# **UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

# **WASHINGTON, D. C. 20549**

# ** **

# **FORM 10-K**

 

**ý****             ****ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the Fiscal Year Ended:  December 31,2004**

 

**OR**

 

**o****             ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition periodfrom                                                           to                                                                  **

 

**Commission File Number:  000-22635**

 

**VORNADOREALTY L.P.**

(Exact name of Registrantas specified in its charter)

 
| **Delaware**                                                                                                                                                                    | ** ** | **13-3925979**                           |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of incorporation or organization)                                                                                                                 |       | (I.R.S. Employer  Identification Number) |
|                                                                                                                                                                            |       |                                     |
| **888  Seventh Avenue, New York, New York**                                                                                                                                     | ** ** | **10019**                                |
| (Address of Principal  Executive Offices)                                                                                                                                       |       | (Zip Code)                               |
|                                                                                                                                                                            |       |                                     |
| Registrant’s telephone number including area code:                 **(212) 894-7000** |

 

Securities registeredpursuant to Section 12(b) of the Act:  **NONE**

 

Securities registeredpursuant to Section 12(g) of the Act:

 

**Class A Units of LimitedPartnership InterestSeries A Preferred Units of Limited Partnership Interest**

 

Indicate by check mark whether the registrant:(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.     YES   ý        NO   o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference inPart III of this Form 10-K or any amendment to this Form 10-K.     o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Exchange Act Rule 12b-2).     YES   ý        NO   o

 

There is no public market for the Class A units of thelimited partnership interest of Vornado Realty L.P.  Based on the closing stock price of VornadoRealty Trust’s common shares on June 30, 2004, which are issuable uponredemption of the Class A units, the aggregate market value of the Class Aunits held by non-affiliates of the registrant, i.e. by persons other thanVornado Realty Trust and officers and trustees of Vornado Realty Trust was$5,790,469,000.

 

Documents Incorporated by Reference

 

**Part III**:  Portions of Vornado Realty Trust’s ProxyStatement for Annual Meeting of Shareholders to be held on May 18, 2005.

 

 

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**TABLE OFCONTENTS**

 
| ** **     | **Item** | ** **                                                                                                              | **Page** |
|----------------|----------|-------------------------------------------------------------------------------------------------------------------------|----------|
|           |     |                                                                                                                    |     |
| **Part I.**    | 1.       | Business                                                                                                                | 4        |
| ** **     |     |                                                                                                                    |     |
|           | 2.       | Properties                                                                                                              | 17       |
|           |     |                                                                                                                    |     |
|           | 3.       | Legal Proceedings                                                                                                       | 45       |
|           |     |                                                                                                                    |     |
|           | 4.       | Submission of Matters to a Vote of  Security Holders                                                                    | 46       |
|           |     |                                                                                                                    |     |
|           |     | Executive Officers of the  Registrant (1)                                                                               | 46       |
|           |     |                                                                                                                    |     |
| **Part II.**   | 5.       | Market  for the Registrant’s Common Equity, Related Shareholder Matters and Issuer  Purchases of Equity Securities | 47       |
| ** **     |     |                                                                                                                    |     |
|           | 6.       | Selected Financial Data                                                                                                 | 48       |
|           |     |                                                                                                                    |     |
|           | 7.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                             | 49       |
|           |     |                                                                                                                    |     |
|           | 7A.      | Quantitative and Qualitative  Disclosures about Market Risk                                                             | 99       |
|           |     |                                                                                                                    |     |
|           | 8.       | Financial  Statements and Supplementary Data                                                                            | 101      |
|           |     |                                                                                                                    |     |
|           | 9.       | Changes  In and Disagreements With Accountants on Accounting and Financial Disclosure                                   | 154      |
|           |     |                                                                                                                    |     |
|           | 9A.      | Controls and Procedures                                                                                                 | 154      |
|           |     |                                                                                                                    |     |
|           | 9B.      | Other Information                                                                                                       | 156      |
|           |     |                                                                                                                    |     |
| **Part III.**  | 10.      | Directors  and Executive Officers of the Registrant                                                                     | 156      |
| ** **     |     |                                                                                                                    |     |
|           | 11.      | Executive Compensation (1)                                                                                              | 156      |
|           |     |                                                                                                                    |     |
|           | 12.      | Security  Ownership of Certain Beneficial Owners and Management                                                         | 156      |
|           |     |                                                                                                                    |     |
|           | 13.      | Certain  Relationships and Related Transactions                                                                         | 157      |
|           |     |                                                                                                                    |     |
|           | 14.      | Principal  Accountant Fees and Services                                                                                 | 157      |
|           |     |                                                                                                                    |     |
| **Part IV.**   | 15.      | Exhibits and  Financial Statement Schedules                                                                             | 157      |
|           |     |                                                                                                                    |     |
| **Signatures** |     |                                                                                                                    | 158      |

 

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(1)                Vornado RealtyTrust, the registrant’s general partner, will file a definitive Proxy Statementpursuant to Regulation 14A involving the election of trustees with theSecurities and Exchange Commission not later than 120 days afterDecember 31, 2004, portions of which are incorporated by reference herein.Information relating to Executive Officers of Vornado Realty Trust appears onpage 46 of this Annual Report on Form 10-K.

 

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# **FORWARD LOOKING STATEMENTS**

# ** **

Certain statements contained herein constitute forward-lookingstatements as such term is defined in Section 27A of the Securities Act of1933, as amended (the “Securities Act”), and Section 21E of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements are not guaranteesof performance.  Our future results,financial condition and business may differ materially from those expressed inthese forward-looking statements.   Youcan find many of these statements by looking for words such as “plans,” “intends,”“estimates,” “anticipates,” “expects,” “believes” or similar expressions inthis annual report on Form 10-K.  Theseforward-looking statements are subject to numerous assumptions, risks anduncertainties.  Many of the factors thatwill determine these items are beyond our ability to control or predict.  For further discussion of these factors see “Item1. Business – Certain Factors That May Adversely Affect Our Business andOperations” in this annual report on Form 10-K.

 

For these statements, we claim the protection of thesafe harbor for forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995.  You arecautioned not to place undue reliance on our forward-looking statements, whichspeak only as of the date of this annual report on Form 10-K or the dateof any document incorporated by reference. All subsequent written and oral forward-looking statements attributableto us or any person acting on our behalf are expressly qualified in theirentirety by the cautionary statements contained or referred to in thissection.  We do not undertake anyobligation to release publicly any revisions to our forward-looking statementsto reflect events or circumstances after the date of this annual report onForm 10-K.

 

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# **PART I**

# ** **

**ITEM 1.**                             BUSINESS

 

**THE COMPANY**

 

Vornado Realty L.P. (the “Operating Partnership”and/or the “Company”) is a Delaware limited partnership. Vornado Realty Trust (“Vornado”),a fully-integrated real estate investment trust (“REIT”), is the sole generalpartner of, and owned approximately 87% of the common limited partnershipinterest in, the Operating Partnership at December 31, 2004. All references to “We,”“Us,” and “Company” refer to the Operating Partnership and its consolidatedsubsidiaries.

 

The Company currently owns directly or indirectly:

 

#### Office Properties(“Office”):

 

(i)           allor portions of 86 office properties aggregating approximately 27.6 millionsquare feet in the New York City metropolitan area (primarily Manhattan) and inthe Washington D.C. and Northern Virginia area;

 

#### Retail Properties(“Retail”):

 

(ii)          94retail properties in seven states and Puerto Rico aggregating approximately14.2 million square feet, including 2.8 million square feet built by tenants onland leased from the Company;

 

#### Merchandise MartProperties:

 

(iii)         8.6million square feet of showroom and office space, including the3.4 million square foot Merchandise Mart in Chicago;

 

#### TemperatureControlled Logistics:

 

(iv)        a47.6% interest in Americold Realty Trust which owns and operates 88 coldstorage warehouses nationwide;

 

#### Other Real EstateInvestments:

 

(v)         33%of the outstanding common stock of Alexander’s, Inc. (“Alexander’s”) which hassix properties in the greater New York metropolitan area;

 

(vi)        theHotel Pennsylvania in New York City consisting of a hotel portion containing1.0 million square feet with 1,700 rooms and a commercial portioncontaining 0.4 million square feet of retail and office space;

 

(vii)       a22.4% interest in The Newkirk Master Limited Partnership (“Newkirk MLP”) whichowns office, retail and industrial properties net leased primarily to creditrated tenants, and various debt interests in such properties;

 

(viii)      sevendry warehouse/industrial properties in New Jersey containing approximately 1.7million square feet;

 

(ix)         mezzanineloans to real estate related companies; and

 

(x)          interestsin other real estate including a 12.25% interest in GMH Communities L.P. (whichowns and manages student and military housing properties throughout the UnitedStates), other investments and marketable securities.

 

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**OBJECTIVES AND STRATEGY**

** **

Our business objective is to maximize shareholdervalue.  We intend to achieve thisobjective by continuing to pursue our investment philosophy and executing ouroperating strategies through:

 

•                  Maintaininga superior team of operating and investment professionals and anentrepreneurial spirit;

•                  Investingin properties in select markets, such as New York City andWashington, D.C., where we believe there is high likelihood of capitalappreciation;

•                  Acquiringquality properties at a discount to replacement cost and where there is asignificant potential for higher rents;

•                  Investingin retail properties in select under-stored locations such as the New York Citymetropolitan area;

•                  Investingin fully-integrated operating companies that have a significant real estatecomponent with qualified, experienced operating management and strong growthpotential which can benefit from our access to efficient capital;

•                  Developing/redevelopingour existing properties to increase returns and maximize value; and

•                  Providingspecialty financing to real estate related companies.

 

We expect to finance our growth, acquisitions andinvestments using internally generated funds, proceeds from possible assetsales and by accessing the public and private capital markets.

 

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**2004 ACQUISITIONS AND INVESTMENTS**

 

During the year ended December 31, 2004, the Companyhas completed $328,600,000 of acquisitions and investments in real estate, ofwhich $246,600,000 related to the retail segment.  In addition, the Company made $183,400,000 ofmezzanine loans during 2004 which increased the outstanding balance of Notesand Mortgage Loans Receivable to $440,186,000 at December 31, 2004.  Details of these transactions are describedin Management’s Discussion and Analysis of Financial Condition and Results ofOperations and in the Notes to the Consolidated Financial Statements in thisAnnual Report on Form 10-K.

 

*Investment in GMH Communities L.P.*

 

On July 20, 2004, the Company committed to make up toa $159,000,000 convertible preferred investment in GMH Communities L.P. (“GMH”),a partnership focused on the student and military housing sectors.  Distributions accrued on the full committedbalance of the investment, whether or not drawn, from July 20, 2004, at a rateof 16.27%.  In connection with thiscommitment, the Company received a placement fee of $3,200,000.  The Company also purchased for $1,000,000,warrants to acquire GMH common equity. These warrants entitle the Company to acquire (i) 6,666,667 limitedpartnership units in GMH at an exercise price of $7.50 per unit and (ii)5,496,724 limited partnership units, through May 6, 2006, at an exercise priceof $9.10 per unit.  As of November 3,2004, the Company had funded a total of $113,777,000 of the commitment.

 

On November 3, 2004, GMH Communities Trust (“GCT”)closed its initial public offering (“IPO”) at a price of $12.00 per share.  GCT is a real estate investment trust thatconducts its business through GMH, of which it is the sole generalpartner.  In connection with the IPO, the$113,777,000 previously funded by the Company under the $159,000,000 commitmentwas repaid, together with accrued distributions of $13,381,000.  The Company also exercised warrants topurchase 6,666,667 limited partnership units at a price of $7.50 per unit, or$50,000,000 in total, which resulted in a gain of $29,500,000.  The Company accounts for its interest in the partnershipunits on the equity-method based on its 12.25% ownership interest and right toappoint one of its executive officers to GCT’s Board of Trustees.  The Company records its pro-rata share of GMH’snet income or loss on a one-quarter lag basis as the Company files itsfinancial statements on Form 10-K or 10-Q prior to the time GMH files itsfinancial statements.

 

Under the warrant agreement, the number of GMHpartnership units or GCT common shares underlying the warrants is adjusted fordividends declared by GCT.  On December16, 2004, GCT declared a dividend of $.16 per common share, which increased thenumber of shares underlying the warrants from 5,496,724 to 5,563,417 and theexercise price was decreased from $9.10 to $8.99 per share.   Because these warrants are derivatives anddo not qualify for hedge accounting treatment, the gains and losses resultingfrom the mark-to-market of the warrants at the end of each reporting period arerecognized as an increase or decrease in “interest and other investment income”on the Company’s consolidated statement of income.  In the quarter ended December 31, 2004, theCompany recognized income of $24,190,000 from the mark-to-market of thesewarrants, which were valued using a trinomial option pricing model based on GCT’sclosing stock price on the NYSE of $14.10 per share on December 31, 2004.

 

Further, in connection with the IPO, the Companycontributed its 90% interest in Campus Club Gainesville, which it acquiredin 2000, in exchange for an additional 671,190 GMH limited partnership units.

 

Of the Company’s GMH units, 6,666,667 may be convertedinto an equivalent number of common shares of GCT commencing on May 2, 2005 and671,190 units may be converted commencing on November 2, 2005.  The Company has agreed not to sell any commonshares or units it owns or may acquire until May 2, 2005.

 

6

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*Investment in Sears, Roebuck and Co.*

 

In July and August 2004, the Company acquired anaggregate of 1,176,600 common shares of Sears, Roebuck and Co. (“Sears”) for$41,945,000, an average price of $35.65 per share. Included in the cost is$1,361,000 for a performance-based participation.  These shares are recorded as marketablesecurities on the Company’s consolidated balance sheet and are classified as“available for sale.”  Appreciation ordepreciation in the fair market value of these shares is recorded as anincrease or decrease in “accumulated other comprehensive income” in the partners’capital section of the Company’s consolidated balance sheet and not recognizedin income.  At December 31, 2004, basedon Sears’ closing stock price of $51.03 per share, $18,105,000 of appreciationin the value of these shares was included in “accumulated other comprehensiveincome.”

 

In August and September 2004, the Company acquired aneconomic interest in an additional 7,916,900 Sears common shares through aseries of privately negotiated transactions with a financial institutionpursuant to which the Company purchased a call option and simultaneously sold aput option at the same strike price on Sears common shares.  These call and put options have an initialweighted-average strike price of  $39.82per share, or an aggregate of $315,250,000, expire in April 2006 and providefor net cash settlement.  Under theseagreements, the strike price for each pair of options increases at an annualrate of LIBOR plus 45 basis points and is credited for the dividends receivedon the shares.  The options provide theCompany with the same economic gain or loss as if it had purchased theunderlying common shares and borrowed the aggregate strike price at an annualrate of LIBOR plus 45 basis points. Because these options are derivatives and do not qualify for hedgeaccounting treatment, the gains or losses resulting from the mark-to-market ofthe options at the end of each reporting period are recognized as an increaseor decrease in “interest and other investment income” on the Company’sconsolidated statement of income.  Duringthe year ended December 31, 2004, the Company recorded net income of$81,730,000, comprised of (i) $88,782,000 from the mark-to-market of theoptions on December 31, 2004, based on Sears’ closing stock price of $51.03 pershare and (ii) $2,295,000 for accrued dividends, partially offset by (i)$5,972,000 for a performance-based participation, (ii) $2,371,000 for theincrease in strike price resulting from the LIBOR charge and (iii) $1,004,000of professional fees.

 

On November 16, 2004, Kmart Holding Corporation(“Kmart”) and Sears entered into an Agreement and Plan of Merger.  Upon the effective date of the merger, eachshare of Sears common stock will be converted into the right to receive, at theelection of the holder, (i) $50.00 in cash or (ii) 0.50 shares of common stockof the merged company, subject to proration so that 55% of the Sears shares areexchanged for shares of the merged company.

 

Based on Sears’ most recent filing with the Securitiesand Exchange Commission, the Company’s aggregate investment in Sears represents4.2% of Sears’ outstanding common shares.

 

## **2004 DISPOSITIONS**

## ** **

On June 29, 2004, the Company sold the PalisadesResidential Complex for $222,500,000, which resulted in a net gain on saleafter closing costs of $65,905,000. Substantially all of the proceeds from the sale were reinvested intax-free “like kind” exchange investments pursuant to Section 1031 of theInternal Revenue Code (“Section 1031”).

 

On August 12, 2004, the Company sold its Dundalk,Maryland shopping center for $12,900,000, which resulted in a net gain on saleafter closing costs of $9,850,000. Substantially all of the proceeds from the sale have been reinvested intax-free “like-kind” exchange investments pursuant to Section 1031 .

 

On November 4, 2004, Americold Realty Trust (“Americold”),owned 60% by the Company, purchased its tenant, AmeriCold Logistics, for$47,700,000 in cash.  On November 18,2004 the Company and its 40% partner, Crescent Real Estate Equities Company (“CEI”)collectively sold 20.7% of Americold’s common shares to The Yucaipa Companies (“Yucaipa”)for $145,000,000, which resulted in a gain, of which the Company’s share was$18,789,000.  In connection with thegovernance provisions of the transaction, the Company has the right to appointthree of the five members to Americold’s Board of Trustees.  Consequently, the Company is deemed toexercise control over Americold and on November 18, 2004 began to consolidateAmericold’s operations and financial position and no longer accounts for itsinvestment on the equity method.

 

Further details regarding the Company’s dispositionsare disclosed in Management’s Discussion and Analysis of Financial Conditionand Results of Operations and in the Notes to the Consolidated FinancialStatements in this annual report on Form 10-K.

 

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**DEVELOPMENTAND REDEVELOPMENT PROJECTS**

** **

The Company is currently engaged in variousdevelopment/redevelopment projects for which it has budgeted approximately$470.0 million.  Of this amount $30.9million was expended in 2004 (excluding $104.5 million for projects completedin 2004) and $310.0 million is estimated to be expended in 2005.  Below is a description of these projects.

 
| ** **                                                                                                                                                                                                                                                      | ** ** | **The Company’s Share of** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| **($ in millions)**                                                                                                                                                                                                                                        | ** ** | **Estimated  Completion  Date** | ** ** | **Estimated  Project  Cost** | ** ** | **Costs Expended  in Year Ended  December 31,  2004** | ** ** | **Estimated  Costs to  Complete** | ** ** |
| **In  Progress:**                                                                                                                                                                                                                                               | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| New York Office:                                                                                                                                                                                                                                                |       |                            |       |   |   |   |   |   |   |
| Redevelopment of  7 West 34th Street office space to permanent showroom space for  Gift industry manufacturers and wholesalers                                                                                                                                  |       | 2005-2006                       |       | $ | 33.0 |   | $ | .5 |   | $ | 32.5 |   |
| CESCR:                                                                                                                                                                                                                                                          |       |                            |       |   |   |   |   |   |   |
| Crystal City  Office space to be vacated by the U.S. Government Patent and Trade Office  (“PTO”):                                                                                                                                                     |       |                            |       |   |   |   |   |   |   |
| (i) Renovation  of buildings (see next page)                                                                                                                                                                                                                    |       | 2005-2007                       |       | 75.0 | (1) | 11.0 |   | 64.0 |   |
| (ii) Cost to  retenant                                                                                                                                                                                                                                          |       | 2005-2007                       |       | 75.0 | (1) | — |   | 75.0 |   |
| Retail:                                                                                                                                                                                                                                                         |       |                            |       |   |   |   |   |   |   |
| Green Acres Mall  – interior and exterior renovation, construction of an additional 63,600  square feet of free-standing retail space, parking decks and site-work and tenant  improvements for B.J.’s Wholesale who will construct its own store (2) |       | 2006                            |       | 71.0 |   | 1.0 |   | 69.0 |   |
| Bergen Mall –  expand, re-tenant and redevelop the mall (2)                                                                                                                                                                                                |       | 2008                            |       | 102.0 |   | 1.6 |   | 100.0 |   |
| Strip shopping  centers – redevelopment of five properties and one industrial warehouse (2)                                                                                                                                                                |       | 2005-2006                       |       | 54.0 |   | 7.2 |   | 44.0 |   |
| 715 Lexington  Avenue – demolition of existing building and construction of 24,000 square  feet of retail space on four floors                                                                                                                             |       | Fall 2005                       |       | 19.0 |   | 4.9 |   | 12.0 |   |
| 968 Third Avenue  (50% interest) – demolition of existing building and construction of 5,700  square feet of retail space on three floors                                                                                                                  |       | Spring 2005                     |       | 6.0 |   | 1.8 |   | 1.0 |   |
| Other:                                                                                                                                                                                                                                                          |       |                            |       |   |   |   |   |   |   |
| Penn Plaza  Signage District - construction of approximately 21 signs at various  locations in the Penn Plaza District, of which 10 have been completed as of  December 31, 2004                                                                                |       | Ongoing                         |       | 35.0 |   | 2.9 |   | 20.0 |   |
|                                                                                                                                                                                                                                                            |       |                            |       | $ | 470.0 |   | $ | 30.9 |   | $ | 417.5 |   |

 

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(1)                        Revised from the prior estimate of $90.0million to renovate the buildings and $60.0 million to re-tenant the space.

