecember 31, 2018 . (Amounts in thousands) 555 California Total New York theMART Street Other NOI at share for the three months ended December 31, 2019$ 305,566 $ 266,284 $ 22,712 $ 14,533 $ 2,037 Less NOI at share from: Acquisitions (122 ) (122 ) - - - Dispositions (62 ) (62 ) - - - Development properties (16,082 ) (16,082 ) - - - Other non-same store (income) expense, net (8,164 ) (5,969 ) (172 ) 14 (2,037 )
Same store NOI at share for the three
months ended
NOI at share for the three months ended December 31, 2018$ 329,531 $ 295,199 $
10,981
Less NOI at share from:
Change in ownership interests in
properties contributed to Fifth
Avenue and Times Square JV (28,683 ) (28,683 ) - - -
Dispositions (3,614 ) (3,614 ) - - -
Development properties (21,797 ) (21,811 ) - 14 -
Other non-same store (income)
expense, net (13,041 ) (3,291 ) (463 ) 59 (9,346 )
Same store NOI at share for the three
months ended
Increase in same store NOI at share for the three months ended December 31, 2019 compared to December 31, 2018$ 18,740 $ 6,249 $ 12,022 $ 469 $ -
% increase in same store NOI at share 7.1 % 2.6 % (1) 114.3 % (2)
3.3 % - %
____________________
(1)
(2) The three months ended
estate tax expense accrual due to an increase in the tax-assessed value of
theMART.
59--------------------------------------------------------------------------------
Supplemental Information - continued
Three Months EndedDecember 31, 2019 Compared toDecember 31, 2018 - continued Same Store Net Operating Income At Share - continued Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for ourNew York segment, theMART,555 California Street and other investments for the three months endedDecember 31, 2019 compared toDecember 31, 2018 . (Amounts in thousands) 555 California Total New York theMART Street Other
NOI at share - cash basis for the three
months ended
Less NOI at share - cash basis
from:
Acquisitions (54 ) (54 ) - - -
Dispositions (66 ) (66 ) - - -
Development properties (16,948 ) (16,948 ) - - -Other non-same store income, net (9,736 ) (7,373 ) (172 )
(59 ) (2,132 )
Same store NOI at share - cash basis
for the three months ended December 31,
2019 $ 272,172 $ 233,266 $
24,474
NOI at share - cash basis for the three
months ended
Less NOI at share - cash basis
from:
Change in ownership interests in
properties contributed to Fifth
Avenue and Times Square JV (27,243 ) (27,243 ) - - -
Dispositions (3,870 ) (3,870 ) - - -
Development properties (24,090 ) (24,104 ) - 14 -
Other non-same store (income)
expense, net (13,400 ) (4,416 ) (520 ) 60 (8,524 )
Same store NOI at share - cash basis
for the three months ended December 31,
2018 $ 255,396 $ 229,300 $
12,238
Increase in same store NOI at share - cash basis for the three months endedDecember 31, 2019 compared to December 31, 2018$ 16,776 $ 3,966 $
12,236
% increase in same store NOI at share - cash basis 6.6 % 1.7 % (1) 100.0 % (2) 4.1 % - % ____________________
(1)
by 1.8%.
(2) The three months ended
estate tax expense accrual due to an increase in the tax-assessed value of
theMART.
60--------------------------------------------------------------------------------
Supplemental Information - continued
NOI At Share by Segment for the Three Months EndedDecember 31, 2019 andSeptember 30, 2019 Below is a summary of NOI at share and NOI at share - cash basis by segment for the three months endedDecember 31, 2019 andSeptember 30, 2019 . (Amounts in thousands) For the Three Months
Ended
Total New York Other
Total revenues $ 460,968 $ 377,626 $ 83,342
Operating expenses (223,975 ) (184,231 ) (39,744 )
NOI - consolidated 236,993 193,395 43,598
Deduct: NOI attributable to noncontrolling
interests in consolidated subsidiaries (17,417 ) (9,885 ) (7,532 )
Add: NOI from partially owned entities 85,990 82,774 3,216
NOI at share 305,566 266,284 39,282
Non-cash adjustments for straight-line rents,
amortization of acquired below-market leases,
net and other (6,590 ) (8,577 ) 1,987
NOI at share - cash basis $ 298,976 $ 257,707 $ 41,269
(Amounts in thousands) For the Three Months Ended September 30, 2019
Total New York Other
Total revenues $ 465,961 $ 380,568 $ 85,393
Operating expenses (226,359 ) (188,159 ) (38,200 )
NOI - consolidated 239,602 192,409 47,193
Deduct: NOI attributable to noncontrolling
interests in consolidated subsidiaries (18,096 ) (9,574 ) (8,522 )
Add: NOI from partially owned entities 86,024 82,649 3,375
NOI at share 307,530 265,484 42,046
Non-cash adjustments for straight-line rents,
amortization of acquired below-market leases,
net and other (4,037 ) (5,560 ) 1,523
NOI at share - cash basis $ 303,493 $ 259,924 $ 43,569
61--------------------------------------------------------------------------------
Supplemental Information - continued
