Certain statements contained in this Quarterly Report constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "intends," "plans," "would," "may" or other similar expressions in this Quarterly Report on Form 10Q. We also note the following forward-looking statements: in the case of our development and redevelopment projects, the estimated completion date, estimated project cost and cost to complete; and estimates of future capital expenditures, dividends to common and preferred shareholders and operating partnership distributions. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. Currently, one of the most significant factors is the ongoing adverse effect of the COVID-19 pandemic on our business, financial condition, results of operations, cash flows, operating performance and the effect it has had and may continue to have on our tenants, the global, national, regional and local economies and financial markets and the real estate market in general. The extent of the impact of the COVID-19 pandemic will continue to depend on future developments, including vaccination rates among the population, the efficacy and durability of vaccines against emerging variants, and governmental and tenant responses thereto, which continue to be uncertain but the impact could be material. Moreover, you are cautioned that the COVID-19 pandemic will heighten many of the risks identified in "Item 1A. Risk Factors" in Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . For further discussion of factors that could materially affect the outcome of our forward-looking statements, see "Item 1A. Risk Factors" in Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. Management's Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three months endedMarch 31, 2022 . The preparation of financial statements in conformity with accounting principles generally accepted inthe United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three months endedMarch 31, 2022 are not necessarily indicative of the operating results for the full year. Certain prior year balances have been reclassified in order to conform to the current year presentation. 42 --------------------------------------------------------------------------------
Overview
Vornado Realty Trust ("Vornado") is a fully-integrated 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. , aDelaware limited partnership (the "Operating Partnership"). Vornado is the sole general partner of and owned approximately 92.6% of the common limited partnership interest in theOperating Partnership as ofMarch 31, 2022 . All references to the "Company," "we," "us" and "our" mean, collectively, Vornado, theOperating Partnership and those subsidiaries consolidated by Vornado. We compete with a large number of real estate investors, property owners and developers, some of whom 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 Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 for additional information regarding these factors. Our business has been adversely affected by the ongoing COVID-19 pandemic and the preventive measures taken to curb the spread of the virus. The pandemic has resulted in governments and other authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business closures. Some of the effects on us include the following: •While substantially all of the limitations and restrictions imposed on our retail tenants during the onset of the pandemic have been lifted, economic conditions and other factors, including a decline inManhattan tourism since the onset of the virus, continue to adversely affect the financial health of our retail tenants. •While our buildings are open, many of our office tenants are working remotely. •We permanently closed theHotel Pennsylvania onApril 5, 2021 and plan to develop an office tower on the site. •Trade shows at theMART were cancelled beginning March of 2020 and resumed in the third quarter of 2021 with generally lower attendance than pre-pandemic levels. The extent of the COVID-19 pandemic's effect on our operational and financial performance will continue to depend on future developments, including vaccination rates among the population, the efficacy and durability of vaccines against emerging variants and governmental and tenant responses thereto, which continue to be uncertain. Given the dynamic nature of the circumstances, it is difficult to predict the long-term impact of the ongoing COVID-19 pandemic on our business, financial condition, results of operations and cash flows but the impact could be material. 43 --------------------------------------------------------------------------------
Overview - continued
Quarter Ended
Net income attributable to common shareholders for the quarter endedMarch 31, 2022 was$26,478,000 , or$0.14 per diluted share, compared to$4,083,000 , or$0.02 per diluted share, for the prior year's quarter. The quarters endedMarch 31, 2022 and 2021 include certain items that impact the comparability of period to period net income attributable to common shareholders, which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the quarter endedMarch 31, 2022 by$5,204,000 , or$0.02 per diluted share, and$8,363,000 , or$0.04 per diluted share, for the quarter endedMarch 31, 2021 . Funds from operations ("FFO") attributable to common shareholders plus assumed conversions for the quarter endedMarch 31, 2022 was$154,908,000 , or$0.80 per diluted share, compared to$118,407,000 , or$0.62 per diluted share, for the prior year's quarter. FFO attributable to common shareholders plus assumed conversions for the quarters endedMarch 31, 2022 and 2021 include certain items that impact the comparability of period to period FFO, which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO attributable to common shareholders plus assumed conversions for the quarter endedMarch 31, 2022 by$2,595,000 , or$0.01 per diluted share, and decreased FFO attributable to common shareholders plus assumed conversions by$5,952,000 , or$0.03 per diluted share, for the quarter endedMarch 31, 2021 . 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 EndedMarch 31, 2022 2021
Certain expense (income) items that impact net income
attributable to common shareholders:
$
8,929
(5,412) -
Deferred tax liability on our investment in Farley Office and Retail (held through a taxable REIT subsidiary)
3,173 - Other (1,100) (66) 5,590 8,924 Noncontrolling interests' share of above adjustments (386) (561)
Total of certain expense (income) items that impact net income attributable to common shareholders
$
5,204
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
2022 2021 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$ (5,412) $ - Deferred tax liability on our investment in Farley Office and Retail (held through a taxable REIT subsidiary) 3,173 - Other (549) 6,351 (2,788) 6,351 Noncontrolling interests' share of above adjustments 193 (399) Total of certain (income) expense items that impact FFO attributable to common shareholders plus assumed conversions, net$ (2,595) $ 5,952 44
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Overview - continued
Same Store Net Operating Income ("NOI") At Share
The percentage increase in same store NOI at share and same store NOI at share -
cash basis of our
Three months ended March 31, 2022 compared to 555 California March 31, 2021 Total New York theMART Street Same store NOI at share % increase 3.1 % 2.5 % 10.0 % 3.2 % Same store NOI at share - cash basis % increase 5.8 % 5.0 % 14.6 % 5.3 % 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 Financial Condition and Results of Operations. Dispositions 220 CPS During the three months endedMarch 31, 2022 , we closed on the sale of one condominium unit at 220 CPS for net proceeds of$15,095,000 resulting in a financial statement net gain of$6,001,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with this sale,$589,000 of income tax expense was recognized on our consolidated statements of income. From inception toMarch 31, 2022 , we have closed on the sale of 107 units for net proceeds of$3,021,991,000 resulting in financial statement net gains of$1,123,256,000 .