(2)                        Subject to governmental approvals.

 

The Company is also in the pre-development phase ofother projects including, retail space in the Penn Plaza area, repositioning ofthe Hotel Pennsylvania, expansion of the Monmouth Mall and renovation of the2101 L Street office building.

 

There can be no assurance that any of the aboveprojects will commence or be completed on schedule or on budget.

 

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The Company has substantially completed the followingprojects during 2004:

 
| ** **                                                                                                                                                                                                                     | ** ** | **The Company’s Share of** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| **($ in millions)**                                                                                                                                                                                                       | ** ** | **Project Cost**                | ** ** | **Costs Expended  in Year Ended  December 31,  2004** | ** ** | **Estimated  Costs to  Complete** | ** ** |
| **Completed  in 2004:**                                                                                                                                                                                                        |       |                            |       |   |   |   |   |
| New York City:                                                                                                                                                                                                                 |       |                            |       |   |   |   |   |
| 640 Fifth Avenue  – construction of additional 47,000 square feet of office space and  redevelopment of existing building                                                                                                 |       | $                               | 64.0       |   | $ | 13.9 |   | $ | 6.0 |   |
| CESCR:                                                                                                                                                                                                                         |       |                            |       |   |   |   |   |
| Crystal Drive  Retail – construction of additional 57,000 square feet of retail space and  improvements to the infrastructure including streets, signals and signs as  part of “way finding” program            |       | 43.0                            |       | 25.5 |   | 3.0 |   |
| Retail:                                                                                                                                                                                                                        |       |                            |       |   |   |   |   |
| 4 Union Square  South – redevelopment of 198,000 square feet, of which 193,000 square feet  has been leased to Whole Foods, Forever 21, DSW Shoe Warehouse and Filenes                                                    |       | 54.0                            |       | 29.6 |   | 6.0 |   |
| Strip shopping  centers – site work and/or demolition of existing buildings as part of the  redevelopment of six properties released to Wal-Mart and Lowes (each of these  locations were previously leased to Bradlees.) |       | 18.0                            |       | 16.9 |   | — |   |
| Merchandise  Mart:                                                                                                                                                                                                             |       |                            |       |   |   |   |   |
| 350 West Mart  Center, Chicago – addition of 40,000 square feet at street level and new  lobby and drive                                                                                                                  |       | 18.0                            |       | 14.6 |   | 2.0 |   |
| Other:                                                                                                                                                                                                                         |       |                            |       |   |   |   |   |
| 400 North  LaSalle (85% interest) – construction of 381,000 square foot, high-rise  rental apartment complex containing 452 apartments                                                                                    |       | 78.0                            |       | 4.0 |   | 1.0 |   |
|                                                                                                                                                                                                                           |       | $                               | 275.0      |   | $ | 104.5 |   | $ | 18.0 |   |

 

**PTO Space Redevelopment:**

 

The Company plans to redevelop certain officebuildings in which the PTO has vacated or will vacate space as their leasesexpire over the next two years as follows:

 
| ** **             | ** ** | ** ** | ** ** | **Square Feet  Vacated** | ** ** | **Square Feet Expiring (in thousands)** | ** ** |
|------------------------|------------|------------|------------|--------------------------|------------|-----------------------------------------|------------|
| ** **             | ** ** | ** ** | ** ** | **2004**                 | ** ** | **2005**                                | ** ** | **2006** | ** ** |
| ** **             | ** ** | **Total**  | ** ** | **Q4**                   | ** ** | **Q1**                                  | ** ** | **Q2** | ** ** | **Q3** | ** ** | **Q4** | ** ** | **Q1** | ** ** |
| Taken out of  Service: | ** ** | ** ** | ** ** | ** **               | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Crystal Plaza  Three   |       | 263        |       | 263                      |       | —                                  |       | — |   | — |   | — |   | — |   |
| Crystal Plaza  Four    |       | 234        |       | 234                      |       | —                                  |       | — |   | — |   | — |   | — |   |
| Remaining in  Service: |       |       |       |                     |       |                                    |       |   |   |   |   |   |   |   |   |
| Crystal Plaza  Two     |       | 181        |       | —                   |       | 181                                     |       | — |   | — |   | — |   | — |   |
| Crystal Park One       |       | 224        |       | 13                       |       | 109                                     |       | 64 |   | — |   | 38 |   | — |   |
| Crystal Park Two       |       | 406        |       | 39                       |       | 103                                     |       | 77 |   | — |   | 98 |   | 89 |   |
| Crystal Park  Three    |       | 107        |       | 67                       |       | —                                  |       | 24 |   | — |   | — |   | 16 |   |
| Crystal Park  Five     |       | 194        |       | —                   |       | —                                  |       | 194 |   | — |   | — |   | — |   |
| Crystal Mall One       |       | 180        |       | 180                      |       | —                                  |       | — |   | — |   | — |   | — |   |
| Other Buildings        |       | 150        |       | 141                      |       | —                                  |       | — |   | — |   | 9 |   | — |   |
|                   |       | 1,939      |       | 937                      |       | 393                                     |       | 359 |   | — |   | 145 |   | 105 |   |

 

Renovations to Crystal Plaza Three and Four willinclude new mechanical systems, new restrooms, lobbies and corridors.  These buildings have been taken out ofservice for redevelopment which is expected to be completed over a 12 to 18month period.  Renovations to theremaining buildings will consist of common area and exterior renovations toupgrade the buildings that will not be taken out of service.

 

See page 56 for details of the projected lease up ofthe PTO space.

 

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**FINANCINGACTIVITIES**

 

During 2004, the Company and Vornado issued (i)$425,000,000 of Cumulative Redeemable Preferred Shares at a weighted averagerate of 6.74%, (ii) $55,000,000 Cumulative Redeemable Preferred Units of theOperating Partnership at a weighted average rate of 6.96%, (iii) $46,700,000 of3.0% Series D-13 preferred units and (iv) redeemed $85,000,000 and $27,500,000of outstanding Cumulative Redeemable Preferred Shares and Units with a weightedaverage rate of 8.50% and 8.38%, respectively. In addition, the Company completed property level financings of$520,000,000 and issued $250,000,000 of senior unsecured notes.  Details of these transactions as well asother financing activities are described in Management’s Discussion andAnalysis of Financial Condition and Results of Operations and in the Notes tothe Consolidated Financial Statements in this Annual Report on Form 10-K.

 

The Company may seek to obtain funds through equityofferings, debt financings or asset sales, although there is no express policywith respect thereto. The Company may offer common shares of Vornado orOperating Partnership units in exchange for property and may repurchase orotherwise re-acquire its shares or any other securities in the future.

 

**COMPETITION**

 

The Company’s business segments – Office, Retail,Merchandise Mart Properties, Temperature Controlled Logistics, and Otheroperate in highly competitive environments. The Company has a large concentration of properties in the New York Citymetropolitan area and in the Washington, D.C. and Northern Virginiaarea.  The Company competes with a largenumber of real estate property owners and developers.  Principal factors of competition are rentcharged, attractiveness of location, the quality of the property and breadthand quality of services provided.  TheCompany’s success depends upon, among other factors, trends of the national andlocal economies, financial condition and operating results of current andprospective tenants and customers, availability and cost of capital,construction and renovation costs, taxes, governmental regulations, legislationand population trends.

 

**ENVIRONMENTALREGULATIONS**

** **

The Company’s operations and properties are subject tovarious federal, state and local laws and regulations concerning the protectionof the environment including air and water quality, hazardous or toxicsubstances and health and safety. Under certain of these environmental laws acurrent or previous owner or operator of real estate may be required toinvestigate and clean up hazardous or toxic substances released at aproperty.  The owner or operator may alsobe held liable to a governmental entity or to third parties for property damageor personal injuries and for investigation and clean-up costs incurred by thoseparties because of the contamination. These laws often impose liability without regard to whether the owner oroperator knew of the release of the substances or caused the release.  The presence of contamination or the failureto remediate contamination may impair the Company’s ability to sell or leasereal estate or to borrow using the real estate as collateral. Other laws andregulations govern indoor and outdoor air quality including those that canrequire the abatement or removal of asbestos-containing materials in the eventof damage, demolition, renovation or remodeling and also govern emissions ofand exposure to asbestos fibers in the air. The maintenance and removal of lead paint and certain electricalequipment containing polychlorinated biphenyls (PCBs) and underground storagetanks are also regulated by federal and state laws.  The Company could incur fines forenvironmental compliance and be held liable for the costs of remedial actionwith respect to the foregoing regulated substances or tanks or related claimsarising out of environmental contamination or exposure at or from the Company’sproperties.

 

Each of the Company’s properties has been subjected tovarying degrees of environmental assessment at various times. The environmentalassessments did not reveal any environmental condition material to the Company’sbusiness.  However, identification of newcompliance concerns or undiscovered areas of contamination, changes in theextent or known scope of contamination, discovery of additional sites, humanexposure to the contamination or changes in cleanup or compliance requirementscould result in significant costs to the Company.

 

10

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**TENANTSWHICH ACCOUNTED FOR OVER 10% OF REVENUES**

 

In 2004, the Company had 106 separate leases withvarious agencies of the U.S. Government, the rent from which accounted for12.5% of the Company’s consolidated total revenues.  The loss of this tenant would have a materialadverse effect on the Company’s finances as a whole.

 

**CERTAINACTIVITIES**

 

Acquisitions and investments are not required to bebased on specific allocation by type of property. The Company has historicallyheld its properties for long-term investment; however, it is possible thatproperties in the portfolio may be sold in whole or in part, as circumstanceswarrant, from time to time. Further, the Company has not adopted a policy thatlimits the amount or percentage of assets which would be invested in a specificproperty. While Vornado may seek the vote of its shareholders in connectionwith any particular material transaction, generally the Company’s activitiesare reviewed and may be modified from time to time by Vornado’s Board ofTrustees without the vote of securityholders.

 

**EMPLOYEES**

 

As of December 31, 2004, the Company and itsmajority-owned subsidiaries had approximately 2,592 employees, of which 186were corporate staff.  The Office segmenthad 269 employees and 1,123 employees of Building Maintenance Services, awholly-owned subsidiary.  The Retailsegment, the Merchandise Mart segment and the Hotel Pennsylvania had 61, 479and 474 employees, respectively.  Thisdoes not include employees of partially-owned entities, including AmericoldRealty Trust which had 6,058 employees as of December 31, 2004.

 

**SEGMENTDATA**

 

The Company operates in four business segments: OfficeProperties, Retail Properties, Merchandise Mart Properties and TemperatureControlled Logistics.  The MerchandiseMart segment has trade show operations in Canada.  The Temperature Controlled Logistics segmentoperates one managed warehouse in Canada. Information related to the Company’s business segments for the years2004, 2003 and 2002 is set forth in Note 18. Segment Information to the Company’sconsolidated financial statements in this annual report on Form 10-K.

 

The Company’s principal executive offices are locatedat 888 Seventh Avenue, New York, New York 10019;telephone (212) 894-7000.

 

**MATERIALSAVAILABLE ON VORNADO’S WEBSITE**

 

Copies of Vornado’s annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, andamendments to those reports, as well as Reports on Forms 3, 4 and 5 regardingofficers, trustees or 10% beneficial owners of the Company, filed or furnishedpursuant to Section 13(a), 15(d) or 16(a) of the Securities ExchangeAct of 1934 are available free of charge through Vornado’s website(www.vno.com) as soon as reasonably practicable after it is electronicallyfiled with, or furnished to, the Securities and Exchange Commission.  We also have made available on Vornado’s websitecopies of our Audit Committee Charter, Compensation Committee Charter,Corporate Governance and Nominating Committee Charter, Code of Business Conductand Ethics and Corporate Governance Guidelines. In the event of any changes to these charters or the code or guidelines,changed copies will also be made available on Vornado’s website.

 

11

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**CERTAINFACTORS THAT MAY ADVERSELY AFFECT OUR BUSINESS AND OPERATIONS**

 

**Real Estate Investments’ Value and Income FluctuateDue to Various Factors.**

** **

***The value of realestate fluctuates depending on conditions in the general economy and the realestate business. These conditions may also limit our revenues and availablecash.***

*** ***

The factors that affect the value of the our realestate include, among other things, national, regional and local economicconditions; consequences of any armed conflict involving, or terrorist attackagainst, the United States; our ability to secure adequate insurance; localconditions such as an oversupply of space or a reduction in demand for realestate in the area; competition from other available space; whether tenantsconsider a property attractive; the financial condition of our tenants, includingthe extent of tenant bankruptcies or defaults; whether we are able topass some or all of any increased operating costs through totenants; how well we manage our properties; fluctuations in interest rates;changes in real estate taxes and other expenses; changes in market rentalrates; the timing and costs associated with property improvements and rentals;changes in taxation or zoning laws; government regulation; availability offinancing on acceptable terms or at all; potential liability under environmentalor other laws or regulations; and general competitive factors.

 

The rents we receive and the occupancy levels at ourproperties may decline as a result of adverse changes in any of thesefactors.  If our rental revenues decline,we generally would expect to have less cash available to pay our indebtednessand distribute to our shareholders. In addition, some of our major expenses,including mortgage payments, real estate taxes and maintenance costs, generallydo not decline when the related rents decline.

 

***We depend onleasing space to tenants on economically favorable terms and collecting rentfrom our tenants, who may not be able to pay.***

*** ***

Our financial results depend on leasing space in ourproperties to tenants on economically favorable terms. In addition, becausesubstantially all of our income comes from renting of real property, ourincome, funds available to pay indebtedness and funds available fordistribution to our shareholders will decrease if a significant number of ourtenants cannot pay their rent.  If atenant does not pay its rent, we might not be able to enforce our rights aslandlord without delays and might incur substantial legal costs to enforcethose rights. For information regarding the bankruptcy of our tenants, see “Bankruptcyor insolvency of tenants may decrease our revenues and available cash” below.

 

***Bankruptcy orinsolvency of tenants may decrease our revenues and available cash.***

*** ***

A number of companies, including some of our tenants,have declared bankruptcy in recent years, and other tenants may declarebankruptcy or become insolvent in the future. If a major tenant declares bankruptcy or becomes insolvent, the rentalproperty where it leases space may have lower revenues and operationaldifficulties, and, in the case of our shopping centers, we may have difficultyleasing the remainder of the affected property. Our leases generally do not contain restrictions designed to ensure thecreditworthiness of our tenants. As a result, the bankruptcy or insolvency of amajor tenant could result in a lower level of funds available for distributionto our securityholders or the payment of our indebtedness.

 

***Real estate is acompetitive business.***

*** ***

For a discussion of risks related to competition inthe real estate business, see “Item 1. Business – Competition.”

 

***We may incur coststo comply with environmental laws.***

*** ***

For a discussion of risks related to the Company’scompliance with environmental laws, see “Item 1.  Business – Environmental Regulations.”

 

12

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***Some of ourpotential losses may not be covered by insurance.***

 

The Company carries comprehensive liability and allrisk property insurance ((i) fire, (ii) flood, (iii) extended coverage, (iv) “actsof terrorism” as defined in the Terrorism Risk Insurance Act of 2002 whichexpires in 2005 and (v) rental loss insurance) with respect to its assets.  In April 2004, the Company reviewed its allrisk policies and increased its coverage for Acts of Terrorism for each of itsNew York Office, CESCR Office, Retail and Merchandise Mart divisions.  Below is a summary of the all risk propertyinsurance and terrorism risk insurance for each of the Company’s businesssegments:

 
| ** **                        | ** ** | **Coverage Per Occurrence** | ** **    |
|-----------------------------------|------------|-----------------------------|---------------|
| ** **                        | ** ** | **All Risk (1)**            | ** **    | **Sub-Limits for  Acts of Terrorism** | ** ** |
| New York Office                   | ** ** | $                           | 1,400,000,000 |   | $ |  750,000,000 |   |
| CESCR Office                      |       | 1,400,000,000               |          | 750,000,000 |   |
| Retail                            |       | 500,000,000                 |          | 500,000,000 |   |
| Merchandise Mart                  |       | 1,400,000,000               |          | 750,000,000 |   |
| Temperature  Controlled Logistics |       | 225,000,000                 |          | 225,000,000 |   |
|                                   |            |                             |               |  |  |  |  |

 

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(1)          Limited as to terrorism insurance by thesub-limit shown in the adjacent column.

 

In addition to the coverage above, the Company carrieslesser amounts of coverage for terrorist acts not covered by the Terrorism RiskInsurance Act of 2002.  To the extent theCompany incurs losses in excess of its insurance coverage, these losses wouldbe born by the Company and could be significant.

 

The Company’s debt instruments, consisting of mortgageloans secured by its properties (which are generally non-recourse to theCompany), its senior unsecured notes due 2007, 2009 and 2010 and its revolvingcredit agreement, contain customary covenants requiring the Company to maintaininsurance. Although the Company believes that it has adequate insurancecoverage under these agreements, the Company may not be able to obtain anequivalent amount of coverage at reasonable costs in the future.  Further if lenders insist on greater coveragethan the Company is able to obtain, or if the Terrorism Risk Insurance Act of2002 is not extended, it could adversely affect the Company’s ability tofinance and/or refinance its properties and expand its portfolio.

 

**Our Investments Are Concentrated in the New YorkCity/New Jersey and Washington, D.C. Metropolitan Areas.  Circumstances Affecting These Areas GenerallyCould Adversely Affect Our Business.**

 

***A significantproportion of our properties are in the New York City/New Jersey andWashington, D.C. metropolitan areas and are affected by the economic cycles andrisks inherent to those regions.***

*** ***

During 2004, 64.2% of our EBITDA, excluding items thataffect comparability, came from properties located in New Jersey and the NewYork City and Washington, D.C. metropolitan areas.  In addition, we may continue to concentrate asignificant portion of our future acquisitions in New Jersey and the New YorkCity and Washington, D.C. metropolitan areas. Like other real estate markets, the real estate markets in these areashave experienced economic downturns in the past, and we cannot predict how the currenteconomic conditions will impact these markets in both the short and longterm.  Further declines in the economy ora decline in the real estate markets in these areas could hurt our financialperformance and the value of our properties. The factors affecting economic conditions in these regions include:space needs of the United States Government, business layoffs or downsizing;industry slowdowns; relocations of businesses; changing demographics; increasedtelecommuting and use of alternative work places; financial performance andproductivity of the publishing, advertising, financial, technology, retail,insurance and real estate industries; infrastructure quality; and anyoversupply of or reduced demand for real estate.

 

It is impossible for us to assess the future effectsof the current uncertain trends in the economic and investment climates of theNew York City/New Jersey and Washington, D.C. regions, and more generally ofthe United States, or the real estate markets in these areas.  If these conditions persist or if any local,national or global economic recovery is of a short term, businesses and futureprofitability may be adversely affected.

 

***Terrorist Attackssuch as those of September 11, 2001 in New York City and the Washington, D.C.Area May Adversely Affect the Value of Our Properties and Our Ability toGenerate Cash Flow.***

*** ***

We have significant investments in large metropolitanareas, including the New York/New Jersey, Washington, D.C. and Chicagometropolitan areas.  Tenants in these areasmay choose to relocate their business to less populated, lower-profile areas ofthe United States that may be perceived to be less likely targets of futureterrorist activity. This in turn would trigger a decrease in the demand forspace in these areas, which could increase vacancies in our properties andforce us to lease our properties on less favorable terms.  In addition, threatened or actual futureterrorist attacks in these areas could directly or

 

13

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indirectly impact our properties. As a result of the foregoing, the value of our properties and the levelof our revenues could decline materially.