NOI At Share by Segment for the Three Months EndedDecember 31, 2019 andSeptember 30, 2019 - continued The elements of ourNew York and Other NOI at share for the three months endedDecember 31, 2019 andSeptember 30, 2019 are summarized below. (Amounts in thousands) For the Three Months Ended December 31, 2019 September 30, 2019New York : Office$ 183,925 $ 177,469 Retail 59,728 68,159 Residential 5,835 5,575 Alexander's 10,626 11,269 Hotel Pennsylvania 6,170 3,012 Total New York 266,284 265,484 Other: theMART 22,712 24,862 555 California Street 14,533 15,265 Other investments 2,037 1,919 Total Other 39,282 42,046 NOI at share$ 305,566 $ 307,530 The elements of ourNew York and Other NOI at share - cash basis for the three months endedDecember 31, 2019 andSeptember 30, 2019 are summarized below. (Amounts in thousands) For the Three Months Ended December 31, 2019 September 30, 2019 New York: Office$ 180,762 $ 174,796 Retail 54,357 65,636 Residential 5,763 5,057 Alexander's 10,773 11,471 Hotel Pennsylvania 6,052 2,964 Total New York 257,707 259,924 Other: theMART 24,646 26,588 555 California Street 14,491 15,325 Other investments 2,132 1,656 Total Other 41,269 43,569 NOI at share - cash basis$ 298,976 $ 303,493 62
--------------------------------------------------------------------------------
Supplemental Information - continued
Reconciliation of Net Income to NOI At Share and NOI At Share - Cash Basis for the Three Months EndedDecember 31, 2019 andSeptember 30, 2019 (Amounts in thousands) For the Three Months Ended December 31, 2019 September 30, 2019 Net income $ 160,676 $ 363,849 Depreciation and amortization expense 92,926 96,437 General and administrative expense 39,791 33,237 Transaction related costs, impairment losses and other 3,223 1,576 Income from partially owned entities (22,726 ) (25,946 ) Loss (income) from real estate fund investments 90,302 (2,190 ) Interest and other investment income, net (5,889 ) (3,045 ) Interest and debt expense 59,683 61,448 Net gains on disposition of wholly owned and partially owned assets (203,835 ) (309,657 ) Income tax expense 22,897 23,885 (Income) loss from discontinued operations (55 ) 8 NOI from partially owned entities 85,990 86,024 NOI attributable to noncontrolling interests in consolidated subsidiaries (17,417 ) (18,096 ) NOI at share 305,566 307,530 Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other (6,590 ) (4,037 ) NOI at share - cash basis $ 298,976 $ 303,493 63
--------------------------------------------------------------------------------
Supplemental Information - continued
Three Months EndedDecember 31, 2019 Compared toSeptember 30, 2019 Same Store Net Operating Income At Share Below are reconciliations of NOI at share to same store NOI at share for ourNew York segment, theMART,555 California Street and other investments for the three months endedDecember 31, 2019 compared toSeptember 30, 2019 . (Amounts in thousands) 555 California Total New York theMART Street Other NOI at share for the three months ended December 31, 2019$ 305,566 $ 266,284 $
22,712
Less NOI at share from:
Acquisitions (118 ) (118 ) - - -
Dispositions (62 ) (62 ) - - -
Development properties (16,087 ) (16,087 ) - - -
Other non-same store (income)
expense, net (8,103 ) (5,968 ) (172 ) 74 (2,037 )
Same store NOI at share for the three
months ended December 31, 2019 $ 281,196 $ 244,049 $
22,540
NOI at share for the three months ended September 30, 2019$ 307,530 $ 265,484 $
24,862
Less NOI at share from:
Dispositions (262 ) (262 ) - - -
Development properties (19,429 ) (19,429 ) - - -
Other non-same store (income)
expense, net (11,254 ) (8,877 ) (532 ) 74 (1,919 )
Same store NOI at share for the three
months ended September 30, 2019 $ 276,585 $ 236,916 $
24,330
Increase (decrease) in same store NOI at share for the three months ended December 31, 2019 compared to September 30, 2019$ 4,611 $ 7,133 $ (1,790 ) $ (732 ) $ - % increase (decrease) in same store NOI at share 1.7 % 3.0 % (1) (7.4 )% (4.8 )% - % ____________________
(1)
64
--------------------------------------------------------------------------------Supplemental Information - continued
Three Months EndedDecember 31, 2019 Compared toSeptember 30, 2019 - continued Same Store Net Operating Income At Share - continued Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for ourNew York segment, theMART,555 California Street and other investments for the three months endedDecember 31, 2019 compared toSeptember 30, 2019 . (Amounts in thousands) 555 California Total New York theMART Street Other NOI at share - cash basis for the three months ended December 31, 2019$ 298,976 $ 257,707 $
24,646
Less NOI at share - cash basis
from:
Acquisitions (49 ) (49 ) - - -
Dispositions (66 ) (66 ) - - -
Development properties (16,952 ) (16,952 ) - - -
Other non-same store income, net (9,678 ) (7,374 ) (172 ) - (2,132 )
Same store NOI at share - cash basis for
the three months ended
NOI at share - cash basis for the three months ended September 30, 2019$ 303,493 $ 259,924 $
26,588
Less NOI at share - cash basis
from:
Dispositions (693 ) (693 ) - - -
Development properties (24,641 ) (24,641 ) - - -