OnJanuary 13, 2022 , we sold twoManhattan retail properties located at478-482 Broadway and155 Spring Street for$84,500,000 and realized net proceeds of$81,399,000 . In connection with the sale, we recognized a net gain of$551,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
OnApril 27, 2022 , we entered into an agreement to sell theCenter Building , an eight-story 498,000 square foot office building located at 3300Northern Boulevard inLong Island City, New York , for$172,750,000 . We expect to close the sale in the third quarter of 2022 and recognize a financial statement gain of approximately$15,000,000 and a tax gain of approximately$74,000,000 . The sale is subject to customary closing conditions.
Leasing Activity for the Three Months Ended
The leasing activity and related statistics 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. •272,000 square feet ofNew York Office space (236,000 square feet at share) at an initial rent of$81.07 per square foot and a weighted average lease term of 8.8 years. The changes in the GAAP and cash mark-to-market rent on the 152,000 square feet of second generation space were positive 6.5% and positive 7.2%, respectively. Tenant improvements and leasing commissions were$12.88 per square foot per annum, or 15.9% of initial rent. •20,000 square feet of New York Retail space (all at share) at an initial rent of$171.62 per square foot and a weighted average lease term of 14.1 years. The 20,000 square feet was first generation space. Tenant improvements and leasing commissions were$14.01 per square foot per annum, or 8.2% of initial rent. •149,000 square feet at theMART (all at share) at an initial rent of$49.79 per square foot and a weighted average lease term of 8.2 years. The changes in the GAAP and cash mark-to-market rent on the 133,000 square feet of second generation space were negative 7.4% and negative 4.5%, respectively. Tenant improvements and leasing commissions were$12.00 per square foot per annum, or 24.1% of initial rent. •56,000 square feet at 555 California (39,000 square feet at share) at an initial rent of$91.49 per square foot and a weighted average lease term of 6.8 years. The changes in the GAAP and cash mark-to-market rent on the 34,000 square feet of second generation space were positive 56.4% and positive 19.8%, respectively. Tenant improvements and leasing commissions were$12.50 per square foot per annum, or 13.7% of initial rent. 45 --------------------------------------------------------------------------------
Overview - continued
Square Footage (in service) and Occupancy as of
(Square feet in thousands)
Square Feet (in service)
Number of Total Our Properties Portfolio Share Occupancy %New York : Office 32 (1) 19,462 16,767 92.1 % Retail (includes retail properties that are in the base of our office properties) 58 (1) 2,213 1,781 80.4 % Residential - 1,983 units(2) 7 (1) 1,510 777 96.4 % (2) Alexander's 6 2,218 719 96.2 % (2) 25,403 20,044 91.2 % Other: theMART 4 3,635 3,626 88.9 % 555 California Street 3 1,818 1,273 94.2 % Other 11 2,489 1,154 92.9 % 7,942 6,053 Total square feet as of March 31, 2022 33,345 26,097 ____________________ See notes below.
Square Footage (in service) and Occupancy as of
(Square feet in thousands)
Square Feet (in service)
Number of Total Our properties Portfolio Share Occupancy %New York : Office 32 (1) 19,442 16,757 92.2 % Retail (includes retail properties that are in the base of our office properties) 60 (1) 2,267 1,825 80.7 % Residential - 1,986 units(2) 8 (1) 1,518 785 96.4 % (2) Alexander's 6 2,218 719 95.6 % (2) 25,445 20,086 91.3 % Other: theMART 4 3,692 3,683 88.9 % 555 California Street 3 1,818 1,273 93.8 % Other 11 2,489 1,154 92.8 % 7,999 6,110 Total square feet as of December 31, 2021 33,444 26,196
____________________
(1)Reflects the Office, Retail and Residential space within our 75 and 77 totalNew York properties as ofMarch 31, 2022 andDecember 31, 2021 , respectively. (2)The Alexander Apartment Tower (312 units) is reflected in Residential unit count and occupancy. Critical Accounting Estimates A summary of our critical accounting policies and estimates used in the preparation of our consolidated financial statements is included in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . For the three months endedMarch 31, 2022 , there were no material changes to these policies. Recently Issued Accounting Literature Refer to Note 3 - Recently Issued Accounting Literature to the unaudited consolidated financial statements in Part I, Item I of this Quarterly Report on Form 10-Q for information regarding recent accounting pronouncements that may affect us. 46 -------------------------------------------------------------------------------- NOI At Share by Segment for the Three Months EndedMarch 31, 2022 and 2021 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 three months ended
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