 

**We May Acquire or Sell Additional Assets or DevelopAdditional Properties.  Our Failure orInability to Consummate These Transactions or Manage the Results of TheseTransactions Could Adversely Affect Our Operations and Financial Results.**

** **

***We have grownrapidly through acquisitions.  We may notbe able to maintain this rapid growth and our failure to do so could adverselyaffect our stock price.***

*** ***

We have experienced rapid growth in recent years,increasing our total assets from approximately $565 million at December 31,1996, to approximately $11.6 billion at December 31, 2004.  We may not be able to maintain a similar rateof growth in the future or manage our growth effectively.  Our failure to do so may have a materialadverse effect on our financial condition and results of operations and abilityto pay distributions to our securityholders.

 

***We may acquire ordevelop new properties and this may create risks.***

*** ***

We may acquire or develop properties or acquire otherreal estate companies when we believe that an acquisition or development isconsistent with our business strategies. We may not, however, succeed inconsummating desired acquisitions or in completing developments on time orwithin budget. We also may not succeed in leasing newly developed or acquiredproperties at rents sufficient to cover their costs of acquisition ordevelopment and operations.  Difficultiesin consummating desired acquisitions and integrating acquisitions may provecostly or time-consuming and could divert management’s attention.

 

***It may bedifficult to buy and sell real estate quickly.***

*** ***

**Realestate investments are relatively difficult to buy and sell quickly.  Consequently, we may have limited ability tovary our portfolio promptly in response to changes in economic or otherconditions.**

** **

***We may not be permitted to dispose of certain properties orpay down the debt associated with those properties when we might otherwisedesire to do so without incurring additional costs.***

 

As part of an acquisition of a property, we may agreewith the seller that we will not dispose of the acquired properties or reducethe mortgage indebtedness on them for significant periods of time unless we paycertain of the resulting tax costs of the seller.  These agreements could result in our holdingon to properties that we would otherwise sell and not pay down or refinanceindebtedness that we would otherwise pay down or refinance.

 

For example, subject to limited exceptions, we arerestricted from selling or otherwise transferring or disposing of certainproperties located in the Crystal City area of Arlington, Virginia or aninterest in our division that manages the majority of our office properties inthe Washington, D.C. metropolitan area, which we refer to as the CESCRDivision, until 2014 with respect to certain properties located in the CrystalCity area of Arlington, Virginia or until 2008 with respect to an interest inthe CESCR Division.  These restrictions,which currently cover approximately 13.0 million square feet of space, couldresult in our inability to sell these properties or an interest in the CESCR Divisionat an opportune time and increase costs to us.

 

**Our Organizational and Financial Structure Gives Rise to Operational andFinancial Risks.**

** **

***We May Not Be Ableto Obtain Capital to Make Investments.***

*** ***

We depend primarily on external financing to fund thegrowth of our business. This is because one of the requirements of the InternalRevenue Code of 1986, as amended, for a REIT is that it distribute 90% of itsnet taxable income, excluding net capital gains, to its shareholders (there isa separate requirement to distribute net capital gains or pay a corporate leveltax in lieu).  Our access to debt orequity financing depends on the willingness of third parties to lend or makeequity investments and on conditions in the capital markets generally. We andother companies in the real estate industry have experienced limitedavailability of financing from time to time. Although we believe that we willbe able to finance any investments we may wish to make in the foreseeablefuture, new financing may not be available on acceptable terms.

 

For information about our available sources of funds,see “Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Liquidity and Capital Resources” and the notes to the consolidatedfinancial statements in this annual report on Form 10-K.

 

14

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***We haveindebtedness, and this indebtedness may increase.***

*** ***

As of December 31, 2004, we had approximately$5.2 billion in total debt outstanding including the Company’s proportionateshare of debt of partially-owned entities. Our ratio of total debt to total enterprise value was 30.4%. When we say“enterprise value” in the preceding sentence, we mean market equity value ofVornado Realty Trust plus total debt outstanding, including the Company’s pro-ratashare of partially-owned entities debt, less cash. In the future, we may incuradditional debt, and thus increase its ratio of total debt to total enterprisevalue, to finance acquisitions or property developments.

 

***Loss of theCompany’s key personnel could harm our operations and adversely affect thevalue of our common shares.***

*** ***

We are dependent on the efforts of Steven Roth, theChairman of the Board of Trustees and Chief Executive Officer of Vornado RealtyTrust, and Michael D. Fascitelli, the President of Vornado Realty Trust. Whilewe believe that we could find replacements for these key personnel, the loss oftheir services could harm our operations and adversely affect the value or ourcommon shares.

 

**Our Ownership Structure and Related-Party Transactions May Give Rise toConflicts of Interest.**

** **

***Steven Roth andInterstate Properties may exercise substantial influence over the Company. Theyand some of the Company’s other trustees and officers have interests orpositions in other entities that may compete with the Company.***

*** ***

As of December 31, 2004, Interstate Properties, aNew Jersey general partnership, and its partners owned approximately 10.8% ofthe common shares of Vornado Realty Trust and approximately 27.4% of the commonstock of Alexander’s, Inc.  Steven Roth,David Mandelbaum and Russell B. Wight, Jr. are the partners of InterstateProperties. Mr. Roth is the Chairman of the Board and Chief ExecutiveOfficer of Vornado Realty Trust, the managing general partner of InterstateProperties, the Chief Executive Officer and a director of Alexander’s.

 

As of December 31, 2004, we owned 33% of theoutstanding common stock of Alexander’s. Alexander’s is a REIT engaged inleasing, managing, developing and redeveloping properties, focusing primarilyon the locations where its department stores operated before they ceasedoperations in 1992. Alexander’s has six properties, which are located in theNew York City metropolitan area. Mr. Roth and Mr. Fascitelli, the President anda trustee of Vornado Realty Trust, are directors of Alexander’s. Messrs.Mandelbaum, West and Wight are trustees of Vornado Realty Trust and are alsodirectors of Alexander’s.

 

Prior to the dissolution of Vornado Operating onDecember 29, 2004, Interstate was also a significant equity holder of VornadoOperating.  When it existed, VornadoOperating’s principal business was operating, as tenant, the cold storagewarehouses owned by our partially-owned subsidiary, Americold RealtyTrust.  Messrs. Roth and Fascitelli wereofficers and directors of Vornado Operating. Mr. Wight was also a director of Vornado Operating.

 

Because of these overlapping interests, Mr. Roth andInterstate Properties and its partners may have substantial influence overVornado Realty Trust (and therefore the Company) and Alexander’s and on theoutcome of any matters submitted to Vornado Realty Trust or Alexander’sshareholders for approval. In addition, certain decisions concerning theCompany’s operations or financial structure may present conflicts of interest amongMessrs. Roth, Mandelbaum and Wight and Interstate Properties and the Company’sother equity or debt holders. In addition, Mr. Roth and Interstate Propertiesand its partners currently and may in the future engage in a wide variety ofactivities in the real estate business which may result in conflicts ofinterest with respect to matters affecting the Company or Alexander’s, such aswhich of these entities or persons, if any, may take advantage of potentialbusiness opportunities, the business focus of these entities, the types ofproperties and geographic locations in which these entities make investments,potential competition between business activities conducted, or sought to beconducted, by the Company, Interstate Properties and Alexander’s, competitionfor properties and tenants, possible corporate transactions such asacquisitions and other strategic decisions affecting the future of theseentities.

 

The Company currently manages and leases the realestate assets of Interstate Properties under a management agreement for whichthe Company receives an annual fee equal to 4% of base rent and percentage rentand certain other commissions. The management agreement has a term of one yearand is automatically renewable unless terminated by either of the parties on 60days’ notice at the end of the term. The Company earned $726,000, $703,000, and$747,000 of management fees under the management agreement for the years endedDecember 31, 2004, 2003 and 2002. Because the Company and Interstate Properties are controlled by the samepersons, as described above, the terms of the management agreement and anyfuture agreements between the Company and Interstate Properties may not becomparable to those the Company could have negotiated with an unaffiliatedthird party.

 

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***There may beconflicts of interest between Alexander’s and Us***

*** ***

At December 31, 2004, the Company had loansreceivable from Alexander’s of $124,000,000 at an interest rate of 9.0%,including $29,000,000 drawn under a $50,000,000 line of credit.  The maturity date of the loans is the earlierof January 3, 2006 or the date that Alexander’s Lexington Avenue constructionloan is finally repaid. The Operating Partnership manages, develops and leasesthe Alexander’s properties under management and development agreements andleasing agreements under which the Operating Partnership receives annual feesfrom Alexander’s. These agreements have a one-year term expiring in March ofeach year, except that the Lexington Avenue management and developmentagreements have a term lasting until substantial completion of development ofthe Lexington Avenue property, and are all automatically renewable. Because theCompany and Alexander’s share common senior management and because a majorityof the trustees of Vornado Realty Trust also constitute the majority of thedirectors of Alexander’s, the terms of the foregoing agreements and any futureagreements between us and Alexander’s may not be comparable to those we couldhave negotiated with an unaffiliated third party.

 

Interstate Properties, which is further describedabove, owned an additional 27.4% of the outstanding common stock of Alexander’sas of December 31, 2004.  Mr. Roth,Chairman of the Board and Chief Executive Officer of Vornado Realty Trust, isChief Executive Officer and a director of Alexander’s, and Mr. Fascitelli,President and a trustee of Vornado Realty Trust, is President and a director ofAlexander’s.  Messrs. Mandelbaum, Westand Wight, trustees of the Company, are also directors of Alexander’s.  Alexander’s common stock is listed on the NewYork Stock Exchange under the symbol “ALX.”

 

For a description of Interstate Properties’ ownershipof Vornado Realty Trust and Alexander’s, see “Steven Roth and InterstateProperties may exercise substantial influence over the Company. They and someof the Company’s other trustees and officers have interests or positions inother entities that may compete with the Company” above.

 

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**ITEM 2.**                             PROPERTIES

 

The Company currently owns, directly or indirectly,Office properties, Retail properties, Merchandise Mart properties andTemperature Controlled Logistics refrigerated warehouses. The Company also ownsor has investments in Alexander’s, Hotel Pennsylvania, The Newkirk MasterLimited Partnership, GMH Communities L.P., dry warehouses and industrialbuildings.

 

## **Office Segment**

## ** **

The Company currently owns all or a portion of 86office properties containing approximately 27.6 million square feet.  Of these properties, 20 containing13.4 million square feet are located in the New York Citymetropolitan area (primarily Manhattan) (the “New York City Office Properties”)and 66 containing 14.2 million square feet are located in the Washington, D.C.and Northern Virginia area (the “CESCR Office Properties”).

 

**New York City Office Properties:**

 

The New York City Office Properties contain12,607,000 square feet of office space and 805,000 square feet of retailspace.  In addition, the New York CityOffice properties contain five garages totaling 332,000 square feet (1,600spaces) which are managed by or leased to third parties.  The garage space is excluded from thestatistics provided in this section.

 

The following table sets forth the percentage of theNew York City Office Properties 2004 revenue by tenants’ industry:

 

| **Industry**        | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| Retail              |       | 13             | %          |
| Publishing          |       | 10             | %          |
| Government          |       | 8              | %          |
| Legal               |       | 7              | %          |
| Technology          |       | 6              | %          |
| Advertising         |       | 6              | %          |
| Pharmaceuticals     |       | 5              | %          |
| Finance             |       | 5              | %          |
| Service Contractors |       | 5              | %          |
| Communication       |       | 4              | %          |
| Not-for-Profit      |       | 4              | %          |
| Insurance           |       | 4              | %          |
| Bank Branches       |       | 3              | %          |
| Real Estate         |       | 3              | %          |
| Health Services     |       | 3              | %          |
| Engineering         |       | 3              | %          |
| Other               |       | 11             | %          |
|                |       | 100            | %          |

 

The Company’s New York City Office properties leaseterms generally range from five to seven years for smaller tenant spaces to aslong as 15 years for major tenants, and may include extension options at marketrates.  Leases typically provide for step-upsin rent periodically over the term of the lease and pass through to tenants thetenant’s share of increases in real estate taxes and operating expenses over abase year. Electricity is provided to tenants on a sub-metered basis orincluded in rent based on surveys and adjusted for subsequent utility rateincreases. Leases also typically provide for tenant improvement allowances forall or a portion of the tenant’s initial construction costs of its premises.

 

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Below is a listing of tenants that accounted for 2% ormore of the New York City Office Properties revenues in 2004:

 
| **Tenant**                                                            | ** ** | **Square Feet  Leased** | ** ** | **2004  Revenues** | ** **       | **Percentage of New  York City Office  Revenues** | ** ** | **Percentage of  Company  Revenues** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------|------------|--------------------|------------------|---------------------------------------------------|------------|--------------------------------------|------------|
| The McGraw-Hill  Companies, Inc.                                      |       | 520,000                 |       | $                  |  20,612,000 |                                              | 3.3        | %                                    | 1.2        | % |
| VNU Inc.                                                              |       | 515,000                 |       | 19,544,000         |             | 3.2                                               | %          | 1.1                                  | %          |
| Sterling  Winthrop, Inc.                                              |       | 429,000                 |       | 18,879,000         |             | 3.0                                               | %          | 1.1                                  | %          |
| Cablevision/Madison  Square Garden L.P./ Rainbow Media Holdings, Inc. |       | 285,000                 |       | 14,905,000         |             | 2.4                                               | %          | 0.9                                  | %          |
| Federated  Department Stores                                          |       | 357,000                 |       | 14,622,000         |             | 2.4                                               | %          | 0.9                                  | %          |
| U.S. Government                                                       |       | 639,000                 |       | 14,411,000         |             | 2.3                                               | %          | 0.8                                  | %          |
| New York Stock  Exchange, Inc.                                        |       | 348,000                 |       | 14,268,000         |             | 2.3                                               | %          | 0.8                                  | %          |
|                                                                       |            |                         |            |                    |                  |                                                   |            |                                      |            |  |

 

The following table sets forth the occupancy rate andthe average annual escalated rent per square foot for the New York CityOffice properties, excluding garage space, at the end of each of the past fiveyears.

 

| **As of  December 31,** | ** ** | **Rentable  Square Feet** | ** ** | **Occupancy Rate** | ** ** | **Average Annual  Escalated Rent  Per Square Foot  (excluding retail space)** | ** **  |
|-------------------------|------------|---------------------------|------------|--------------------|------------|-------------------------------------------------------------------------------|-------------|
| 2004                    |       | 13,412,000                |       | 95.6               | %          | $                                                                             |  41.90 |   |
| 2003                    |       | 13,253,000                |       | 95.8               | %          | 37.36                                                                         |        |
| 2002                    |       | 13,957,000                |       | 97.3               | %          | 35.53                                                                         |        |
| 2001                    |       | 13,953,000                |       | 96.2               | %          | 32.18                                                                         |        |
| 2000                    |       | 14,049,000                |       | 94.9               | %          | 30.16                                                                         |        |
|                         |            |                           |            |                    |            |                                                                               |             |  |

 

During 2004, the Company leased 1,623,000 square feetof New York City Office space as follows:

 

| ** **                        | ** ** | **2004 Leasing Activity** | ** ** |
|-----------------------------------|------------|---------------------------|------------|
| **Location**                      | ** ** | **Square Feet**           | ** ** | **Average Initial  Rent Per Square  Foot(1)** | ** ** |
|                              |       |                      |       |   |   |
| One Penn Plaza                    |       | 411,000                   |       | $ | 39.79 |   |
| 909 Third Avenue                  |       | 286,000                   |       | 41.61 |   |
| 888 Seventh Avenue                |       | 170,000                   |       | 54.43 |   |
| 330 Madison Avenue (25% interest) |       | 146,000                   |       | 39.57 |   |
| Eleven Penn Plaza                 |       | 114,000                   |       | 33.84 |   |
| Two Penn Plaza                    |       | 110,000                   |       | 37.65 |   |
| 640 Fifth Avenue                  |       | 86,000                    |       | 68.23 |   |
| 866 U.N. Plaza                    |       | 84,000                    |       | 42.22 |   |
| 150 East 58th Street              |       | 65,000                    |       | 46.48 |   |
| 595 Madison                       |       | 54,000                    |       | 49.07 |   |
| 90 Park Avenue                    |       | 24,000                    |       | 44.02 |   |
| 825 Seventh Avenue (50% interest) |       | 23,000                    |       | 25.00 |   |
| 689 Fifth Avenue                  |       | 18,000                    |       | 49.56 |   |
| 40 Fulton Street                  |       | 17,000                    |       | 24.83 |   |
| 1740 Broadway                     |       | 11,000                    |       | 30.00 |   |
| Paramus                           |       | 4,000                     |       | 19.06 |   |
| Total                             |       | 1,623,000                 |       | 42.96 |   |
| Vornado’s Ownership Interest |       | 1,502,000                 |       | 43.34 |   |
|                                   |            |                           |            |  |  |  |

 

----

(1)   Most leasesinclude periodic step-ups in rent, which are not reflected in the initial rentper square foot leased.

 

In addition to the office space noted above, theCompany leased 51,000 square feet of retail space at a weighted averageinitial rent of $118.39 per square foot.

 

18

----

 

The following tables set forth lease expirations forthe office and retail portions of the New York City Office Properties as ofDecember 31, 2004, for each of the next 10 years assuming that noneof the tenants exercise their renewal options.

 

**Office Space:**

 
| **Year**  | ** ** | **Number of  Expiring Leases** | ** ** | **Square Feet of  Expiring Leases** | ** ** | **Percentage of  New York City  Office Square Feet** | ** ** | **Annual Escalated  Rent of Expiring Leases** | ** ** |
|-----------|------------|--------------------------------|------------|-------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------|------------|
| **Total** | ** ** | **Per Square Foot**            | ** ** |
| 2005      |       | 170                            |       | 698,000                             |       | 5.5                                                  | %          | $                                             | 29,312,000 |   | $ | 41.99 |   |
| 2006      |       | 80                             |       | 709,000                             |       | 5.6                                                  | %          | 27,592,000                                    |       | 38.92 |   |
| 2007      |       | 81                             |       | 632,000                             |       | 5.0                                                  | %          | 26,494,000                                    |       | 41.92 |   |
| 2008      |       | 69                             |       | 1,171,000                           | (1)        | 9.3                                                  | %          | 50,180,000                                    |       | 42.85 |   |
| 2009      |       | 84                             |       | 653,000                             |       | 5.2                                                  | %          | 27,271,000                                    |       | 41.76 |   |
| 2010      |       | 55                             |       | 1,043,000                           |       | 8.3                                                  | %          | 43,672,000                                    |       | 41.87 |   |
| 2011      |       | 35                             |       | 863,000                             |       | 6.8                                                  | %          | 43,036,000                                    |       | 49.87 |   |
| 2012      |       | 24                             |       | 860,000                             |       | 6.8                                                  | %          | 30,529,000                                    |       | 35.50 |   |
| 2013      |       | 20                             |       | 584,000                             |       | 4.6                                                  | %          | 22,909,000                                    |       | 39.23 |   |
| 2014      |       | 26                             |       | 351,000                             |       | 2.8                                                  | %          | 16,400,000                                    |       | 46.72 |   |
|           |            |                                |            |                                     |            |                                                      |            |                                               |            |  |  |  |  |

 

----

(1)          Excludes 492,000square feet at 909 Third Avenue leased to the U.S. Post Office through 2038(including six five-year renewal options) for which the annual escalated rentis $8.96 per square foot.