Other non-same store income, net (12,701 ) (10,174 ) (871 ) - (1,656 )
Same store NOI at share - cash basis for
the three months ended
Increase (decrease) in same store NOI at share - cash basis for the three months endedDecember 31, 2019 compared to September 30, 2019$ 6,773 $ 8,850 $
(1,243 )
% increase (decrease) in same store NOI at share - cash basis 2.6 % 3.9 % (1) (4.8 )% (5.4 )% - % ____________________
(1)
by 2.6%.
65-------------------------------------------------------------------------------- Related Party Transactions See Note 23 - Related Party Transactions to our consolidated financial statements in this Annual Report on Form 10-K for a discussion concerning related party transactions. Liquidity and Capital Resources Rental revenue 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, debt service, leasing commissions, dividends to shareholders and distributions to unitholders of theOperating Partnership , 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, unsecured term loans and unsecured revolving credit facilities; proceeds from the issuance of common and preferred equity; 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 of theOperating Partnership , cash dividends to shareholders, debt amortization and recurring capital expenditures. Capital requirements for development expenditures and acquisitions may require funding from borrowings and/or equity offerings. We expect to generate net cash of approximately$2 billion resulting from the sales of 100% of the 220 CPS residential condominium units, including$1 billion of after-tax net gain, of which$569,901,000 was recognized in our consolidated statements of income from inception toDecember 31, 2019 . As ofDecember 31, 2019 , 91% of the condominium units are sold or under sales contracts, with closings scheduled through 2020. 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. Dividends OnDecember 18, 2019 , Vornado'sBoard of Trustees declared a special dividend of$1.95 per share to common shareholders of record onDecember 30, 2019 (the "Record Date"). OnJanuary 15, 2020 ,$372,380,000 of cash was paid to Vornado's common shareholders and$25,912,000 of cash was paid to non-affiliated unitholders of theOperating Partnership for the special dividend. OnJanuary 15, 2020 , Vornado declared a quarterly common dividend of$0.66 per share (an indicated annual rate of$2.64 per common share). This dividend, if declared by theBoard of Trustees for all of 2020, would require Vornado to pay out approximately$504,000,000 of cash for common share dividends. In addition, during 2020, Vornado expects to pay approximately$50,000,000 of cash dividends on outstanding preferred shares and approximately$35,000,000 of cash distributions to unitholders of theOperating Partnership . 66 -------------------------------------------------------------------------------- Liquidity and Capital Resources - continued Financing Activities and Contractual Obligations We have an effective shelf registration for the offering of our equity and debt securities that is not limited in amount due to our status as a "well-known seasoned issuer." We have issued senior unsecured notes from a shelf registration statement that contain financial covenants that restrict our ability to incur debt, and that require us to maintain a level of unencumbered assets based on the level of our secured debt. Our unsecured 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 unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal. As ofDecember 31, 2019 , we are in compliance with all of the financial covenants required by our senior unsecured notes and our unsecured revolving credit facilities. As ofDecember 31, 2019 , we had$1,515,012,000 of cash and cash equivalents and$2,159,120,000 of borrowing capacity under our unsecured revolving credit facilities, net of letters of credit of$15,880,000 . A summary of our consolidated debt as ofDecember 31, 2019 and 2018 is presented below. (Amounts in thousands) As of December 31, 2019 As of December 31, 2018 Weighted Weighted Average Average Consolidated debt: Balance Interest Rate Balance Interest Rate Variable rate$ 1,643,500 3.09%$ 3,292,382 4.31% Fixed rate 5,801,516 3.57% 6,603,465 3.65% Total 7,445,016 3.46% 9,895,847 3.87% Deferred financing costs, net and other (38,407 ) (59,226 ) Total, net$ 7,406,609 $ 9,836,621 Our consolidated outstanding debt, net of deferred financing costs and other, was$7,406,609,000 atDecember 31, 2019 , a$2,430,012,000 decrease from the balance atDecember 31, 2018 . During 2020 and 2021,$450,000,000 and$2,326,516,000 , respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it using cash and cash equivalents or our unsecured revolving credit facilities. We may also refinance or prepay other outstanding debt depending on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements. Below is a schedule of our contractual obligations and commitments atDecember 31, 