 

**Retail Space (contained in office buildings):**

 
| **Year**  | ** ** | **Number of****Expiring Leases** | ** ** | **Square Feet of  Expiring Leases** | ** ** | **Percentage of  Retail Square Feet** | ** ** | **Annual Escalated  Rent of Expiring Leases** | ** ** |
|-----------|------------|----------------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|-----------------------------------------------|------------|
| **Total** | ** ** | **Per Square Foot**              | ** ** |
| 2005      |       | 11                               |       | 24,000                              |       | 3.0                                   | %          | $                                             | 1,473,000  |   | $ | 61.38 |   |
| 2006      |       | 10                               |       | 63,000                              |       | 7.8                                   | %          | 3,028,000                                     |       | 48.06 |   |
| 2007      |       | 3                                |       | 4,000                               |       | 0.5                                   | %          | 770,000                                       |       | 192.50 |   |
| 2008      |       | 5                                |       | 27,000                              |       | 3.4                                   | %          | 1,511,000                                     |       | 55.96 |   |
| 2009      |       | 6                                |       | 26,000                              |       | 3.2                                   | %          | 4,509,000                                     |       | 173.42 |   |
| 2010      |       | 4                                |       | 6,000                               |       | 0.7                                   | %          | 535,000                                       |       | 89.17 |   |
| 2011      |       | 3                                |       | 9,000                               |       | 1.1                                   | %          | 667,000                                       |       | 74.11 |   |
| 2012      |       | 4                                |       | 69,000                              |       | 8.6                                   | %          | 2,406,000                                     |       | 34.87 |   |
| 2013      |       | 10                               |       | 36,000                              |       | 4.5                                   | %          | 3,629,000                                     |       | 100.56 |   |
| 2014      |       | 13                               |       | 106,000                             |       | 13.2                                  | %          | 16,719,000                                    |       | 157.73 |   |
|           |            |                                  |            |                                     |            |                                       |            |                                               |            |  |  |  |  |

 

19

----

 

##### The following table sets forth the New York City OfficeProperties owned by the Company as of December 31, 2004:

 
| **Location**                           | ** ** | **Approximate  Leasable  Building Square  Feet** | ** ** | **Percent  Leased** | ** ** | **Encumbrances  (in thousands)** | ** **    |
|----------------------------------------|------------|--------------------------------------------------|------------|---------------------|------------|----------------------------------|---------------|
| NEW YORK (Manhattan)                   | ** ** |                                             |       |                |       |                             |          |
| One Penn Plaza  (1)                    | ** ** | 2,379,000                                        |       | 94.0                | %          | $                                | —        |   |
| Two Penn Plaza                         | ** ** | 1,543,000                                        |       | 91.7                | %          | 300,000                          |          |
| 909 Third Avenue  (1)                  |       | 1,359,000                                        |       | 98.5                | %          | 125,000                          |          |
| 770 Broadway                           |       | 1,046,000                                        |       | 99.6                | %          | 170,000                          |          |
| Eleven Penn  Plaza                     |       | 1,029,000                                        |       | 96.8                | %          | 219,777                          |          |
| 90 Park Avenue                         |       | 890,000                                          |       | 98.5                | %          | —                           |          |
| 888 Seventh  Avenue (1)                |       | 833,000                                          |       | 99.0                | %          | 105,000                          |          |
| 330 West 34th  Street (1)              |       | 637,000                                          |       | 99.9                | %          | —                           |          |
| 1740 Broadway                          |       | 567,000                                          |       | 96.1                | %          | —                           |          |
| 150 East 58th  Street (2)              |       | 522,000                                          |       | 90.5                | %          | —                           |          |
| 866 United  Nations Plaza              |       | 349,000                                          |       | 91.1                | %          | 48,130                           |          |
| 595 Madison  (Fuller Building)         |       | 307,000                                          |       | 95.1                | %          | —                           |          |
| 640 Fifth Avenue                       |       | 324,000                                          |       | 99.5                | %          | —                           |          |
| 40 Fulton Street                       |       | 240,000                                          |       | 89.4                | %          | —                           |          |
| 689 Fifth Avenue                       |       | 90,000                                           |       | 98.8                | %          | —                           |          |
| 7 West 34th  Street                    |       | 424,000                                          |       | 100.0               | %          | —                           |          |
| 330 Madison  Avenue (25% interest)     |       | 784,000                                          |       | 94.1                | %          | 60,000                           |          |
| 20 Broad Street  (1)                   |       | 466,000                                          |       | 85.3                | %          | —                           |          |
| 825 Seventh  Avenue (50% interest)     |       | 165,000                                          |       | 100.0               | %          | 23,104                           |          |
|                                   |       |                                             |       |                |       |                             |          |
| NEW JERSEY                             |       |                                             |       |                |       |                             |          |
| Paramus                                |       | 128,000                                          |       | 91.2                | %          | —                           |          |
|                                   |       |                                             |       |                |       |                             |          |
| **Total  Office Buildings**            | ** ** | **14,082,000**                                   | ** ** | **95.6**            | **%**      | **$**                            | **1,051,011** | ** ** |
|                                   |       |                                             |       |                |       |                             |          |
| **Vornado’s  Ownership Interest** | ** ** | **13,412,000**                                   | ** ** | **95.6**            | **%**      | **$**                            | **994,459**   | ** ** |

 

----

(1)          Ground leased.

(2)          Less than 10% of thisproperty is ground leased.

 

20

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**Charles E. Smith Commercial Realty (“CESCR”) OfficeProperties:**

 

CESCR owns 66 office buildings and a hotel in the Washington D.C.and Northern Virginia area containing 14.2 million square feet, includingtwo buildings taken out of service for redevelopment.  CESCR manages an additional 7.1 millionsquare feet of office and other commercial properties.  In addition, CESCR’s buildings contain 19garages totaling approximately 7.4 million square feet (25,000 spaces) whichare managed by or leased to third parties. The garage space is excluded from the statistics provided in thissection.  As of December 31, 2004, 35percent of CESCR’s property portfolio is leased to various agencies of the U.S.government.

 

On July 1, 2004, the Company acquired theMarriott hotel located in its Crystal City office complex from a limitedpartnership in which Robert H. Smith and Robert P. Kogod, trustees of theCompany, together with family members own approximately 67 percent.  The purchase price of $21,500,000 was paid incash.  The hotel contains 343 rooms andis leased to an affiliate of Marriott International, Inc. until July 31, 2015,with one 10-year extension option.  Theland under the hotel was acquired in 1999.

 

The following table sets forth the percentage of CESCR’s Officeproperties 2004 revenue by tenants’ industry:

 
| **Industry**                | ** ** | **Percentage** | ** ** |
|-----------------------------|------------|----------------|------------|
|                        |       |           |       |
| U.S. Government             |       | 42             | %          |
| Government  Contractors     |       | 29             | %          |
| Legal Services              |       | 4              | %          |
| Communication               |       | 3              | %          |
| Transportation  by Air      |       | 3              | %          |
| Real Estate                 |       | 3              | %          |
| Trade  Associations         |       | 2              | %          |
| Business  Services          |       | 2              | %          |
| Eating and  Drinking Places |       | 1              | %          |
| Health Services             |       | 1              | %          |
| Other                       |       | 10             | %          |
|                        |       | 100            | %          |

 

CESCR office leases are typically for four to seven year terms, and mayprovide for extension options at either pre-negotiated or market rates.  Most leases provide for annual rentalescalations throughout the lease term, plus recovery of increases in realestate taxes and certain property operating expenses over a base year.  Annual rental escalations are typically basedupon either fixed percentage increases or the consumer price index.  Leases also typically provide for tenantimprovement allowances for all or a portion of the tenant’s initialconstruction costs of its premises.

 

Below is a listing of tenants which accounted for 2% or more of theCESCR Office properties revenues during 2004:

 
| **Tenant**                               | ** ** | **Square Feet  Leased** | ** ** | **2004  Revenues** | ** **  | **Percentage of  CESCR  Revenues** | ** ** | **Percentage  of Company  Revenues** | ** ** |
|------------------------------------------|------------|-------------------------|------------|--------------------|-------------|------------------------------------|------------|--------------------------------------|------------|
| U.S. Government  (93 separate leases)    |       | 5,043,000               |       | $                  | 186,315,000 |                               | 41.9       | %                                    | 10.9       | % |
| Science  Applications International Corp |       | 499,000                 |       | 12,631,000         |        | 2.8                                | %          | 0.7                                  | %          |
| TKC  Communications                      |       | 305,000                 |       | 10,221,000         |        | 2.3                                | %          | 0.6                                  | %          |
| The Boeing  Company                      |       | 283,000                 |       | 9,035,000          |        | 2.0                                | %          | 0.5                                  | %          |
|                                          |            |                         |            |                    |             |                                    |            |                                      |            |  |

 

21

----

 

The following table sets forth the occupancy rate and the averageannual escalated rent per square foot for the CESCR properties at the end ofeach of the past five years:

 
| **As of  December 31,** | ** ** | **Rentable  Square Feet** | ** ** | **Occupancy Rate** | ** ** | **Average Annual  Escalated Rent  Per Square Foot** | ** ** |
|-------------------------|------------|---------------------------|------------|--------------------|------------|-----------------------------------------------------|------------|
| 2004                    |       | 14,216,000                |       | 91.5               | %          | $                                                   | 30.06      |   |
| 2003                    |       | 13,963,000                |       | 93.9               | %          | 29.64                                               |       |
| 2002                    |       | 13,395,000                |       | 93.6               | %          | 29.38                                               |       |
| 2001                    |       | 12,899,000                |       | 94.8               | %          | 28.59                                               |       |
| 2000                    |       | 12,495,000                |       | 97.9               | %          | 27.38                                               |       |
|                         |            |                           |            |                    |            |                                                     |            |  |

 

During 2004, the Company leased 2,824,000 square feet of CESCR officespace as follows:

 
| **Location**                   | ** ** | **Square Feet** | ** ** | **Average Initial Rent  Per Square Foot(1)** | ** ** |
|--------------------------------|------------|-----------------|------------|----------------------------------------------|------------|
|                           |       |            |       |                                         |       |
| Skylines                       |       | 762,000         |       | $                                            | 26.13      |   |
| Crystal Gateway                |       | 529,000         |       | 32.53                                        |       |
| Crystal Plaza                  |       | 499,000         |       | 29.40                                        |       |
| Crystal Park                   |       | 201,000         |       | 32.62                                        |       |
| Crystal Square                 |       | 158,000         |       | 32.83                                        |       |
| Tysons Dulles                  |       | 142,000         |       | 24.25                                        |       |
| Reston Executive               |       | 90,000          |       | 24.19                                        |       |
| Courthouse Plaza               |       | 88,000          |       | 26.61                                        |       |
| Commerce  Executive            |       | 83,000          |       | 19.97                                        |       |
| 1919 South Eads  Street        |       | 57,000          |       | 33.22                                        |       |
| 1730 M Street                  |       | 45,000          |       | 31.14                                        |       |
| Arlington Plaza                |       | 36,000          |       | 29.35                                        |       |
| Crystal Mall                   |       | 32,000          |       | 29.00                                        |       |
| Fairfax Square  (20% interest) |       | 30,000          |       | 26.75                                        |       |
| 1101 17th Street               |       | 20,000          |       | 33.63                                        |       |
| 1150 17th Street               |       | 19,000          |       | 34.00                                        |       |
| 1140 Connecticut  Avenue       |       | 12,000          |       | 33.39                                        |       |
| Democracy Plaza                |       | 11,000          |       | 33.54                                        |       |
| 1750  Pennsylvania             |       | 10,000          |       | 38.00                                        |       |
|                           |       | 2,824,000       |       | 28.93                                        |       |
|                                |            |                 |            |                                              |            |  |

 

----

(1)          Most leases include periodic step-ups inrent which are not reflected in the initial rent per square foot leased.

 

22

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The following table sets forth lease expirations for the CESCR OfficeProperties as of December 31, 2004 for each of the next 10 years, assumingthat none of the tenants exercise their renewal options.

 
| **Year**  | ** ** | **Number of****Expiring Leases** | ** ** | **Square Feet of  Expiring Leases** | ** ** | **Percentage of  CESCR Square Feet** | ** ** | **Annual Escalated  Rent of Expiring Leases** | ** ** |
|-----------|------------|----------------------------------|------------|-------------------------------------|------------|--------------------------------------|------------|-----------------------------------------------|------------|
| **Total** | ** ** | **Per  Square Foot**             | ** ** |
|      |       |                             |       |                                |       |                                 |       |                                          |       |   |   |
| 2005      |       | 375                              |       | 2,909,000                           |       | 20.5                                 | %          | $                                             | 87,280,000 |   | $ | 30.00 |   |
| 2006      |       | 195                              |       | 2,362,000                           |       | 16.6                                 | %          | 75,044,000                                    |       | 31.77 |   |
| 2007      |       | 157                              |       | 1,075,000                           |       | 7.6                                  | %          | 33,134,000                                    |       | 30.83 |   |
| 2008      |       | 135                              |       | 1,246,000                           |       | 8.8                                  | %          | 38,598,000                                    |       | 30.99 |   |
| 2009      |       | 126                              |       | 1,305,000                           |       | 9.2                                  | %          | 37,874,000                                    |       | 29.02 |   |
| 2010      |       | 49                               |       | 447,000                             |       | 3.1                                  | %          | 14,152,000                                    |       | 31.66 |   |
| 2011      |       | 62                               |       | 952,000                             |       | 6.7                                  | %          | 28,391,000                                    |       | 29.81 |   |
| 2012      |       | 28                               |       | 620,000                             |       | 4.4                                  | %          | 20,743,000                                    |       | 33.46 |   |
| 2013      |       | 24                               |       | 361,000                             |       | 2.5                                  | %          | 12,172,000                                    |       | 33.70 |   |
| 2014      |       | 24                               |       | 441,000                             |       | 3.1                                  | %          | 11,236,000                                    |       | 25.47 |   |
|           |            |                                  |            |                                     |            |                                      |            |                                               |            |  |  |  |  |

 

The above table includes 1,002,000 square feet leased to the U.S.Patent and Trademark Office (“PTO”) in the Crystal City submarket.  Of this square feet, 393,000 expires in Q12005, 359,000 expires in Q2 2005, 145,000 expires in Q4 2005 and 105,000expires in Q1 2006.  In addition, the PTOvacated 937,000 square feet in the fourth quarter of 2004, of which 497,000 hasbeen taken out of service, and will vacate another 1,002,000 square feet during2005 and the first quarter of 2006.  Asof February 1, 2005, the Company has leased 416,000 square feet of the PTOspace vacated.  Of this space, 262,000square feet was leased to the Federal Supply Service which will be relocatedfrom 240,000 square feet in other Crystal City buildings, 122,000 square feetwas leased to the Public Broadcasting Service and 32,000 square feet was leasedto Lockheed Martin.

 

Below is a comparison of the Company’s actual leasing activity to theCompany’s projection for the lease-up of this space:

 
| ** **                           | ** ** | **Square Feet Leased  (in thousands)** | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|
| **Period in which  rent commences:** | ** ** | **Projection**                         | ** ** | **Actual Through  February 1, 2005** | ** ** |
| Q4 2004                              |       | —                                 |       | 32 |   |
| Q3 2005                              |       | —                                 |       | 122 |   |
| Q4 2005                              |       | 247                                    |       | — |   |
| Q1 2006                              |       | 793                                    |       | 262 |   |
| Q2 2006                              |       | 404                                    |       | — |   |
| Q3 2006                              |       | 252                                    |       | — |   |
| Q4 2006                              |       | 98                                     |       | — |   |
| Q1 2007                              |       | 145                                    |       | — |   |
|                                 |       | 1,939                                  |       | 416 |   |

 

Straight-line rentper square foot for the actual square feet leased is $32.34 as compared to$31.94 projected.  Actual tenantimprovements and leasing commissions per square foot is $45.25 as compared to$45.28 projected.

 

The Company’soriginal redevelopment plans for the PTO space included taking Crystal Park Oneand Crystal Plaza Three and Four out of service.  Plans for Crystal Plaza Three and Four havenot changed.  Current plans for CrystalPark One are to lease its 224,000 square feet to private sector tenants, whichwill not require taking the building out of service, as opposed to leasing itto another government agency which would have required taking it out ofservice.  As a result, the Company willrecognize approximately $4,000,000 of expense in 2005, which under the originalplan would have been capitalized as part of development costs.

 

23

----

 

The followingtable sets forth the CESCR Office Properties owned by the Company as ofDecember 31, 2004:

 
| **Location/Complex**                             | ** ** | **Number  of  Buildings** | ** ** | **Approximate  Leasable  Building Square  Feet** | ** ** | **Percent  Leased** | ** ** | **Encumbrances  (in thousands)** | ** **    |
|--------------------------------------------------|------------|---------------------------|------------|--------------------------------------------------|------------|---------------------|------------|----------------------------------|---------------|
| Crystal Mall                                     |       | 4                         |       | 1,067,000                                        |       | 85.9                | %          | $                                | 48,618        |   |
| Crystal Plaza                                    |       | 7                         | (1)        | 1,231,000                                        |       | 85.4                | %          | —                           |          |
| Crystal Square                                   |       | 4                         |       | 1,420,000                                        |       | 95.0                | %          | 185,296                          |          |
| Crystal City Hotel                               |       | 1                         |       | 266,000                                          |       | 100                 | %          | —                           |          |
| Crystal City Shops                               |       | 1                         |       | 47,000                                           |       | 100                 | %          | —                           |          |
| Crystal Gateway                                  |       | 5                         |       | 1,465,000                                        |       | 93.9                | %          | 203,928                          |          |
| Crystal Park                                     |       | 5                         |       | 2,180,000                                        |       | 89.0                | %          | 253,238                          |          |
| 1919 S. Eads Street                              |       | 1                         |       | 97,000                                           |       | 98.5                | %          | 11,952                           |          |
| Total Crystal City                               |       | 28                        |       | 7,773,000                                        |       | 91.0                | %          | 703,032                          |          |
| Skyline                                          |       | 8                         |       | 2,542,000                                        |       | 93.7                | %          | 194,897                          |          |
| Courthouse Plaza (2)                             |       | 2                         |       | 624,000                                          |       | 95.7                | %          | 77,153                           |          |
| 1101 17th Street                                 |       | 1                         |       | 207,000                                          |       | 96.7                | %          | 25,537                           |          |
| 1730 M Street                                    |       | 1                         |       | 190,000                                          |       | 82.7                | %          | 15,944                           |          |
| 1140 Connecticut Avenue                          |       | 1                         |       | 179,000                                          |       | 90.8                | %          | 18,888                           |          |
| 1150 17th Street                                 |       | 1                         |       | 227,000                                          |       | 76.6                | %          | 30,838                           |          |
| 1750 Pennsylvania Avenue                         |       | 1                         |       | 259,000                                          |       | 97.9                | %          | 48,876                           |          |
| 2101 L Street                                    |       | 1                         |       | 354,000                                          |       | 99.5                | %          | —                           |          |
| Democracy Plaza I (2)                            |       | 1                         |       | 210,000                                          |       | 91.2                | %          | 26,095                           |          |
| Tysons Dulles                                    |       | 3                         |       | 484,000                                          |       | 93.8                | %          | —                           |          |
| Commerce Executive                               |       | 3                         |       | 382,000                                          |       | 74.9                | %          | 51,796                           |          |
| Reston Executive                                 |       | 3                         |       | 487,000                                          |       | 91.1                | %          | 71,197                           |          |
| South Capitol                                    |       | 3                         |       | 58,000                                           |       | 96.9                | %          | —                           |          |
| Fairfax Square (20% interest)                    |       | 3                         |       | 524,000                                          |       | 90.7                | %          | 67,215                           |          |
| Kaempfer equity interests (.1% to 10% interests) |       | 6                         |       | 3,437,000                                        |       | 99.4                | %          | 491,869                          |          |
| ** **                                       | ** ** | ** **                | ** ** | ** **                                       | ** ** | ** **          | ** ** | ** **                       | ** **    |
| **Total Office Buildings**                       | ** ** | **66**                    | ** ** | **17,937,000**                                   | ** ** | **92.1**            | **%**      | **$**                            | **1,823,337** | ** ** |
| ** **                                       | ** ** | ** **                | ** ** | ** **                                       | ** ** | ** **          | ** ** | ** **                       | ** **    |
| **Vornado’s Ownership Interest**            | ** ** | **66**                    | ** ** | **14,216,000**                                   | ** ** | **91.5**            | **%**      | **$**                            | **1,296,549** | ** ** |
| ** **                                       | ** ** | ** **                | ** ** | ** **                                       | ** ** | ** **          | ** ** | ** **                       | ** **    |
| **Assets Held for Sale:**                        | ** ** | ** **                | ** ** | ** **                                       | ** ** | ** **          | ** ** | ** **                       | ** **    |
| Arlington Plaza                                  |       | 1                         |       | 179,000                                          |       | 93.3                | %          | $                                | 14,691        |   |
|                                                  |            |                           |            |                                                  |            |                     |            |                                  |               |  |  |  |

 

----

(1)          Includes CrystalPlaza Three and Four containing an aggregate of 354,000 square feet which havebeen taken out of service for redevelopment and not included in Percent Leased.

(2)          Ground leased.

 

24

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## **Retail Segment**

 

The Company owns94 retail properties, of which 51 are strip shopping centers located in theNortheast and Mid-Atlantic; 25 are supermarkets in Southern California; fiveare regional malls located in New York, New Jersey and San Juan, Puerto Rico;and 13 are retail properties located in New York City.  The Company’s strip shopping centers andmalls are generally located on major regional highways in mature, denselypopulated areas.  The Company believesthese properties attract consumers from a regional, rather than a neighborhoodmarket place because of their location on regional highways.

 

The Company’sstrip shopping centers contain an aggregate of 9.2 million square feet and aresubstantially (over 80%) leased to large stores (over 20,000 squarefeet).  Tenants include destinationretailers such as discount department stores, supermarkets, home improvementstores, discount apparel stores and membership warehouse clubs.  Tenants typically offer basic consumernecessities such as food, health and beauty aids, moderately priced clothing,building materials and home improvement supplies, and compete primarily on thebasis of price and location.

 

The Company’s fiveregional malls are as follows :

 

The Green Acres Mall in Long Island, New York contains 1.6million square feet, and is anchored by four major department stores:Sears, J.C. Penney and Company, Inc., Federated DepartmentStores, Inc. (“Federated”) doing business as Macy’s and Macy’s Men’s FurnitureGallery (formerly “Sterns”).  The complexalso includes The Plaza at Green Acres, a 175,000 square foot stripshopping center which is anchored by Wal-Mart and National WholesaleLiquidators.  The Company plans torenovate the interior and exterior of the mall. In addition, the Company has entered into a ground lease with B.J.’sWholesale Club who will construct its own free-standing store in the mallcomplex.  Further, the Company willconstruct 63,600 square feet of free-standing retail space and parking decks inthe complex, subject to governmental approvals. The expansion and renovation are expected to be completed in 2006.

 

The Monmouth Mall in Eatontown, New Jersey, owned 50% by theCompany, contains 1.4 million square feet and is anchored by fourdepartment stores; Macy’s, Lord & Taylor, J.C. Penney and Boscovs, three ofwhich own their stores aggregating 718,000 square feet.

 

The Bergen Mall in Paramus, New Jersey, contains 893,000 squarefeet.  The Company has entered intoagreements to terminate its lease with Macy’s effective April 2005 and itslease with Value City effective January 2006. Under these agreements, in January 2005, the Company received $2,000,000from Macy’s and paid $12,000,000 to Value City, both of which were reflected inthe acquisition price of the mall.  TheCompany plans to expand, re-tenant and redevelop the mall subject togovernmental approvals and anticipates taking the mall out of service in phasesbeginning in the second quarter of 2005.

 

The Montehiedra Mall in San Juan, Puerto Rico, contains554,000 square feet and is anchored by Home Depot, Kmart, andMarshalls.

 

The Las Catalinas Mall in San Juan, Puerto Rico, contains 354,000 squarefeet and is anchored by Kmart and Sears, which owns its store.

 

25

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**2004 Retail Property Acquisitions**

 

On February 3,2004, the Company acquired the Forest Plaza Shopping Center for approximately$32,500,000, of which $14,000,000 was paid in cash and $18,500,000 was debtassumed.  Forest Plaza is a 165,000square foot shopping center located in Staten Island, New York.

 

On March 19, 2004, the Company acquired a 62,000 square footfree-standing retail building located at 25 W. 14th Street inManhattan for $40,000,000 in cash.

 

On July 29, 2004,the Company acquired a real estate portfolio containing 25 supermarkets for$65,000,000 in cash.  These properties,all of which are all located in Southern California and contain an aggregate ofapproximately 766,000 square feet, were purchased from the Newkirk MLP, inwhich the Company currently owns a 22.4% interest.  The supermarkets are net leased toStater Brothers for an initial term expiring in 2008, with six 5-yearextension options.  Stater Brothers is aSouthern California regional grocery chain that operates 158 supermarketsand has been in business since 1936.

 

On August 30,2004, the Company acquired 99-01 Queens Boulevard, a 68,000 square foot free-standingbuilding in Forest Hills, New York for $26,500,000 in cash.

 

On November 2,2004, the Company acquired a 50% joint venture interest in a 92,500 square footproperty located at Broome Street and Broadway in New York City.  The Company contributed $4,462,000 of equityand provided a $24,000,000 bridge loan with interest at 10% per annum.  Upon the refinancing of the bridge loan,which is expected to close in the second quarter of 2005, the Company will berepaid $15,106,000 and the balance of $8,894,000 will remain in the venture asadditional equity.

 

On November 12, 2004 and December 1, 2004, the Company acquired twoshopping centers aggregating 185,000 square feet, in Lodi, New Jersey and LongIsland (Inwood), New York, for a total purchase price of $36,600,000 in cashplus $10,900,000 of assumed debt.

 

In December 2004, the Company acquired two retail condominiumsaggregating 12,000 square feet, located at 386 and 387 West Broadway in NewYork City for $16,900,000 in cash plus $4,700,000 of assumed debt.

 

26

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The following table sets forth the percentage of the Retail Properties2004 revenues by type of retailer:

 
| **Industry**                        | ** ** | **Percentage** | ** ** |
|-------------------------------------|------------|----------------|------------|
| Department  Stores                  |       | 20             | %          |
| Family Apparel                      |       | 14             | %          |
| Supermarkets                        |       | 10             | %          |
| Home Improvement                    |       | 8              | %          |
| Restaurants                         |       | 6              | %          |
| Home  Entertainment and Electronics |       | 6              | %          |
| Women’s Apparel                |       | 5              | %          |
| Other                               |       | 31             | %          |
|                                |       | 100            | %          |

 

The Company’s shopping center lease terms range from five years or lessin some instances for smaller tenant spaces to as long as 25 years formajor tenants. Leases generally provide for additional rents based on apercentage of tenants’ sales and pass through to tenants of the tenants’ shareof all common area charges (including roof and structure in strip shoppingcenters, unless it is the tenant’s direct responsibility), real estate taxesand insurance costs and certain capital expenditures. Percentage rent accountedfor less than 1% of total shopping center revenues in 2004.  None of the tenants in the Retail segmentaccounted for more than 10% of the Company’s 2004 total revenues.

 

Below is a listing of tenants which accounted for 2% or more of theRetail properties revenues in 2004:

 
| **Tenant**                                          | ** ** | **Square Feet** | ** ** | **2004  Revenues** | ** ** | **Percentage of Retail  Revenues** | ** ** | **Percentage of  Company  Revenues** | ** ** |
|-----------------------------------------------------|------------|-----------------|------------|--------------------|------------|------------------------------------|------------|--------------------------------------|------------|
|                                                |       |            |       |               |       |                               |       |                                 |       |
| Wal-Mart/Sam’s  Wholesale                      |       | 1,561,000       |       | $                  | 13,561,000 |                               | 5.5        | %                                    | .8         | % |
| Stop & Shop  Companies, Inc, (Stop & Shop). |       | 311,000         |       | 10,177,000         |       | 4.1                                | %          | .6                                   | %          |
| The Home Depot,  Inc                                |       | 630,000         |       | 9,986,000          |       | 4.0                                | %          | .6                                   | %          |
| Kohl’s                                         |       | 698,000         |       | 7,347,000          |       | 3.0                                | %          | .4                                   | %          |
| Hennes &  Mauritz                               |       | 60,000          |       | 7,317,000          |       | 2.9                                | %          | .4                                   | %          |
| Federated  Department Stores                        |       | 705,000         |       | 6,155,000          |       | 2.5                                | %          | .4                                   | %          |
| Shop Rite                                           |       | 364,000         |       | 5,406,000          |       | 2.2                                | %          | .3                                   | %          |
| The TJX  Companies, Inc.                            |       | 389,000         |       | 5,057,000          |       | 2.0                                | %          | .3                                   | %          |
|                                                     |            |                 |            |                    |            |                                    |            |                                      |            |  |

 

See Item 3. Legal Proceedings for details of Stop & Shoplitigation.

 

27

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The aggregate occupancy rate for the 14,210,000 square feet of retailproperties at December 31, 2004 is 93.9%. The following sets forth the occupancy rate and the average annual baserent per square foot for the Strip Shopping Centers and Regional Malls at theend of each of the past five years.

 

**StripShopping Centers:**

 
| **As of December 31,** | ** ** | **Rentable  Square Feet** | ** ** | **Occupancy Rate** | ** ** | **Average Annual  Base Rent  Per Square Foot** | ** ** |
|------------------------|------------|---------------------------|------------|--------------------|------------|------------------------------------------------|------------|
| 2004                   |       | 9,931,000                 |       | 94.5               | %          | $                                              | 12.00      |   |
| 2003                   |       | 8,798,000                 |       | 92.3               | %          | 11.91                                          |       |
| 2002                   |       | 9,295,000                 |       | 85.7               | %          | 11.11                                          |       |
| 2001                   |       | 9,008,000                 |       | 89.0               | %          | 10.60                                          |       |
| 2000                   |       | 9,000,000                 |       | 91.1               | %          | 10.72                                          |       |
|                        |            |                           |            |                    |            |                                                |            |  |

 

**RegionalMalls:**

 
| **As of December 31,** | ** ** | **Rentable  Square Feet** | ** ** | **Occupancy Rate** | ** ** | **Average Annual Base Rent  Per Square Foot** | ** ** |
|------------------------|------------|---------------------------|------------|--------------------|------------|-----------------------------------------------|------------|
| **Mall Tenants**       | ** ** | **Total**                 | ** ** |
| 2004                   |       | 3,766,000                 |       | 93.1               | %          | $                                             | 33.05      |   | $ | 17.32 |   |
| 2003                   |       | 3,766,000                 |       | 94.1               | %          | 31.08                                         |       | 16.41 |   |
| 2002                   |       | 2,875,000                 |       | 95.4               | %          | 27.79                                         |       | 17.15 |   |
| 2001                   |       | 2,293,000                 |       | 98.7               | %          | 34.04                                         |       | 15.31 |   |
| 2000                   |       | 2,293,000                 |       | 95.5               | %          | 32.05                                         |       | 14.84 |   |
|                        |            |                           |            |                    |            |                                               |            |  |  |  |  |

 

**Manhattan Retail and Other:**

 

Manhattan retailis comprised of 13 properties containing 513,000 square feet.

 

 

The followingtable sets forth the lease expirations for the Retail Properties as of December31, 2004 for each of the next 10 years assuming that none of the tenantsexercise their renewal options.

 
| **Year**   | ** ** | **Number of  Expiring  Leases** | ** ** | **Square Feet  of Expiring  Leases** | ** ** | **Percentage of  Retail Square  Feet** | ** ** | **Annual Rent of  Expiring Leases** | ** ** |
|------------|------------|---------------------------------|------------|--------------------------------------|------------|----------------------------------------|------------|-------------------------------------|------------|
| **Total**  | ** ** | **Per Square  Foot**            | ** ** |
| ** ** | ** ** | ** **                      | ** ** | ** **                           | ** ** | ** **                             | ** ** | ** **                          | ** ** | ** ** | ** ** |
| 2005       |       | 152                             |       | 869,000                              |       | 6.1                                    | %          | $                                   | 14,327,000 |   | $ | 16.49 |   |
| 2006       |       | 89                              |       | 799,000                              |       | 5.6                                    | %          | 7,593,000                           |       | 9.50 |   |
| 2007       |       | 127                             |       | 556,000                              |       | 3.9                                    | %          | 11,009,000                          |       | 19.81 |   |
| 2008       |       | 136                             |       | 1,495,000                            |       | 10.5                                   | %          | 16,293,000                          |       | 10.90 |   |
| 2009       |       | 102                             |       | 729,000                              |       | 5.1                                    | %          | 11,505,000                          |       | 15.78 |   |
| 2010       |       | 57                              |       | 590,000                              |       | 4.1                                    | %          | 9,048,000                           |       | 15.34 |   |
| 2011       |       | 48                              |       | 787,000                              |       | 5.5                                    | %          | 11,069,000                          |       | 14.06 |   |
| 2012       |       | 43                              |       | 416,000                              |       | 2.9                                    | %          | 6,346,000                           |       | 15.25 |   |
| 2013       |       | 62                              |       | 857,000                              |       | 6.0                                    | %          | 13,065,000                          |       | 15.24 |   |
| 2014       |       | 62                              |       | 906,000                              |       | 6.4                                    | %          | 13,029,000                          |       | 14.38 |   |
|            |            |                                 |            |                                      |            |                                        |            |                                     |            |  |  |  |  |

 

28

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During 2004, theCompany leased 1,021,000 square feet of Retail space as follows:

 
| ** **                          | ** ** | **2004 Leasing Activity** | ** ** |
|-------------------------------------|------------|---------------------------|------------|
| **Location**                        | ** ** | **Square Feet**           | ** ** | **Average  Initial Rent  Per Square  Foot (1)** | ** ** |
|                                |       |                      |       |   |   |
| Green Acres Mall, Valley Stream, NY |       | 276,000                   |       | $ | 18.46 |   |
| Albany (Menands), NY                |       | 104,000                   |       | 9.00 |   |
| Woodbridge, NJ                      |       | 60,000                    |       | 13.84 |   |
| Freeport, NY                        |       | 55,000                    |       | 17.50 |   |
| East Hanover I, NJ                  |       | 48,000                    |       | 19.93 |   |
| Dover, NJ                           |       | 46,000                    |       | 10.79 |   |
| York, PA                            |       | 46,000                    |       | 6.07 |   |
| Totowa, NJ                          |       | 45,000                    |       | 13.65 |   |
| Towson, MD                          |       | 42,000                    |       | 6.26 |   |
| Bethlehem, PA                       |       | 35,000                    |       | 5.31 |   |
| Monmouth Mall, Eatontown, NJ (50%)  |       | 33,000                    |       | 21.10 |   |
| Middletown, NJ                      |       | 32,000                    |       | 14.29 |   |
| Montehiedra, Puerto Rico            |       | 25,000                    |       | 32.83 |   |
| Jersey City, NJ                     |       | 21,000                    |       | 17.43 |   |
| Lawnside, NJ                        |       | 20,000                    |       | 12.50 |   |
| Las Catalinas, Puerto Rico          |       | 17,000                    |       | 47.34 |   |
| Cherry Hill, NJ                     |       | 16,000                    |       | 15.67 |   |
| Lancaster, PA                       |       | 15,000                    |       | 4.50 |   |
| Waterbury, CT                       |       | 14,000                    |       | 14.95 |   |
| Bricktown, NJ                       |       | 11,000                    |       | 20.78 |   |
| Union, NJ                           |       | 11,000                    |       | 32.50 |   |
| Hackensack, NJ                      |       | 9,000                     |       | 33.33 |   |
| Bensalem, PA                        |       | 6,000                     |       | 16.50 |   |
| Chicopee, MA                        |       | 6,000                     |       | 14.17 |   |
| North Plainfield, NJ                |       | 5,000                     |       | 22.38 |   |
| Bergen Mall, Paramus, NJ            |       | 4,000                     |       | 32.51 |   |
| East Hanover II, NJ                 |       | 3,000                     |       | 18.00 |   |
| Turnersville, NJ                    |       | 3,000                     |       | 7.63 |   |
| Watchung, NJ                        |       | 3,000                     |       | 15.50 |   |
| 25 W. 14th Street, Manhattan, NY    |       | 2,000                     |       | 95.00 |   |
| Kearny, NJ                          |       | 2,000                     |       | 28.00 |   |
| Manalapan, NJ                       |       | 2,000                     |       | 57.50 |   |
| Staten Island, NY                   |       | 2,000                     |       | 35.34 |   |
| Morris Plains, NJ                   |       | 1,000                     |       | 90.00 |   |
| 4 Union Square South, Manhattan, NY |       | 1,000                     |       | 136.78 |   |
|                                |       | 1,021,000                 |       | 16.33 |   |
|                                     |            |                           |            |  |  |  |

 

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(1)               Most leases include periodic step-ups in rent, whichare not reflected in the initial rent per square foot leased.

 

29

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The following table setsforth the Retail Properties owned by the Company as of December 31, 2004:

 
| ** **                                    | ** ** | **Approximate Leasable  Building Square Footage** | ** ** | ** **                                          | ** ** | ** **          | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------|------------|
| **Location**                                  | ** ** | **Owned/  Leased by Company**                     | ** ** | **Owned by  Tenant on  Land Leased  from  Company** | ** ** | **Percent  Leased** | ** ** | **Encumbrances  (in thousands)** | ** ** |
| **REGIONAL  MALLS:**                          |       |                                              |       |                                                |       |                |       |   |   |
| Green Acres  Mall, Valley Stream, NY (1)      |       | 1,517,000                                         |       | 79,000                                              |       | 95.8                | %          | $ | 152,819 |   |
| Monmouth Mall,  Eatontown, NJ (50% ownership) |       | 718,000                                           |       | —                                              |       | 96.1                | %          | 135,000 |   |
| Montehiedra,  Puerto Rico                     |       | 554,000                                           |       | —                                              |       | 89.1                | %          | 58,019 |   |
| Las Catalinas,  Puerto Rico                   |       | 354,000                                           |       | —                                              |       | 97.1                | %          | 65,696 |   |
| Bergen Mall,  Paramus, NJ                     |       | 893,000                                           |       | 10,000                                              |       | 87.7                | %          | — |   |
| Total Regional  Malls                         |       | 4,036,000                                         |       | 89,000                                              |       | 93.4                | %          | $ | 411,534 |   |
| Vornado’s  ownership interest            |       | 3,677,000                                         |       | 89,000                                              |       | 93.1                | %          | $ | 344,034 |   |
| **STRIP  SHOPPING CENTERS:**                  |       |                                              |       |                                                |       |                |       |   |   |
| NEW JERSEY                                    |       |                                              |       |                                                |       |                |       |   |   |
| Bordentown                                    |       | 179,000                                           |       | —                                              |       | 95.0                | %          | $ | 7,893 | (2) |
| Bricktown                                     |       | 260,000                                           |       | 3,000                                               |       | 98.6                | %          | 15,951 | (2) |
| Cherry Hill                                   |       | 58,000                                            |       | 206,000                                             |       | 90.5                | %          | 14,670 | (2) |
| Delran                                        |       | 169,000                                           |       | 3,000                                               |       | 95.5                | %          | 6,288 | (2) |
| Dover                                         |       | 173,000                                           |       | —                                              |       | 78.2                | %          | 7,190 | (2) |
| East Brunswick                                |       | 221,000                                           |       | 10,000                                              |       | 100.0               | %          | 22,273 | (2) |
| East Hanover I  and II                        |       | 348,000                                           |       | —                                              |       | 99.0                | %          | 26,703 | (2) |
| Hackensack                                    |       | 209,000                                           |       | 60,000                                              |       | 100.0               | %          | 24,470 | (2) |
| Jersey City                                   |       | 47,000                                            |       | 173,000                                             |       | 100.0               | %          | 18,733 | (2) |
| Kearny                                        |       | 40,000                                            |       | 66,000                                              |       | 92.4                | %          | 3,657 | (2) |
| Lawnside                                      |       | 142,000                                           |       | 3,000                                               |       | 92.5                | %          | 10,366 | (2) |
| Lodi                                          |       | 171,000                                           |       | —                                              |       | 100.0               | %          | 9,186 | (2) |
| Lodi II                                       |       | 85,000                                            |       | —                                              |       | 100.0               | %          | 12,228 |   |
| Manalapan                                     |       | 196,000                                           |       | 2,000                                               |       | 100.0               | %          | 12,260 | (2) |
| Marlton                                       |       | 174,000                                           |       | 7,000                                               |       | 95.0                | %          | 11,921 | (2) |
| Middletown                                    |       | 180,000                                           |       | 52,000                                              |       | 95.4                | %          | 16,092 | (2) |
| Montclair                                     |       | 18,000                                            |       | —                                              |       | 100.0               | %          | 1,881 | (2) |
| Morris Plains                                 |       | 176,000                                           |       | 1,000                                               |       | 100.0               | %          | 11,780 | (2) |
| North Bergen                                  |       | 7,000                                             |       | 55,000                                              |       | 100.0               | %          | 3,878 | (2) |
| North Plainfield  (1)                         |       | 219,000                                           |       | —                                              |       | 89.5                | %          | 10,649 | (2) |
| Totowa                                        |       | 178,000                                           |       | 139,000                                             |       | 100.0               | %          | 28,898 | (2) |
| Turnersville                                  |       | 89,000                                            |       | 7,000                                               |       | 100.0               | %          | 3,998 | (2) |
| Union                                         |       | 120,000                                           |       | 159,000                                             |       | 98.4                | %          | 32,818 | (2) |
| Watchung                                      |       | 50,000                                            |       | 116,000                                             |       | 98.3                | %          | 13,241 | (2) |
| Woodbridge                                    |       | 88,000                                            |       | 140,000                                             |       | 96.1                | %          | 21,631 | (2) |
| Total New Jersey                              |       | 3,597,000                                         |       | 1,202,000                                           |       | 96.6                | %          | 348,655 |   |
| NEW YORK                                      |       |                                              |       |                                                |       |                |       |   |   |
| Albany (Menands)                              |       | 140,000                                           |       | —                                              |       | 74.0                | %          | 6,083 | (2) |
| Buffalo  (Amherst) (1)                        |       | 185,000                                           |       | 112,000                                             |       | 81.1                | %          | 6,855 | (2) |
| Freeport                                      |       | 167,000                                           |       | —                                              |       | 100.0               | %          | 14,480 | (2) |
| New Hyde Park  (1)                            |       | 101,000                                           |       | —                                              |       | 100.0               | %          | 7,309 | (2) |
| Inwood                                        |       | 100,000                                           |       | —                                              |       | 100.0               | %          | — |   |
| North Syracuse  (1)                           |       | —                                            |       | 98,000                                              |       | 100.0               | %          | — |   |
| Rochester  (Henrietta) (1)                    |       | 148,000                                           |       | —                                              |       | 57.9                | %          | — |   |
| Rochester                                     |       | —                                            |       | 205,000                                             |       | 100.0               | %          | — |   |
| Staten Island                                 |       | 165,000                                           |       | —                                              |       | 94.3                | %          | 20,923 |   |
| Total New York                                |       | 1,006,000                                         |       | 415,000                                             |       | 88.4                | %          | 55,650 |   |