2019 . (Amounts in thousands) Contractual cash obligations(1) (principal and Less than interest(2)): Total 1 Year 1 - 3 Years 3 - 5 Years Thereafter Notes and mortgages payable$ 6,190,143 $ 1,719,730 $ 2,812,979 $ 886,033 $ 771,401 Operating leases 1,206,060 28,192 60,351 62,636 1,054,881 Purchase obligations, primarily construction commitments 679,579 558,568 121,011 - - Senior unsecured notes due 2025 529,406 15,750 31,500 31,500 450,656 Unsecured term loan 866,233 29,038 58,076 779,119 - Revolving credit facilities 618,596 14,260 26,911 577,425 - Other obligations(3) 556,852 6,991 14,673 16,139 519,049 Total contractual cash obligations$ 10,646,869 $ 2,372,529 $ 3,125,501 $ 2,352,852 $ 2,795,987 Commitments: Capital commitments to partially owned entities$ 12,643 $ 12,643 $ - $ - $ - Standby letters of credit 15,880 15,880 - - - Total commitments$ 28,523 $ 28,523 $ - $ - $ - ____________________
(1) Excludes committed tenant-related obligations as timing and amounts of
payments are uncertain and may only be due upon satisfactory performance of
certain conditions.
(2) Interest on variable rate debt is computed using rates in effect at December
31, 2019.
(3) Represents rent and fixed payments in lieu of real estate taxes due to Empire
and Retail Building .
67-------------------------------------------------------------------------------- Liquidity and Capital Resources - continued Financing Activities and Contractual Obligations - continued Details of 2019 financing activities are provided in the "Overview" of Management's Discussion and Analysis of Financial Conditions and Results of Operations. Details of 2018 financing activities are discussed below. Preferred Securities OnJanuary 4 and 11, 2018, we redeemed all of the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares/ units at their redemption price of$25.00 per share/unit, or$470,000,000 in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption, and expensed$14,486,000 of previously capitalized issuance costs. Unsecured Term Loan OnOctober 26, 2018 , we extended our$750,000,000 unsecured term loan fromOctober 2020 toFebruary 2024 . The interest rate on the extended unsecured term loan was lowered from LIBOR plus 1.15% to LIBOR plus 1.00%. In connection with the extension of our unsecured term loan, we entered into an interest rate swap from LIBOR plus 1.00% to a fixed rate of 3.87% throughOctober 2023 . Secured Debt OnJanuary 5, 2018 , we completed a$100,000,000 refinancing of33-00 Northern Boulevard (Center Building ), a 471,000 square foot office building inLong Island City, New York . The seven-year loan is at LIBOR plus 1.80%, which was swapped to a fixed rate of 4.14%. We realized net proceeds of approximately$37,200,000 after repayment of the existing 4.43%$59,800,000 mortgage and closing costs. OnApril 19, 2018 , the joint venture between the Fund and the Crowne Plaza Joint Venture completed a$255,000,000 refinancing of theCrowne Plaza Times Square Hotel . The interest-only loan is at LIBOR plus 3.53% and matures inMay 2020 with three one-year extension options. In connection therewith, the joint venture purchased an interest rate cap that caps LIBOR at a rate of 4.00%.The Crowne Plaza Times Square Hotel was previously encumbered by a$310,000,000 interest-only mortgage at LIBOR plus 2.80%, which was scheduled to mature inDecember 2018 . OnJune 11, 2018 , the joint venture that ownsIndependence Plaza , a three-building 1,327-unitManhattan residential complex completed a$675,000,000 refinancing ofIndependence Plaza . The seven-year interest-only loan matures inJuly 2025 and has a fixed rate of 4.25%. Our share of net proceeds, after repayment of the existing 3.48%$550,000,000 mortgage and closing costs, was$55,618,000 . OnAugust 9, 2018 , we completed a$120,000,000 refinancing of4 Union Square South , a 206,000 square footManhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.40% and matures in 2025, as extended. The property was previously encumbered by a$113,000,000 mortgage at LIBOR plus 2.15%, which was scheduled to mature in 2019. OnNovember 16, 2018 , we completed a$205,000,000 refinancing of150 West 34th Street , a 78,000 square footManhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.88% and matures in 2024, as extended. Concurrently, we invested$105,000,000 in a participation in the refinanced mortgage loan, which earns interest at a rate of LIBOR plus 2.00% and also matures in 2024, as extended, and is included in "other assets" on our consolidated balance sheets. The property was previously encumbered by a mortgage of the same amount at LIBOR plus 2.25%, which was scheduled to mature in 2020. Off-Balance Sheet Arrangements Our offbalance sheet arrangements consist primarily of our investments in joint ventures. All debt of our joint venture arrangements is non-recourse to us except for the mortgage loans secured by640 Fifth Avenue and7 West 34th Street , which we guaranteed and therefore are part of our tax basis. Our off-balance sheet arrangements are discussed in Note 6 - Investments in Partially Owned Entities and Note 22 - Commitments and Contingencies in our consolidated financial statements in this Annual Report on Form 10-K. 68 -------------------------------------------------------------------------------- Liquidity and Capital Resources - continued Certain Future Cash Requirements Capital Expenditures The following table summarizes anticipated 2020 capital expenditures. (Amounts in millions, except per 555 California square foot data) Total New York theMART Street