 

30

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| ** **                             | ** ** | **Approximate Leasable  Building Square Footage** | ** ** | ** **                                          | ** ** | ** **          | ** ** |
|----------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------|------------|
| **Location**                           | ** ** | **Owned/  Leased by Company**                     | ** ** | **Owned by  Tenant on  Land Leased  from  Company** | ** ** | **Percent  Leased** | ** ** | **Encumbrances  (in thousands)** | ** ** |
| PENNSYLVANIA                           |       |                                              |       |                                                |       |                |       |   |   |
| Allentown                              |       | 269,000                                           |       | 354,000                                             |       | 96.9                | %          | 22,741 | (2) |
| Bensalem                               |       | 122,000                                           |       | 8,000                                               |       | 96.1                | %          | 6,284 | (2) |
| Bethlehem                              |       | 159,000                                           |       | —                                              |       | 98.2                | %          | 3,977 | (2) |
| Broomall                               |       | 147,000                                           |       | 22,000                                              |       | 86.5                | %          | 9,563 | (2) |
| Glenolden                              |       | 10,000                                            |       | 92,000                                              |       | 100.0               | %          | 7,172 | (2) |
| Lancaster                              |       | 58,000                                            |       | 170,000                                             |       | 100.0               | %          | — |   |
| Levittown                              |       | 105,000                                           |       | —                                              |       | 100.0               | %          | 3,213 | (2) |
| 10th and Market  Streets, Philadelphia |       | 271,000                                           |       | —                                              |       | 76.2                | %          | 8,760 | (2) |
| Upper Moreland                         |       | 122,000                                           |       | —                                              |       | 100.0               | %          | 6,799 | (2) |
| York                                   |       | 111,000                                           |       | —                                              |       | 66.1                | %          | 4,021 | (2) |
| Total  Pennsylvania                    |       | 1,374,000                                         |       | 646,000                                             |       | 92.5                | %          | 72,530 |   |
| MARYLAND                               |       |                                              |       |                                                |       |                |       |   |   |
| Baltimore  (Towson)                    |       | 152,000                                           |       | —                                              |       | 64.4                | %          | 11,144 | (2) |
| Glen Burnie                            |       | 65,000                                            |       | 56,000                                              |       | 100.0               | %          | 5,735 | (2) |
| Total Maryland                         |       | 217,000                                           |       | 56,000                                              |       | 80.2                | %          | 16,879 |   |
| CONNECTICUT                            |       |                                              |       |                                                |       |                |       |   |   |
| Newington                              |       | 43,000                                            |       | 140,000                                             |       | 100.0               | %          | 6,405 | (2) |
| Waterbury                              |       | 146,000                                           |       | —                                              |       | 92.2                | %          | 6,038 | (2) |
| Total  Connecticut                     |       | 189,000                                           |       | 140,000                                             |       | 96.5                | %          | 12,443 |   |
| MASSACHUSETTS                          |       |                                              |       |                                                |       |                |       |   |   |
| Chicopee                               |       | —                                            |       | 118,000                                             |       | 100.0               | %          | — |   |
| Milford (1)                            |       | 83,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Springfield                            |       | 8,000                                             |       | 117,000                                             |       | 100.0               | %          | 3,057 | (2) |
| Total  Massachusetts                   |       | 91,000                                            |       | 235,000                                             |       | 100.0               | %          | 3,057 |   |
| **SUPERMARKETS:**                      | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** **          | ** ** | ** ** | ** ** |
| CALIFORNIA                             | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** **          | ** ** | ** ** | ** ** |
| Anaheim                                |       | 26,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Barstow                                |       | 30,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Beaumont                               |       | 29,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Calimesa                               |       | 29,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Colton                                 |       | 73,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Colton                                 |       | 26,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Corona (1)                             |       | 33,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Costa Mesa                             |       | 18,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Costa Mesa                             |       | 17,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Desert Hot  Springs                    |       | 29,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Fontana                                |       | 26,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Garden Grove                           |       | 26,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Mojave (1)                             |       | 34,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Moreno Valley                          |       | 30,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Ontario                                |       | 24,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Orange                                 |       | 26,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Rancho Cucamonga                       |       | 24,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Rialto                                 |       | 29,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Riverside                              |       | 42,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Riverside                              |       | 39,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| San Bernadino                          |       | 40,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| San Bernadino                          |       | 30,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Santa Ana                              |       | 26,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Westminister                           |       | 26,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Yucaipa                                |       | 31,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| Total California                       |       | 763,000                                           |       | —                                              |       | 100.0               | %          | — |   |
| **Total**                              | ** ** | **7,237,000**                                     | ** ** | **2,694,000**                                       | ** ** | **94.5**            | **%**      | **$** | **509,214** | ** ** |
|                                        |            |                                                   |            |                                                     |            |                     |            |  |  |  |

 

31

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| ** **                                      | ** ** | **Approximate Leasable  Building Square Footage** | ** ** | ** **                                          | ** ** | ** **          | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------|------------|
| **Location**                                    | ** ** | **Owned/****Leased by  Company**                  | ** ** | **Owned by  Tenant on  Land Leased  from  Company** | ** ** | **Percent  Leased** | ** ** | **Encumbrances  (in thousands)** | ** ** |
| **OTHER  RETAIL:**                              |       |                                              |       |                                                |       |                |       |   |   |
| NEW YORK  (Manhattan)                           | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** **          | ** ** | ** ** | ** ** |
| 1135 Third  Avenue                              |       | 25,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| 4 Union Square  South                           |       | 198,000                                           |       | —                                              |       | 97.5                | %          | — |   |
| 25 W. 14th  Street                              |       | 62,000                                            |       | —                                              |       | 89.5                | %          | — |   |
| 386 W. Broadway                                 |       | 3,000                                             |       | —                                              |       | 100.0               | %          | 5,084 |   |
| 387 W. Broadway                                 |       | 9,000                                             |       | —                                              |       | 59.1                | %          | — |   |
| 424 Sixth Avenue                                |       | 10,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| 435 Seventh  Avenue                             |       | 43,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| 478-486 Broadway  (50%)                         |       | 93,000                                            |       | —                                              |       | 83.0                | %          | — |   |
| 484 Eighth  Avenue                              |       | 14,000                                            |       | —                                              |       | 100.0               | %          | — |   |
| 715 Lexington  Avenue (1) (in development) |       | 32,000                                            |       | —                                              |       | —              |       | — |   |
| 825 Seventh  Avenue                             |       | 3,000                                             |       | —                                              |       | 100.0               | %          | — |   |
| 968 Third Avenue  (50%) (in development)        |       | —                                            |       | —                                              |       | —              |       | — |   |
| NEW YORK  (Queens)                              |       |                                              |       |                                                |       |                |       |   |   |
| 99-01 Queens  Boulevard                         |       | 68,000                                            |       | —                                              |       | 55.0                | %          | — |   |
| **Total  Other Retail**                         | ** ** | **560,000**                                       | ** ** | **—**                                          | ** ** | **88.1**            | **%**      | **$** | **5,084** | ** ** |
| Total Retail  Space                             | ** ** | **11,833,000**                                    | ** ** | **2,783,000**                                       | ** ** | **94.0**            | **%**      | **$** | **925,832** | ** ** |
| **Vornado’s Ownership Interest**           | ** ** | **11,427,000**                                    |       | **2,783,000**                                       | ** ** | **93.9**            | **%**      | **$** | **858,332** | ** ** |
| ** **                                      | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** **          | ** ** | ** ** | ** ** |
| **ASSETS  HELD FOR SALE:**                      |       |                                              |       |                                                |       |                |       |   |   |
| Vineland, New  Jersey                           | ** ** | **143,000**                                       | ** ** | **—**                                          |       | 0                   | **%**      | **$** | **—** | ** ** |

 

----

(1)          100% ground and/orbuilding leasehold interest; other than Green Acres, where approximately 10% ofthe ground is leased.

(2)          These encumbrancesare cross collateralized under a blanket mortgage in the amount of $476,063,000at December 31, 2004.

 

32

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## **Merchandise Mart Segment**

 

The MerchandiseMart Properties are a portfolio of 8 properties containing an aggregate of8.6 million square feet.

 

Below is abreakdown of square feet by location and use as of December 31, 2004.

 
| ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | **Showroom** | ** ** | ** **    | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|--------------|------------|---------------|------------|
| **(Amounts in thousands)**         | ** ** | **Total**  | ** ** | **Office** | ** ** | **Total**    | ** ** | **Permanent** | ** ** | **Temporary  Trade Show** | ** ** | **Retail** | ** ** |
| Chicago,  Illinois                 |       |       |       |       |       |         |       |          |       |   |   |   |   |
| Merchandise Mart                   |       | 3,446      |       | 1,029      |       | 2,336        |       | 1,950         |       | 386 |   | 81 |   |
| 350 West Mart  Center              |       | 1,210      |       | 1,066      |       | 144          |       | 144           |       | — |   | — |   |
| 33 N. Dearborn                     |       | 334        |       | 320        |       | —       |       | —        |       | — |   | 14 |   |
| Other                              |       | 19         |       | —     |       | —       |       | —        |       | — |   | 19 |   |
| Total Chicago,  Illinois           |       | 5,009      |       | 2,415      |       | 2,480        |       | 2,094         |       | 386 |   | 114 |   |
| HighPoint, North Carolina          |       |       |       |       |       |         |       |          |       |   |   |   |   |
| Market Square  Complex             |       | 1,749      |       | —     |       | 1,734        |       | 1,174         |       | 560 |   | 15 |   |
| National  Furniture Mart           |       | 259        |       | —     |       | 259          |       | 259           |       | — |   | — |   |
| Total HighPoint,  North Carolina   |       | 2,008      |       | —     |       | 1,993        |       | 1,433         |       | 560 |   | 15 |   |
| L.A. Mart                          |       | 783        |       | —     |       | 783          |       | 729           |       | 54 |   | — |   |
|                               |       |       |       |       |       |         |       |          |       |   |   |   |   |
| Washington, D.C.                   |       |       |       |       |       |         |       |          |       |   |   |   |   |
| Washington  Design Center          |       | 393        |       | 60         |       | 333          |       | 333           |       | — |   | — |   |
| Washington  Office Center          |       | 397        |       | 362        |       | —       |       | —        |       | — |   | 35 |   |
| Total  Washington, D.C.            |       | 790        |       | 422        |       | 333          |       | 333           |       | — |   | 35 |   |
| Total  Merchandise Mart Properties |       | 8,590      |       | 2,837      |       | 5,589        |       | 4,589         |       | 1,000 |   | 164 |   |
| Occupancy rate                     |       | 96.9       | %          | 96.0       | %          | 97.6         | %          |          |       |   |   | 89.4 | % |

 

The MerchandiseMart Properties also contain seven parking garages totaling 1,150,000 squarefeet (3,500 spaces).  The garage space isexcluded from the statistics provided in this section.

 

### ***Office Space***

 

The followingtable sets forth the percentage of the Merchandise Mart Properties 2004 officerevenues by tenants’ industry during 2004:

 
| **Industry**       | ** ** | **Percentage** | ** ** |
|--------------------|------------|----------------|------------|
| Service            |       | 31             | %          |
| Government         |       | 23             | %          |
| Banking            |       | 15             | %          |
| Telecommunications |       | 12             | %          |
| Insurance          |       | 6              | %          |
| Pharmaceutical     |       | 4              | %          |
| Publications       |       | 4              | %          |
| Other              |       | 5              | %          |
|               |       | 100            | %          |

 

33

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The Company’s Merchandise Mart properties lease terms generally rangefrom three to seven years for smaller tenants to as long as 15 years for largetenants. Leases typically provide for step-ups in rent periodically over theterm of the lease and pass through to tenants the tenants’ share of increasesin real estate taxes and operating expenses for a building over a base year.Electricity is provided to tenants on a sub-metered basis or included in rentand adjusted for subsequent utility rate increases. Leases also typicallyprovide for tenant improvement allowances for all or a portion of the tenant’sinitial construction of its premises.

 

Below is a listingof the Merchandise Mart Properties office tenants which accounted for 2% ormore of the Merchandise Mart Properties’ revenues in 2004:

 
| **Tenant**      | ** ** | **Square Feet  Leased** | ** ** | **2004  Revenues** | ** ** | **Percentage of  Segment  Revenues** | ** ** | **Percentage of  Company  Revenues** | ** ** |
|-----------------|------------|-------------------------|------------|--------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| U.S. Government |       | 344,000                 |       | $                  | 12,401,000 |                                 | 5.2        | %                                    | .7         | % |
| SBC Ameritech   |       | 234,000                 |       | 6,829,000          |       | 2.9                                  | %          | .4                                   | %          |
| Bank of America |       | 205,000                 |       | 5,461,000          |       | 2.3                                  | %          | .3                                   | %          |
| WPP Group       |       | 228,000                 |       | 5,252,000          |       | 2.2                                  | %          | .3                                   | %          |
|                 |            |                         |            |                    |            |                                      |            |                                      |            |  |

 

The following table sets forth the occupancy rate and the averageannual escalated rent per square foot for the Merchandise Mart Properties’office space at the end of each of the past five years.

 
| **As of  December 31,** | ** ** | **Rentable  Square Feet** | ** ** | **Occupancy Rate** | ** ** | **Average Annual Escalated Rent Per Square Foot** | ** ** |
|------------------------------|------------|---------------------------|------------|--------------------|------------|---------------------------------------------------|------------|
| 2004                         |       | 2,837,000                 |       | 96.0               | %          | $                                                 | 24.87      |   |
| 2003                         |       | 2,825,000                 |       | 92.6               | %          | 25.23                                             |       |
| 2002                         |       | 2,838,000                 |       | 91.7               | %          | 24.00                                             |       |
| 2001                         |       | 2,841,000                 |       | 89.2               | %          | 23.84                                             |       |
| 2000                         |       | 2,869,000                 |       | 90.2               | %          | 23.52                                             |       |
|                              |            |                           |            |                    |            |                                                   |            |  |

 

During 2004, the Company leased 568,740 square feet of Merchandise MartProperties office space as follows:

 
| ** **                | ** ** | **2004 Leasing Activity** | ** ** |
|---------------------------|------------|---------------------------|------------|
| ** **                | ** ** | **Square Feet**           | ** ** | **Average Initial  Rent Per  Square Foot (1)** | ** ** |
| 350 West Mart  Center     |       | 359,339                   |       | $ | 21.38 |   |
| Merchandise Mart          |       | 120,898                   |       | 23.08 |   |
| 33 North  Dearborn Street |       | 62,561                    |       | 25.42 |   |
| Washington  Design Center |       | 15,210                    |       | 36.00 |   |
| Washington  Office Center |       | 10,732                    |       | 35.83 |   |
| Total                     |       | 568,740                   |       | 22.85 |   |
|                           |            |                           |            |  |  |  |

 

----

(1)          Most leases include periodic step-ups in rent, whichare not reflected in the initial rent per square foot leased.

 

34

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The following table sets forth lease expirations for the MerchandiseMart Properties office space as of December 31, 2004 for each of the next10 years assuming that none of the tenants exercise their renewal options.

 
| **Year**  | ** ** | **Number of  Expiring Leases** | ** ** | **Square Feet of  Expiring Leases** | ** ** | **Percentage of  Merchandise Mart  Office  Square Feet** | ** ** | **Annual Escalated  Rent of Expiring Leases** | ** ** |
|-----------|------------|--------------------------------|------------|-------------------------------------|------------|----------------------------------------------------------|------------|-----------------------------------------------|------------|
| **Total** | ** ** | **Per Square Foot**            | ** ** |
| 2005      |       | 29                             |       | 159,000                             |       | 5.6                                                      | %          | $                                             | 3,633,000  |   | $ | 22.82 |   |
| 2006      |       | 18                             |       | 166,000                             |       | 5.8                                                      | %          | 4,077,000                                     |       | 24.59 |   |
| 2007      |       | 17                             |       | 228,000                             |       | 8.0                                                      | %          | 5,433,000                                     |       | 23.79 |   |
| 2008      |       | 20                             |       | 276,000                             |       | 9.7                                                      | %          | 6,394,000                                     |       | 23.15 |   |
| 2009      |       | 13                             |       | 295,000                             |       | 10.3                                                     | %          | 7,233,000                                     |       | 24.53 |   |
| 2010      |       | 4                              |       | 364,000                             |       | 12.8                                                     | %          | 12,205,000                                    |       | 33.50 |   |
| 2011      |       | 2                              |       | 193,000                             |       | 6.7                                                      | %          | 5,902,000                                     |       | 30.51 |   |
| 2012      |       | 2                              |       | 45,000                              |       | 1.5                                                      | %          | 1,167,000                                     |       | 25.70 |   |
| 2013      |       | 11                             |       | 135,000                             |       | 4.9                                                      | %          | 3,665,000                                     |       | 27.18 |   |
| 2014      |       | 4                              |       | 85,000                              |       | 2.9                                                      | %          | 2,371,000                                     |       | 27.84 |   |
|           |            |                                |            |                                     |            |                                                          |            |                                               |            |  |  |  |  |

 

### ***Showroom Space***

 

The showrooms provide manufacturers and wholesalers with permanent andtemporary space in which to display products for buyers, specifiers and endusers.  The showrooms are also used forhosting trade shows for the contract furniture, casual furniture, gifts,carpet, residential furnishings, building products, crafts, apparel and designindustries.  Merchandise Mart Propertiesown and operate five of the leading furniture and gifts trade shows includingthe contract furniture industry’s largest annual trade show, NeoCon, whichattracts over 45,000 attendees each June and is hosted at the Merchandise Martbuilding in Chicago. The Market Square Complex co-hosts the home furnitureindustry’s semi-annual (April and October) market weeks which occupy over11,500,000 square feet in the High Point, North Carolina region.

 

The following table sets forth the percentage of the Merchandise MartProperties 2004 showroom revenues by tenants’ industry:

 
| **Industry**             | ** ** | **Percentage** | ** ** |
|--------------------------|------------|----------------|------------|
| Residential  Design      |       | 25             | %          |
| Gift                     |       | 21             | %          |
| Residential  Furnishings |       | 17             | %          |
| Contract  Furnishings    |       | 14             | %          |
| Market Suites            |       | 14             | %          |
| Casual Furniture         |       | 4              | %          |
| Building  Products       |       | 3              | %          |
| Apparel                  |       | 2              | %          |
|                     |       | 100            | %          |

 

35

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The following table sets forth the occupancy rate and the averageescalated rent per square foot for this space at the end of each of the pastfive years.

 
| **As of  December 31,** | ** ** | **Rentable  Square Feet** | ** ** | **Occupancy  Rate** | ** ** | **Average Annual  Escalated Rent  Per Square Foot** | ** ** |
|------------------------------|------------|---------------------------|------------|---------------------|------------|-----------------------------------------------------|------------|
| 2004                         |       | 5,589,000                 |       | 97.6                | %          | $                                                   | 23.08      |   |
| 2003                         |       | 5,640,000                 |       | 95.1                | %          | 22.35                                               |       |
| 2002                         |       | 5,528,000                 |       | 95.2                | %          | 21.46                                               |       |
| 2001                         |       | 5,532,000                 |       | 95.5                | %          | 22.26                                               |       |
| 2000                         |       | 5,044,000                 |       | 97.6                | %          | 22.85                                               |       |
|                              |            |                           |            |                     |            |                                                     |            |  |

 

During 2004, the Company leased 1,037,536 square feet of MerchandiseMart Properties showroom space as follows:

 
| ** **                | ** ** | **2004 Leasing Activity** | ** ** |
|---------------------------|------------|---------------------------|------------|
| ** **                | ** ** | **Square Feet**           | ** ** | **Average Initial  Rent Per  Square Foot(1)** | ** ** |
| Market Square  Complex    |       | 438,740                   |       | $ | 16.31 |   |
| Merchandise Mart          |       | 374,604                   |       | 30.57 |   |
| L.A. Mart                 |       | 130,798                   |       | 17.92 |   |
| 350 West Mart  Center     |       | 50,939                    |       | 23.39 |   |
| Washington  Design Center |       | 42,455                    |       | 31.99 |   |
| Total                     |       | 1,037,536                 |       | 22.65 |   |
|                           |            |                           |            |  |  |  |

 

----

(1)          Most leases include periodic step-ups in rent whichare not reflected in the initial rent per square foot leased.

 

The following table sets forth lease expirations for the MerchandiseMart Properties showroom space as of December 31, 2004 for each of the next 10years assuming that none of the tenants exercise their renewal options.

 
| **Year**  | ** ** | **Number of  Expiring Leases** | ** ** | **Square Feet of  Expiring Leases** | ** ** | **Percentage of  Merchandise Mart Showroom Square Feet** | ** ** | **Annual Escalated  Rent of Expiring Leases** | ** ** |
|-----------|------------|--------------------------------|------------|-------------------------------------|------------|----------------------------------------------------------|------------|-----------------------------------------------|------------|
| **Total** | ** ** | **Per Square Foot**            | ** ** |
|      |       |                           |       |                                |       |                                                     |       |                                          |       |   |   |
| 2005      |       | 239                            |       | 576,000                             |       | 10.6                                                     | %          | $                                             | 13,269,000 |   | $ | 23.06 |   |
| 2006      |       | 254                            |       | 585,000                             |       | 10.7                                                     | %          | 15,212,000                                    |       | 26.02 |   |
| 2007      |       | 237                            |       | 1,004,000                           |       | 18.4                                                     | %          | 21,576,000                                    |       | 21.49 |   |
| 2008      |       | 149                            |       | 547,000                             |       | 10.0                                                     | %          | 13,472,000                                    |       | 24.63 |   |
| 2009      |       | 137                            |       | 556,000                             |       | 10.2                                                     | %          | 13,233,000                                    |       | 23.78 |   |
| 2010      |       | 54                             |       | 337,000                             |       | 6.2                                                      | %          | 8,867,000                                     |       | 26.27 |   |
| 2011      |       | 31                             |       | 167,000                             |       | 3.1                                                      | %          | 4,714,000                                     |       | 28.25 |   |
| 2012      |       | 8                              |       | 50,000                              |       | 0.9                                                      | %          | 1,557,000                                     |       | 31.32 |   |
| 2013      |       | 43                             |       | 267,000                             |       | 4.9                                                      | %          | 7,854,000                                     |       | 29.42 |   |
| 2014      |       | 18                             |       | 158,000                             |       | 2.9                                                      | %          | 3,230,000                                     |       | 20.44 |   |
|           |            |                                |            |                                     |            |                                                          |            |                                               |            |  |  |  |  |

 

### ***Retail Space***

 

The Merchandise Mart Properties portfolio also contains approximately180,000 square feet of retail space which was 89.4% occupied atDecember 31, 2004.

 

36

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The following table sets forth the Merchandise Mart Properties owned bythe Company as of December 31, 2004:

 
| **Location**                          | ** ** | **Approximate  Leasable  Building  Square Feet** | ** ** | **Percent  Leased** | ** ** | **Encumbrances  (in thousands)** | ** **  |
|---------------------------------------|------------|--------------------------------------------------|------------|---------------------|------------|----------------------------------|-------------|
| ILLINOIS                              |       |                                             |       |                |       |                             |        |
| Merchandise Mart, Chicago             |       | 3,446,000                                        |       | 97.1                | %          | $                                | —      |   |
| 350 West Mart Center, Chicago         |       | 1,210,000                                        |       | 96.0                | %          | —                           |        |
| 33 North Dearborn Street, Chicago     |       | 334,000                                          |       | 92.0                | %          | —                           |        |
| Other (50% interest)                  |       | 19,000                                           |       | 95.6                | %          | 12,480                           |        |
| Total Illinois                        |       | 5,009,000                                        |       | 96.5                | %          | 12,480                           |        |
|                                  |       |                                             |       |                |       |                             |        |
| WASHINGTON, D.C.                      |       |                                             |       |                |       |                             |        |
| Washington Office Center              |       | 397,000                                          |       | 99.2                | %          | —                           |        |
| Washington Design Center              |       | 393,000                                          |       | 99.6                | %          | 48,000                           |        |
| Total Washington, D.C.                |       | 790,000                                          |       | 99.2                | %          | 48,000                           |        |
|                                  |       |                                             |       |                |       |                             |        |
| HIGH POINT, NORTH CAROLINA            |       |                                             |       |                |       |                             |        |
| Market Square Complex                 |       | 2,008,000                                        |       | 98.9                | %          | 108,000                          |        |
|                                  |       |                                             |       |                |       |                             |        |
| CALIFORNIA                            |       |                                             |       |                |       |                             |        |
| L.A. Mart                             |       | 783,000                                          |       | 92.2                | %          | —                           |        |
| **Total Merchandise Mart Properties** | ** ** | **8,590,000**                                    | ** ** | **96.9**            | **%**      | **$**                            | **168,480** | ** ** |

 

37

----

 

## **Temperature ControlledLogistics Segment**

 

Prior to November 18, 2004, the Company owned a 60% interest in VornadoCrescent Portland Partnership (“VCPP”) which owned Americold Realty Trust (“Americold”).  Americold owns 88 temperature controlledwarehouses, all of which were leased to AmeriCold Logistics.  On November 4, 2004, Americold purchased itstenant, AmeriCold Logistics, for $47,700,000 in cash.  On November 18, 2004, the Company and its 40%partner, Crescent Real Estate Equities Company (“CEI”) collectively sold 20.7%of Americold’s common shares to The Yucaipa Companies (“Yucaipa”) for $145,000,000,which resulted in a gain, of which the Company’s share was $18,789,000. Thesale price was based on a $1.450 billion valuation for Americold before debtand other obligations.  Yucaipa is aprivate equity firm with significant expertise in the food distribution,logistics and retail industries.  Uponclosing of the sale to Yucaipa on November 18, 2004, Americold is owned 47.6%by the Company, 31.7% by CEI and 20.7% by Yucaipa. Pursuant to the sales agreement:(i) Yucaipa may earn a promote of 20% of the increase in the value of Americoldthrough December 31, 2007, limited to 10% of the Company’s and CEI’s remaininginterest in Americold; (ii) the annual asset management fee payable by CEI tothe Company has been reduced from approximately $5,500,000 to $4,548,000,payable quarterly through October 30, 2027. CEI, at its option, may terminate the payment of this fee at any timeafter November 2009, by paying the Company a termination fee equal to thepresent value of the remaining payments through October 30, 2027, discounted at10%.  In addition, CEI is obligated topay a pro rata portion of the termination fee to the extent it sells a portionof its equity interest in Americold; and (iii) VCPP was dissolved.  The Company has the right to appoint three ofthe five members to Americold’s Board of Trustees.  Consequently, the Company is deemed toexercise control over Americold and, on November 18, 2004, the Company began toconsolidate the operations and financial position of Americold into its accountsand no longer accounts for its investment on the equity method.

 

AmeriColdLogistics, headquartered in Atlanta, Georgia, provides the food industry withrefrigerated warehousing and transportation management services. Refrigeratedwarehouses are comprised of production, distribution and publicfacilities.  In addition, AmeriColdLogistics manages facilities owned by its customers for which it earns fixedand incentive fees.  Productionfacilities typically serve one or a small number of customers, generally foodprocessors that are located nearby. Customers store large quantities ofprocessed or partially processed products in these facilities until they areshipped to the next stage of production or distribution. Distributionfacilities primarily warehouse a wide variety of customers’ finished productsuntil future shipment to end-users. Each distribution facility generallyservices the surrounding regional market. Public facilities generally serve theneeds of local and regional customers under short-term agreements. Foodmanufacturers and processors use these facilities to store capacity overflowfrom their production facilities or warehouses. AmeriCold Logistics’transportation management services include freight routing, dispatching,freight rate negotiation, backhaul coordination, freight bill auditing, networkflow management, order consolidation and distribution channel assessment.AmeriCold Logistics’ temperature controlled logistics expertiseand access to both frozen food warehouses and distribution channels enableits customers to respond quickly and efficiently to time-sensitive orders fromdistributors and retailers.

 

AmeriColdLogistics’ customers consist primarily of national, regional and local frozenfood manufacturers, distributors, retailers and food serviceorganizations.  Below is a listing ofcustomers which accounted for 2% or more of AmeriCold Logistics’ revenue in2004:

 
| **(Amounts in thousands)**       | ** ** | **2004  Revenues** | ** ** | **Percentage of  Temperature  Controlled  Logistics  Revenues** | ** ** |
|----------------------------------|------------|--------------------|------------|-----------------------------------------------------------------|------------|
| H.J. Heinz &  Co.            |       | $                  | 111,872    |                                                            | 16.0       | % |
| Con-Agra Foods,  Inc.            |       | 79,192             |       | 11.3                                                            | %          |
| Altria Group  Inc. (Kraft Foods) |       | 46,825             |       | 6.7                                                             | %          |
| Sara Lee Corp.                   |       | 34,913             |       | 5.0                                                             | %          |
| Tyson Foods,  Inc.               |       | 27,757             |       | 4.0                                                             | %          |
| General Mills                    |       | 27,057             |       | 3.9                                                             | %          |
| Schwan  Corporation              |       | 23,690             |       | 3.4                                                             | %          |
| McCain Foods,  Inc.              |       | 22,187             |       | 3.2                                                             | %          |
|                                  |            |                    |            |                                                                 |            |  |

 

On November 18,2004, Tony Schnug became Chief Executive Officer of Americold.  Mr. Schnug is a partner of The YucaipaCompanies responsible for conducting due diligence of potential acquisitionsand oversees management of portfolio companies on strategy and operationalissues.   Previously, Mr. Schnug was anexecutive officer of Yucaipa portfolio companies including Fred Meyer, Ralphsand Food 4 Less with responsibilities covering logistics, manufacturing andconstruction.

 

38

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The following table sets forth certain information for the TemperatureControlled Logistics properties as of December 31, 2004:

 
| **Property**                     | ** ** | **Cubic Feet  (in millions)** | ** ** | **Square Feet  (in thousands)** | ** ** |
|----------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
|                             |       |                          |       |                            |       |
| ALABAMA                          |       |                          |       |                            |       |
| Birmingham                       |       | 2.0                           |       | 85.6                            |       |
| Montgomery                       |       | 2.5                           |       | 142.0                           |       |
| Gadsden (1)                      |       | 4.0                           |       | 119.0                           |       |
| Albertville                      |       | 2.2                           |       | 64.5                            |       |
|                             |       | 10.7                          |       | 411.1                           |       |
| ARIZONA                          |       |                          |       |                            |       |
| Phoenix                          |       | 2.9                           |       | 111.5                           |       |
|                             |       |                          |       |                            |       |
| ARKANSAS                         |       |                          |       |                            |       |
| Fort Smith                       |       | 1.4                           |       | 78.2                            |       |
| West Memphis                     |       | 5.3                           |       | 166.4                           |       |
| Texarkana                        |       | 4.7                           |       | 137.3                           |       |
| Russellville                     |       | 5.6                           |       | 164.7                           |       |
| Russellville                     |       | 9.5                           |       | 279.4                           |       |
| Springdale                       |       | 6.6                           |       | 194.1                           |       |
|                             |       | 33.1                          |       | 1,020.1                         |       |
| CALIFORNIA                       |       |                          |       |                            |       |
| Ontario (1)                      |       | 8.1                           |       | 279.6                           |       |
| Fullerton (1)                    |       | 2.8                           |       | 107.7                           |       |
| Pajaro (1)                       |       | 1.4                           |       | 53.8                            |       |
| Turlock                          |       | 2.5                           |       | 108.4                           |       |
| Watsonville (1)                  |       | 5.4                           |       | 186.0                           |       |
| Turlock                          |       | 3.0                           |       | 138.9                           |       |
| Ontario                          |       | 1.9                           |       | 55.9                            |       |
|                             |       | 25.1                          |       | 930.3                           |       |
| COLORADO                         |       |                          |       |                            |       |
| Denver                           |       | 2.8                           |       | 116.3                           |       |
|                             |       |                          |       |                            |       |
| FLORIDA                          |       |                          |       |                            |       |
| Tampa                            |       | 0.4                           |       | 22.2                            |       |
| Plant City                       |       | 0.8                           |       | 30.8                            |       |
| Bartow                           |       | 1.4                           |       | 56.8                            |       |
| Tampa                            |       | 2.9                           |       | 106.0                           |       |
| Tampa (1)                        |       | 1.0                           |       | 38.5                            |       |
|                             |       | 6.5                           |       | 254.3                           |       |
| GEORGIA                          |       |                          |       |                            |       |
| Atlanta                          |       | 11.1                          |       | 476.7                           |       |
| Atlanta                          |       | 2.9                           |       | 157.1                           |       |
| Augusta                          |       | 1.1                           |       | 48.3                            |       |
| Atlanta                          |       | 11.4                          |       | 334.7                           |       |
| Atlanta                          |       | 5.0                           |       | 125.7                           |       |
| Montezuma                        |       | 4.2                           |       | 175.8                           |       |
| Atlanta                          |       | 6.9                           |       | 201.6                           |       |
| Thomasville                      |       | 6.9                           |       | 202.9                           |       |
|                             |       | 49.5                          |       | 1,722.8                         |       |
| IDAHO                            |       |                          |       |                            |       |
| Burley                           |       | 10.7                          |       | 407.2                           |       |
| Nampa                            |       | 8.0                           |       | 364.0                           |       |
|                             |       | 18.7                          |       | 771.2                           |       |
| ILLINOIS                         |       |                          |       |                            |       |
| Rochelle                         |       | 6.0                           |       | 179.7                           |       |
| East Dubuque                     |       | 5.6                           |       | 215.4                           |       |
|                             |       | 11.6                          |       | 395.1                           |       |
|                             |       |                          |       |                            |       |
| INDIANA                          |       |                          |       |                            |       |
| Indianapolis                     |       | 9.1                           |       | 311.7                           |       |
|                             |       |                          |       |                            |       |
| IOWA                             |       |                          |       |                            |       |
| Fort Dodge                       |       | 3.7                           |       | 155.8                           |       |
| Bettendorf                       |       | 8.8                           |       | 336.0                           |       |
|                             |       | 12.5                          |       | 491.8                           |       |
| KANSAS                           |       |                          |       |                            |       |
| Wichita                          |       | 2.8                           |       | 126.3                           |       |
| Garden City                      |       | 2.2                           |       | 84.6                            |       |
|                             |       | 5.0                           |       | 210.9                           |       |
| KENTUCKY                         |       |                          |       |                            |       |
| Sebree                           |       | 2.7                           |       | 79.4                            |       |
|                             |       |                          |       |                            |       |
| MAINE                            |       |                          |       |                            |       |
| Portland                         |       | 1.8                           |       | 151.6                           |       |
|                             |       |                          |       |                            |       |
| MASSACHUSETTS                    |       |                          |       |                            |       |
| Gloucester                       |       | 1.9                           |       | 95.5                            |       |
| Gloucester                       |       | 0.3                           |       | 13.6                            |       |
| Gloucester                       |       | 2.8                           |       | 95.2                            |       |
| Gloucester                       |       | 2.4                           |       | 126.4                           |       |
| Boston                           |       | 3.1                           |       | 218.0                           |       |
|                             |       | 10.5                          |       | 548.7                           |       |
| MINNESOTA                        |       |                          |       |                            |       |
| Park Rapids  (50% interest) |       | 3.0                           |       | 86.8                            |       |
|                             |       |                          |       |                            |       |
| MISSOURI                         |       |                          |       |                            |       |
| Marshall                         |       | 4.8                           |       | 160.8                           |       |
| Carthage                         |       | 42.0                          |       | 2,564.7                         |       |
|                             |       | 46.8                          |       | 2,725.5                         |       |
| MISSISSIPPI                      |       |                          |       |                            |       |
| West Point                       |       | 4.7                           |       | 180.8                           |       |
|                             |       |                          |       |                            |       |
| NEBRASKA                         |       |                          |       |                            |       |
| Fremont                          |       | 2.2                           |       | 84.6                            |       |
| Grand Island                     |       | 2.2                           |       | 105.0                           |       |
|                             |       | 4.4                           |       | 189.6                           |       |
| NEW YORK                         |       |                          |       |                            |       |
| Syracuse                         |       | 11.8                          |       | 447.2                           |       |

 

39

----

 
| **Property**                                          | ** ** | **Cubic Feet  (in millions)** | ** ** | **Square Feet  (in thousands)** | ** ** |
|-------------------------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
|                                                  |       |                          |       |                            |       |
| NORTH CAROLINA                                        |       |                          |       |                            |       |
| Charlotte                                             |       | 1.0                           |       | 58.9                            |       |
| Charlotte                                             |       | 4.1                           |       | 164.8                           |       |
| Tarboro                                               |       | 4.9                           |       | 147.4                           |       |
|                                                  |       | 10.0                          |       | 371.1                           |       |
| OHIO                                                  |       |                          |       |                            |       |
| Massillon                                             |       | 5.5                           |       | 163.2                           |       |
|                                                  |       |                          |       |                            |       |
| OKLAHOMA                                              |       |                          |       |                            |       |
| Oklahoma City                                         |       | 0.7                           |       | 64.1                            |       |
| Oklahoma City                                         |       | 1.4                           |       | 74.1                            |       |
|                                                  |       | 2.1                           |       | 138.2                           |       |
| OREGON                                                |       |                          |       |                            |       |
| Hermiston                                             |       | 4.0                           |       | 283.2                           |       |
| Milwaukee                                             |       | 4.7                           |       | 196.6                           |       |
| Salem                                                 |       | 12.5                          |       | 498.4                           |       |
| Woodburn                                              |       | 6.3                           |       | 277.4                           |       |
| Brooks                                                |       | 4.8                           |       | 184.6                           |       |
| Ontario                                               |       | 8.1                           |       | 238.2                           |       |
|                                                  |       | 40.4                          |       | 1,678.4                         |       |
| PENNSYLVANIA                                          |       |                          |       |                            |       |
| Leesport                                              |       | 5.8                           |       | 168.9                           |       |
| Fogelsville                                           |       | 21.6                          |       | 683.9                           |       |
|                                                  |       | 27.4                          |       | 852.8                           |       |
|                                                  |       |                          |       |                            |       |
| SOUTH CAROLINA                                        |       |                          |       |                            |       |
| Columbia                                              |       | 1.6                           |       | 83.7                            |       |
|                                                  |       |                          |       |                            |       |
| SOUTH DAKOTA                                          |       |                          |       |                            |       |
| Sioux Falls                                           |       | 2.9                           |       | 111.5                           |       |
|                                                  |       |                          |       |                            |       |
| TENNESSEE                                             |       |                          |       |                            |       |
| Memphis                                               |       | 5.6                           |       | 246.2                           |       |
| Memphis                                               |       | 0.5                           |       | 36.8                            |       |
| Murfreesboro                                          |       | 4.5                           |       | 106.4                           |       |
|                                                  |       | 10.6                          |       | 389.4                           |       |
|                                                  |       |                          |       |                            |       |
| TEXAS                                                 |       |                          |       |                            |       |
| Amarillo                                              |       | 3.2                           |       | 123.1                           |       |
| Fort Worth                                            |       | 3.4                           |       | 102.0                           |       |
|                                                  |       | 6.6                           |       | 225.1                           |       |
| UTAH                                                  |       |                          |       |                            |       |
| Clearfield                                            |       | 8.6                           |       | 358.4                           |       |
|                                                  |       |                          |       |                            |       |
| VIRGINIA                                              |       |                          |       |                            |       |
| Norfolk                                               |       | 1.9                           |       | 83.0                            |       |
| Strasburg                                             |       | 6.8                           |       | 200.0                           |       |
|                                                  |       | 8.7                           |       | 283.0                           |       |
| WASHINGTON                                            |       |                          |       |                            |       |
| Burlington                                            |       | 4.7                           |       | 194.0                           |       |
| Moses Lake                                            |       | 7.3                           |       | 302.4                           |       |
| Walla Walla                                           |       | 3.1                           |       | 140.0                           |       |
| Connell                                               |       | 5.7                           |       | 235.2                           |       |
| Wallula                                               |       | 1.2                           |       | 40.0                            |       |
| Pasco                                                 |       | 6.7                           |       | 209.0                           |       |
|                                                  |       | 28.7                          |       | 1,120.6                         |       |
| WISCONSIN                                             |       |                          |       |                            |       |
| Tomah                                                 |       | 4.6                           |       | 161.0                           |       |
| Babcock                                               |       | 3.4                           |       | 111.1                           |       |
| Plover                                                |       | 9.4                           |       | 358.4                           |       |
|                                                  |       | 17.4                          |       | 630.5                           |       |
| ** **                                            | ** ** | ** **                    | ** ** | ** **                      | ** ** |
| **Total Temperature Controlled Logistics Properties** | ** ** | **443.7**                     | ** ** | **17,562.6**                    | ** ** |

 

----

(1)                                  Leaseholdinterest.