Expenditures to maintain assets
18.0 $ 5.0 Tenant improvements 143.0 128.0 15.0 - Leasing commissions 47.0 42.0 5.0 - Total recurring tenant improvements, leasing commissions and other capital expenditures$ 303.0 $ 260.0 $ 38.0 $ 5.0 Square feet budgeted to be leased (in thousands) 2,000 400 - Weighted average lease term (years) 10.0 8.5 - Tenant improvements and leasing commissions: Per square foot$ 85.00 $ 50.00 $ - Per square foot per annum 8.50 6.00 -
The table above excludes anticipated capital expenditures of each of our partially owned non-consolidated subsidiaries, as these entities fund their capital expenditures without additional equity contributions from us.
Development and Redevelopment Expenditures 220 CPS We are constructing a residential condominium tower containing 397,000 salable square feet at 220 CPS. The development cost of this project (exclusive of land cost of$515.4 million ) is estimated to be approximately$1.450 billion , of which$1.373 billion has been expended as ofDecember 31, 2019 .Penn District We are redeveloping PENN1, a 2,545,000 square foot office building located on34th Street betweenSeventh and Eighth Avenue . The development cost of this project is estimated to be$325,000,000 , of which$69,006,000 has been expended as ofDecember 31, 2019 . We are redeveloping PENN2, a 1,795,000 square foot (as expanded) office building, located on the west side ofSeventh Avenue between31st and 33rd Street . The development cost of this project is estimated to be$750,000,000 , of which$40,820,000 has been expended as ofDecember 31, 2019 . We are also making districtwide improvements within thePenn District . The development cost of these improvements is estimated to be$100,000,000 , of which$6,314,000 has been expended as ofDecember 31, 2019 . Our 95.0% joint venture (the remaining 5.0% is owned by the Related Companies ("Related")) is developing theFarley Office and Retail Building (the "Project"), which will include approximately 844,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 114,000 square feet of retail space. The total development cost of the Project is estimated to be approximately$1,030,000,000 . As ofDecember 31, 2019 ,$597,600,000 has been expended. The joint venture has entered into a development agreement with ESD to build the adjacent Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture's obligations. The joint venture has entered into a design-build contract withSkanska Moynihan Train Hall Builders pursuant to which they will build the Moynihan Train Hall, thereby fulfilling all of the joint venture's obligations to ESD. The obligations ofSkanska Moynihan Train Hall Builders have been bonded bySkanska USA and bear a full guaranty from Skanska AB. The development expenditures for the Moynihan Train Hall are estimated to be approximately$1.6 billion , which will be funded by governmental agencies. OnDecember 19, 2019 , we paidKmart Corporation $34,000,000 , of which$10,000,000 is expected to be reimbursed, to early terminate their 141,000 square foot retail space lease at PENN1 which was scheduled to expire inJanuary 2036 . We recently entered into a development agreement withMetropolitan Transportation Authority to oversee the development of theLong Island Rail Road 33rd Street entrance atPenn Station whichSkanska USA Civil Northeast, Inc. will construct under a fixed price contract for$120,805,000 . 69
-------------------------------------------------------------------------------- Liquidity and Capital Resources - continued Development and Redevelopment Expenditures - continued Other We are redeveloping a 78,000 square foot Class A office building at345 Montgomery Street , a part of our555 California Street complex inSan Francisco (70.0% interest) located at the corner of California andPine Street . The development cost of this project is estimated to be approximately$50,000,000 , of which our share is$35,000,000 . As ofDecember 31, 2019 ,$48,087,000 has been expended, of which our share is$33,661,000 . We are redeveloping a 165,000 square foot office building at825 Seventh Avenue , located at the corner of53rd Street andSeventh Avenue (50.0% interest). The redevelopment cost of this project is estimated to be approximately$30,000,000 , of which our share is$15,000,000 . As ofDecember 31, 2019 ,$23,128,000 has been expended, of which our share is$11,564,000 . We are also evaluating other development and redevelopment opportunities at certain of our properties inManhattan including, in particular, thePenn District . There can be no assurance that the above projects will be completed, completed on schedule or within budget. Insurance For our properties except theFarley Office and Retail Building , we maintain general liability insurance with limits of$300,000,000 per occurrence and per property, and all risk property and rental value insurance with limits of$2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake. Our California properties have earthquake insurance with coverage of$350,000,000 per occurrence and in the aggregate, subject to a deductible in the amount of 5% of the value of the affected property. We maintain coverage for certified terrorism acts with limits of$6.0 billion per occurrence and in the aggregate (as listed below),$1.2 billion for non-certified acts of terrorism, and$5.0 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 Act of 2002, as amended to date and which has been extended throughDecember 2027 .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 acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of$1,430,413 and 20% of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC. For theFarley Office and Retail Building , we maintain general liability insurance with limits of$100,000,000 per occurrence, and builder's risk insurance including coverage for existing property and development activities of$2.8 billion per occurrence and in the aggregate. We maintain coverage for certified and non-certified terrorism acts with limits of$1.0 billion per occurrence and in the aggregate. We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism and other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material. Our debt instruments, consisting of mortgage loans secured by our properties, 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 or refinance our properties and expand our portfolio. 70 -------------------------------------------------------------------------------- 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 currently 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. InJuly 2018 , we leased 78,000 square feet at345 Montgomery Street inSan Francisco, CA , to a subsidiary ofRegus PLC , for an initial term of 15 years. The obligations under the lease were guaranteed byRegus PLC in an amount of up to$90,000,000 . The tenant purported to terminate the lease prior to space delivery. We commenced a suit onOctober 23, 2019 seeking to enforce the lease and the guarantee. Our mortgage loans are non-recourse to us, except for the mortgage loans secured by640 Fifth Avenue ,7 West 34th Street and435 Seventh Avenue , which we guaranteed and therefore are part of our tax basis. 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. In addition, we have guaranteed the rent and payments in lieu of real estate taxes due to ESD, an entity ofNew York State , for theFarley Office and Retail Building . As ofDecember 31, 2019 , the aggregate dollar amount of these guarantees and master leases is approximately$1,524,000,000 . As ofDecember 31, 2019 ,$15,880,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities. Our unsecured 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 unsecured 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. The joint venture in which we own a 95.0% ownership interest was designated by ESD to develop theFarley Office and Retail Building . The joint venture entered into a development agreement with ESD and a design-build contract withSkanska Moynihan Train Hall Builders . Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture's obligations. Under the design-build agreement,Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture's obligations. The obligations ofSkanska Moynihan Train Hall Builders have been bonded bySkanska USA and bear a full guaranty from Skanska AB. As ofDecember 31, 2019 , we expect to fund additional capital to certain of our partially owned entities aggregating approximately$12,700,000 . As ofDecember 31, 2019 , we have construction commitments aggregating approximately$627,000,000 . Cash Flows for the Year EndedDecember 31, 2019 Compared toDecember 31, 2018 Our cash flow activities for the years endedDecember 31, 2019 and 2018 are summarized as follows: (Amounts in thousands) For the Year Ended
2019 2018 in Cash Flow
Net cash provided by operating activities $ 662,539 $ 802,641 $ (140,102 )
Net cash provided by (used in) investing
activities 2,463,276 (877,722 ) 3,340,998
Net cash used in financing activities (2,235,589 ) (1,122,826 ) (1,112,763 )
Cash and cash equivalents and restricted cash was$1,607,131,000 atDecember 31, 2019 , a$890,226,000 increase from the balance atDecember 31, 2018 . Net cash provided by operating activities of$662,539,000 for the year endedDecember 31, 2019 was comprised of$687,705,000 of cash from operations, including distributions of income from partially owned entities of$116,826,000 and a net decrease of$25,166,000 in cash due to the timing of cash receipts and payments related to changes in operating assets and liabilities. 71 -------------------------------------------------------------------------------- Liquidity and Capital Resources - continued Cash Flows for the Year EndedDecember 31, 2019 Compared toDecember 31, 2018 - continued The following table details the cash provided by (used in) investing activities for the years endedDecember 31, 2019 and 2018: (Amounts in thousands) For the Year Ended December 31, Increase (Decrease) in 2019 2018 Cash Flow Proceeds from sale of condominium units at 220 Central Park South$ 1,605,356 $ 214,776 $ 1,390,580 Proceeds from transfer of interest inFifth Avenue and Times Square JV (net of$35,562 of transaction costs and$10,899 of deconsolidated cash and restricted cash) 1,248,743 - 1,248,743 Development costs and construction in progress (649,056 ) (418,186 ) (230,870 ) Proceeds from redemption of640 Fifth Avenue preferred equity 500,000 - 500,000 Moynihan Train Hall expenditures (438,935 ) (74,609 ) (364,326 ) Proceeds from sale of real estate and related investments 324,201 219,731 104,470 Additions to real estate (233,666 ) (234,602 ) 936 Proceeds from sales of marketable securities 168,314 4,101 164,213 Acquisitions of real estate and other (69,699 ) (574,812 ) 505,113 Distributions of capital from partially owned entities 24,880 100,178 (75,298 ) Investments in partially owned entities (18,257 ) (37,131 ) 18,874 Proceeds from repayments of loans receivable 1,395 25,757 (24,362 ) Investments in loans receivable - (105,000 ) 105,000 Net consolidation of Farley Office and Retail Building - 2,075 (2,075 ) Net cash provided by (used in) investing activities$ 2,463,276 $ (877,722 ) $ 3,340,998 The following table details the cash used in financing activities for the years endedDecember 31, 2019 and 2018: (Amounts in thousands) For the Year Ended December 31, (Decrease) Increase in Cash 2019 2018 Flow Repayments of borrowings$ (2,718,987 ) $ (685,265 ) $ (2,033,722 ) Proceeds from borrowings 1,108,156 526,766 581,390 Dividends paid on common shares/Distributions to Vornado (503,785 ) (479,348 ) (24,437 ) Moynihan Train Hall reimbursement from Empire State Development 438,935 74,609 364,326 Purchase of marketable securities in connection with defeasance of mortgage payable (407,126 ) - (407,126 ) Distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries (80,194 ) (76,149 ) (4,045 ) Dividends paid on preferred shares/Distributions to preferred unitholders (50,131 ) (55,115 ) 4,984 Contributions from noncontrolling interests in consolidated subsidiaries 17,871 61,062 (43,191 ) Prepayment penalty on redemption of senior unsecured notes due 2022 (22,058 ) - (22,058 ) Debt issuance costs (15,588 ) (12,908 ) (2,680 ) Repurchase of shares/Class A units related to stock compensation agreements and related tax withholdings and other (8,692 ) (12,969 ) 4,277 Proceeds received from exercise of Vornado stock options and other 6,903 7,309 (406 ) Redemption of preferred shares/units (893 ) (470,000 ) 469,107 Debt prepayment and extinguishment costs - (818 ) 818
Net cash used in financing activities
72
--------------------------------------------------------------------------------
Liquidity and Capital Resources - continued
Capital Expenditures for the Year Ended December 31, 2019
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.
Below is a summary of amounts paid for capital expenditures and leasing
commissions for the year ended December 31, 2019 .
555 California
(Amounts in thousands) Total New York theMART Street
Expenditures to maintain assets $ 93,226 $ 80,416 $ 9,566 $ 3,244
Tenant improvements 98,261 84,870 9,244 4,147
Leasing commissions 18,229 16,316 827 1,086Recurring tenant improvements, leasing commissions and other capital expenditures 209,716 181,602 19,637
8,477
Non-recurring capital expenditures 30,374 28,269 332 1,773
Total capital expenditures and leasing
commissions $ 240,090 $ 209,871 $ 19,969 $ 10,250
Development and Redevelopment Expenditures for the Year Ended December 31, 2019
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. Our development project
estimates below include initial leasing costs, which are reflected as
non-recurring capital expenditures in the table above.
Below is a summary of amounts paid for development and redevelopment
expenditures in the year ended December 31, 2019 . These expenditures include
interest and debt expense of $72,200,000 , payroll of $16,014,000 , and other soft
costs (primarily architectural and engineering fees, permits, real estate taxes
and professional fees) aggregating $83,463,000 , which were capitalized in
connection with the development and redevelopment of these projects.
555 California
(Amounts in thousands) Total New York theMART Street Other
$ - $ -
220 CPS 181,177 - - - 181,177
PENN1 51,168 51,168 - - -
345 Montgomery Street 29,441 - - 29,441 -
PENN2 28,719 28,719 - - -
606 Broadway 7,434 7,434 - - -
1535 Broadway 1,031 1,031 - - -
Other 84,631 78,128 2,322 3,896 285
$ 649,056 $ 431,935 $ 2,322 $ 33,337 $ 181,462
73--------------------------------------------------------------------------------
Liquidity and Capital Resources - continued
Capital Expenditures for the Year Ended
555 California
(Amounts in thousands) Total New York theMART Street
Expenditures to maintain assets $ 92,386 $ 70,954 $ 13,282 $ 8,150
Tenant improvements 100,191 76,187 15,106 8,898
Leasing commissions 33,254 29,435 459 3,360Recurring tenant improvements, leasing commissions and other capital expenditures 225,831 176,576 28,847
20,408
Non-recurring capital expenditures 43,135 31,381 260 11,494
Total capital expenditures and leasing
commissions $ 268,966 $ 207,957 $
29,107
Development and Redevelopment Expenditures for the Year EndedDecember 31, 2018 Below is a summary of amounts paid for development and redevelopment expenditures in the year endedDecember 31, 2018 . These expenditures include interest and debt expense of$73,166,000 , payroll of$12,120,000 , and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating$66,651,000 , which were capitalized in connection with the development and redevelopment of these projects. 555 California (Amounts in thousands) Total New York theMART Street Other 220 CPS$ 295,827 $ - $ - $ -$ 295,827 Farley Office and Retail Building(1) 18,995 18,995 - - - 345 Montgomery Street 18,187 - - 18,187 - PENN2 16,288 16,288 - - - 606 Broadway 15,959 15,959 - - - PENN1 8,856 8,856 - - - 1535 Broadway 8,645 8,645 - - - Other 35,429 20,372 10,790 445 3,822$ 418,186 $ 89,115 $ 10,790 $ 18,632 $ 299,649
____________________
(1) Includes amounts paid for development fromOctober 30, 2018 , the date of consolidation of theFarley Office and Retail Building . Funds From OperationsVornado Realty Trust FFO is computed in accordance with the definition adopted by theBoard of Governors of theNational Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciable real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are non-GAAP financial measures used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in Note 19 - Income Per Share/Income Per Class A Unit, in our consolidated financial statements on page 130 of this Annual Report on Form 10-K. 74 -------------------------------------------------------------------------------- FFO - continuedVornado Realty Trust - continued FFO attributable to common shareholders plus assumed conversions was$311,876,000 , or$1.63 per diluted share, for the three months endedDecember 31, 2019 , compared to$210,100,000 , or$1.10 per diluted share, for the prior year's three months. FFO attributable to common shareholders plus assumed conversions was$1,003,398,000 , or$5.25 per diluted share, for the year endedDecember 31, 2019 , compared to$729,740,000 , or$3.82 per diluted share, for the prior year. Details of certain items that impact FFO are discussed in the financial results summary of our "Overview." (Amounts in thousands, except per For the Three Months Ended For the Year Ended share amounts) December 31, December 31, 2019 2018 2019 2018 Reconciliation of our net income attributable to common shareholders to FFO attributable to common shareholders plus assumed conversions: Net income attributable to common shareholders$ 193,217 $ 100,494 $ 3,097,806 $ 384,832 Per diluted share$ 1.01 $ 0.53 $ 16.21 $ 2.01 FFO adjustments: Depreciation and amortization of real property$ 85,609 $ 104,067 $ 389,024 $ 413,091 Net losses (gains) on sale of real estate 58 - (178,711 ) (158,138 ) Real estate impairment losses 565 12,000 32,001 12,000 Net gain on transfer toFifth Avenue and Times Square JV onApril 18, 2019 , net of$11,945 attributable to noncontrolling interests - - (2,559,154 ) - Net gain from sale of UE common shares (sold on March 4, 2019) - - (62,395 ) - Decrease (increase) in fair value of marketable securities: PREIT 2,438 - 21,649 - Lexington (sold on March 1, 2019) - 1,662 (16,068 ) 26,596 Other - (10 ) (48 ) (143 ) After-tax purchase price fair value adjustment on depreciable real estate - (27,289 ) - (27,289 ) Proportionate share of adjustments to equity in net income of partially owned entities to arrive at FFO: Depreciation and amortization of real property 37,389 24,309 134,706 101,591 Net gains on sale of real estate - - - (3,998 ) Decrease in fair value of marketable securities 864 2,081
2,852 3,882
126,923 116,820 (2,236,144 ) 367,592
Noncontrolling interests' share of
above adjustments (8,278 ) (7,229 ) 141,679 (22,746 )
FFO adjustments, net $ 118,645 $ 109,591 $ (2,094,465 ) $ 344,846
FFO attributable to common
shareholders $ 311,862 $ 210,085 $ 1,003,341 $ 729,678
Convertible preferred share dividends 14 15 57 62
FFO attributable to common
shareholders plus assumed conversions $ 311,876 $ 210,100 $ 1,003,398 $ 729,740
Per diluted share $ 1.63 $ 1.10
Reconciliation of Weighted Average
Shares
Weighted average common shares
outstanding 190,916 190,348 190,801 190,219
Effect of dilutive securities:
Employee stock options and restricted
share awards 191 814 216 933
Convertible preferred shares 33 37 34 37
Denominator for FFO per diluted share 191,140 191,199 191,051 191,189
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