 

On February 5,2004, Americold completed a $254,400,000 mortgage financing for 21 of its ownedand seven of its leased temperature-controlled warehouses.  The loan bears interest at LIBOR plus 2.95%(with a LIBOR floor of 1.5% with respect to $54,400,000 of the loan) andrequires principal payments of $5,000,000 annually.  The loan matures in April 2009 and ispre-payable without penalty after February 5, 2006.  The net proceeds were approximately$225,000,000 after providing for usual escrows, closing costs and the repaymentof $12,900,000 of existing mortgages on two of the warehouses, of which$135,000,000 was distributed to the Company and the remainder was distributedto its partner, CEI.  As at December 31,2004, all except two of Americold’s properties are encumbered undercross-collateralized mortgage loans aggregating $733,740,000.

 

40

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**Alexander’s**

 

The Company owns 33% of Alexander’s outstanding commonshares.  The following table shows thelocation, approximate size and leasing status of each of the properties ownedby Alexander’s as of December 31, 2004.

 
| **Location**                                   | ** ** | **Land Area in  Square Feet or  Acreage** | ** ** | **Building Area/  Number of Floors** | ** **        | **Percent  Leased** | ** ** | **Significant  Tenants**                               | ** ** | **Encumbrances** | ** ** |
|------------------------------------------------|------------|-------------------------------------------|------------|--------------------------------------|-------------------|---------------------|------------|--------------------------------------------------------|------------|------------------|------------|
| **Operating  Properties**                      | ** ** | ** **                                | ** ** | ** **                           | ** **        | ** **          | ** ** | ** **                                             | ** ** | ** **       | ** ** |
| New York:                                      |       |                                      |       |                                 |              |                |       |                                                   |       |             |       |
| 731 Lexington Avenue-Manhattan                 |       | 84,420 SF                                 |       |                                 |              |                |       | Bloomberg  The Home Depot  The Container Store         |       |             |       |
| Office and Retail                              |       |                                      |       | 1,052,000/31                         |              | 84.9                | %          | Hennes &  Mauritz                                  |       | $                | 465,168    |   |
| Residential condominiums                       |       |                                      |       | 248,000/24                           |              |                |       |                                                   |       |             |       |
|                                           |       |                                      |       | 1,300,000/55                         |              |                |       |                                                   |       |             |       |
|                                           |       |                                      |       |                                 |              |                |       |                                                   |       |             |       |
| Kings Plaza Regional Shopping  Center-Brooklyn |       | 24.3 acres                                |       | 759,000/2                            |  and 4(1)(2) | 98.1                | %          | Sears  123 Mall Tenants                                |       | 213,699          |       |
|                                           |       |                                      |       |                                 |              |                |       |                                                   |       |             |       |
| Rego Park I-Queens                             |       | 4.8 acres                                 |       | 351,000/3                            | (1)               | 100.0               | %          | Sears  Circuit City  Bed, Bath & Beyond  Marshalls |       | 81,661           |       |
|                                           |       |                                      |       |                                 |              |                |       |                                                   |       |             |       |
| Flushing-Queens (3)                            |       | 44.975 SF                                 |       | 177,000/4                            | (1)               | 0                   | %          |                                                   |       | —           |       |
|                                           |       |                                      |       |                                 |              |                |       |                                                   |       |             |       |
| New Jersey:                                    |       |                                      |       |                                 |              |                |       |                                                   |       |             |       |
| Paramus-New Jersey                             |       | 30.3 acres                                |       | —                               |              | 100.0               | %          | IKEA Property,  Inc.                                   |       | 68,000           |       |
|                                           |       |                                      |       | 2,587,000                            |              |                |       |                                                   |       |             |       |
| **Development  Property**                      | ** ** | ** **                                | ** ** | ** **                           | ** **        | ** **          | ** ** | ** **                                             | ** ** | ** **       | ** ** |
| Rego Park II-Queens                            |       | 10.0 acres                                |       |                                 |              |                |       |                                                   |       | —           |       |
|                                                |            |                                           |            |                                      |                   |                     |            |                                                        |            |                  |            |  |

 

----

(1)                                  Excludesparking garages.

(2)                                  Excludes339,000 square foot Macy’s store, owned and operated by Federated DepartmentStores, Inc.

(3)                                  Leasedby Alexander’s through January 2027.

 

## ***731 Lexington Avenue***

## ** **

731 Lexington Avenue is a 1.3 million square footmulti-use building.  The buildingcontains approximately 885,000 net rentable square feet of office space,approximately 174,000 net rentable square feet of retail space andapproximately 248,000 net saleable square feet of residential space consistingof 105 condominium units (through a taxable REIT subsidiary (“TRS”)).  Of the construction budget of $630,000,000(which excludes $29,000,000 for development and guarantee fees to the Company),$489,400,000 has been expended through December 31, 2004 and an additional$23,500,000 has been committed at December 31, 2004.  Construction is expected to be completed bythe end of 2005.

 

As of December 31,2004, Alexander’s has leased 697,000 square feet of office space to BloombergL.P. and 144,000 square feet of retail space to, among others, The Home Depot(excluding 14,800 square feet of the mezzanine also leased to The Home Depot),Hennes & Mauritz and The Container Store. On January 25, 2005, Alexander’s leased an additional 176,000square feet of office space to Citibank N.A. As a result, 100% of the property’s 885,000 square feet of office spacehas been leased.

 

The offering plan for the residential space, asamended for price increases through December 31, 2004, would produce anaggregate sale price of $500,000,000 (reflecting the value of existingcontracts and the offering price for the remaining units).  As of December 31, 2004, Alexander’s hasreceived deposits of $64,060,000 on sales of the condominium units.  On January 24, 2005 the offering planwas declared effective by the State of New York at which time 83 units wereunder sales contract.  Alexander’sexpects to close on these sales during 2005 and recognize approximately$38,000,000 of income after taxes of which $32,000,000 will be recognized inthe first quarter using the percentage-of-completion method.  The Company’s share of the income to berecognized in the first quarter is $10,560,000.

 

41

----

 

On February 13, 2004, Alexander’s completed a$400,000,000 mortgage financing on the office space of its Lexington Avenuedevelopment project.  The loan bearsinterest at 5.33%, matures in February 2014 and beginning in the thirdyear, provides for principal payments based on a 25-year amortization schedule suchthat over the remaining eight years of the loan, ten years of amortization willbe paid.  Of the loan proceeds,$253,529,000 was used to repay the entire amount outstanding under theconstruction loan.  The construction loanwas modified so that the remaining availability is $237,000,000, which wasapproximately the amount estimated to complete the Lexington Avenue developmentproject.  The interest rate on theconstruction loan is LIBOR plus 2.5% (4.92% at December 31, 2004) andmatures in January 2006, with two one-year extensions.  The collateral for the construction loan isthe same, except that the office space has been removed from the lien.  Further, the construction loan permits therelease of the retail space for a payment of $15,000,000 and requires allproceeds from the sale of the residential condominium units to be applied tothe construction loan balance until it is finally repaid.

 

The Company guaranteed to the 731 Lexington Avenueconstruction lender, the lien free, timely completion of the construction ofthe project and funding of project costs in excess of a stated budget, if notfunded by Alexander’s (the “Completion Guarantee”).  The $6,300,000 estimated fee payable byAlexander’s to the Company for the Completion Guarantee is 1% of constructioncosts (as defined).  Based upon thecurrent status of construction, management does not anticipate a requirement tofund pursuant to this completion guarantee.

 

## **The Newkirk MasterLimited Partnership**

## ** **

In 1998, the Company and affiliates of Apollo RealEstate Investment Fund III, L.P. (“Apollo”) formed a joint venture (30% ownedby the Company and 70% owned by Apollo) (“Newkirk JV”) to acquire general andlimited partnership interests in a portfolio of 104 partnerships, which owntriple net leased properties.  Since itsformation, Newkirk JV has acquired equity interests in the above partnerships,which own approximately 19.6 million square feet of real estate and acquiredcertain first and second mortgages (“Contract Rights”) secured by a portion ofthese properties.  On January 1,2002, Newkirk JV completed a merger of 91 of the partnerships as well as theother assets it owned relating to the other 13 partnerships into The NewkirkMaster Limited Partnership (“MLP”).  Thepartnerships were merged into MLP to create a vehicle to enable the partners tohave greater access to capital and future investment opportunities.  In connection with the merger, the Companyreceived limited partner interests in the MLP equal to an approximate 21.1%interest and Apollo received limited partner interests in the MLP equal to anapproximate 54.5% interest. At December 31, 2004, the Company has a 22.4%interest in the MLP.  Newkirk JV is thegeneral partner of the MLP.

 

The Company’s share of the MLP and the joint venturedebt was approximately $213,688,000 at December 31, 2004.

 

The following table sets forth a summary of the realestate owned throughout the United States by the MLP:

 

| ** ** | ** ** | **Number of  Properties** | ** ** | **Square Feet** | ** ** |
|------------|------------|---------------------------|------------|-----------------|------------|
| Office     |       | 36                        |       | 7,352,000       |       |
| Retail     |       | 151                       |       | 5,427,000       |       |
| Other      |       | 21                        |       | 5,257,000       |       |
|       |       | 208                       |       | 18,036,000      |       |

 

As of December 31, 2004, the occupancy rate ofthe MLP’s properties is 98.6%.

 

42

----

 

The primary lease terms range from 20 to 25 years fromtheir original commencement dates with rents, typically above market, whichfully amortize the first mortgage debt on the properties.  In addition, tenants generally have multiplerenewal options, with rents, on average, below market.

 

Below is a listing of tenants which accounted for 2%or more of the MLP’s revenues in 2004:

 
| **Tenant**            | ** ** | **Square  Feet  Leased** | ** ** | **2004  Revenues** | ** ** | **Percentage** | ** ** |
|-----------------------|------------|--------------------------|------------|--------------------|------------|----------------|------------|
| Raytheon              |       | 2,287,000                |       | $                  | 40,421,000 |           | 15.8       | % |
| Albertson’s Inc. |       | 2,810,000                |       | 26,683,000         |       | 10.4           | %          |
| The Saint Paul Co.    |       | 530,000                  |       | 25,532,000         |       | 9.9            | %          |
| Honeywell             |       | 728,000                  |       | 19,799,000         |       | 7.7            | %          |
| Federal Express       |       | 592,000                  |       | 14,812,000         |       | 5.8            | %          |
| Owens-Illinois        |       | 707,000                  |       | 13,363,000         |       | 5.2            | %          |
| Entergy Gulf States   |       | 489,000                  |       | 12,212,000         |       | 4.8            | %          |
| Safeway Inc.          |       | 736,000                  |       | 8,543,000          |       | 3.3            | %          |
| Hibernia Bank         |       | 403,000                  |       | 8,196,000          |       | 3.2            | %          |
| Nevada Power Company  |       | 282,000                  |       | 7,189,000          |       | 2.8            | %          |
| The Kroger Company    |       | 474,000                  |       | 6,920,000          |       | 2.7            | %          |
| Xerox                 |       | 379,000                  |       | 5,940,000          |       | 2.3            | %          |
| Cheeseborough/Ragu    |       | 484,000                  |       | 5,541,000          |       | 2.2            | %          |
| Stater Bros Markets   |       | 668,000                  |       | 5,352,000          |       | 2.1            | %          |
|                       |            |                          |            |                    |            |                |            |  |

 

The following table sets forth lease expirations foreach of the next 10 years, as of December 31, 2004, assuming that none ofthe tenants exercise their renewal options.

 
| **Year**  | ** ** | **Number of  Expiring  Leases** | ** ** | **Square Feet of  Expiring Leases** | ** ** | **Percentage of  MLP Square Feet** | ** ** | **Annual Escalated  Rent of Expiring Leases** | ** ** |
|-----------|------------|---------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|-----------------------------------------------|------------|
| **Total** | ** ** | **Per Square Foot**             | ** ** |
| 2005      |       | 19                              |       | 792,000                             |       | 1.5                                | %          | $                                             | 4,642,000  |   | $ | 5.86 |   |
| 2006      |       | 28                              |       | 2,298,000                           |       | 10.1                               | %          | 26,726,000                                    |       | 11.63 |   |
| 2007      |       | 32                              |       | 3,005,000                           |       | 14.5                               | %          | 37,460,000                                    |       | 12.46 |   |
| 2008      |       | 63                              |       | 6,791,000                           |       | 40.7                               | %          | 103,773,000                                   |       | 15.28 |   |
| 2009      |       | 44                              |       | 2,685,000                           |       | 24.3                               | %          | 57,261,000                                    |       | 21.33 |   |
| 2010      |       | 5                               |       | 1,006,000                           |       | 1.9                                | %          | 4,542,000                                     |       | 4.52 |   |
| 2011      |       | 4                               |       | 267,000                             |       | 1.3                                | %          | 3,373,000                                     |       | 12.65 |   |
| 2012      |       | 9                               |       | 395,000                             |       | 1.2                                | %          | 3,187,000                                     |       | 8.07 |   |
| 2013      |       | 1                               |       | 40,000                              |       | 0.3                                | %          | 870,000                                       |       | 21.96 |   |
| 2014      |       | 1                               |       | 282,000                             |       | 2.7                                | %          | 7,189,000                                     |       | 25.49 |   |
|           |            |                                 |            |                                     |            |                                    |            |                                               |            |  |  |  |  |

 

43

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## **Hotel Pennsylvania**

## ** **

The Hotel Pennsylvania is located in New York City onSeventh Avenue opposite Madison Square Garden and consists of a hotel portioncontaining 1,000,000 square feet of hotel space with 1,700 rooms and acommercial portion containing 400,000 square feet of retail and officespace.  The following table presentsrental information for the Hotel:

 
| ** **                  | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| Hotel:                      |       |                             |       |   |   |   |   |   |   |   |   |
|                        |       |                             |       |   |   |   |   |   |   |   |   |
| Average occupancy rate      |       | 78.9                             | %          | 63.7 | % | 64.7 | % | 63.0 | % | 76.0 | % |
| Average daily rate          |       | $                                | 97.36      |   | $ | 89.12 |   | $ | 89.44 |   | $ | 110.00 |   | $ | 114.00 |   |
| Revenue per available room  |       | $                                | 77.56      |   | $ | 58.00 |   | $ | 58.00 |   | $ | 70.00 |   | $ | 87.00 |   |
|                        |       |                             |       |   |   |   |   |   |   |   |   |
| Commercial:                 |       |                             |       |   |   |   |   |   |   |   |   |
| Office space:               |       |                             |       |   |   |   |   |   |   |   |   |
| Average occupancy rate      |       | 39.7                             | %          | 39.7 | % | 47.8 | % | 51.3 | % | 63.0 | % |
| Annual rent per square feet |       | $                                | 10.04      |   | $ | 9.92 |   | $ | 13.36 |   | $ | 16.39 |   | $ | 17.00 |   |
|                        |       |                             |       |   |   |   |   |   |   |   |   |
| Retail space:               |       |                             |       |   |   |   |   |   |   |   |   |
| Average occupancy rate      |       | 90.7                             | %          | 89.8 | % | 92.6 | % | 56.2 | % | 85.0 | % |
| Annual rent per square feet |       | $                                | 29.67      |   | $ | 28.11 |   | $ | 28.06 |   | $ | 41.00 |   | $ | 45.00 |   |

 

## **GMH Communities L.P.**

## ** **

At December 31, 2004, the Company has a 12.25%interest in GMH Communities L.P. (“GMH”), resulting from the Company’sconversion of warrants into 6.7 million limited partnership units of GMHCommunities LP on November 3, 2004. In addition, the Company holds warrants to purchase an additional 5.6million limited partnership units of GMH or common shares of GMH CommunitiesTrust (“GCT”) at a price of $8.99 per unit or share through May 2, 2006.  See page 6 for further details.  GMH owns 30 student housing properties,aggregating 7.8 million square feet and 19,085 beds, and manages an additional20 properties that serve colleges and universities throughout the UnitedStates.  In addition, GMH manages 51military housing projects containing 101,216 units under long-term agreementswith the United States Government.  GMHhas $359,276,000 of debt outstanding at December 31, 2004, of which the Company’sshare is $44,011,000.

 

## **Dry Warehouse/IndustrialProperties**

## ** **

The Company’s dry warehouse/industrial propertiesconsist of seven buildings in New Jersey containing approximately1.7 million square feet.  Theproperties are encumbered by two cross-collateralized mortgage loansaggregating $48,385,000 as of December 31, 2004.  Average lease terms range from three to fiveyears.  The following table sets forththe occupancy rate and average annual rent per square foot at the end of eachof the past five years.

 
| **As of December 31,** | ** ** | **Occupancy  Rate** | ** ** | **Average Annual  Rent Per  Square Foot** | ** ** |
|------------------------|------------|---------------------|------------|-------------------------------------------|------------|
| 2004                   |       | 88                  | %(1)       | $                                         | 3.96       | (1) |
| 2003                   |       | 88                  | %(1)       | 3.86                                      | (1)        |
| 2002                   |       | 95                  | %          | 3.81                                      |       |
| 2001                   |       | 100                 | %          | 3.67                                      |       |
| 2000                   |       | 90                  | %          | 3.52                                      |       |
|                        |            |                     |            |                                           |            |  |

 

----

(1)                                  Excludes the Company’s East Brunswickindustrial warehouse.  In November 2002,the Company entered into an agreement to ground lease the East Brunswickindustrial property to Lowe’s.  Inconnection therewith, the Company is razing the 326,000 square foot warehouseand Lowe’s will construct its own retail store on the site.

 

**400 North LaSalle**

 

The 400 NorthLaSalle venture was formed in July 2001, to develop a 381,000 square foot,high-rise residential tower with an attached parking garage in Chicago,Illinois, containing 452 apartments. Under the agreement the Company contributed 92% of the equity and isentitled to receive 85% of the profits. The development of the residential tower and garage was substantiallycompleted and phased into service as of January 2004 and is 90.0% occupiedas of December 31, 2004.  As of December 31,2004, the Company has classified this asset as held for sale on itsconsolidated balance sheets and the related revenues and expenses asdiscontinued operations on the consolidated statements of operations.

 

44

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**ITEM 3.**                             LEGAL PROCEEDINGS

** **

The Company is from time to time involved in legalactions arising in the ordinary course of its business.  In the opinion of management, afterconsultation with legal counsel, the outcome of such matters, including inrespect of the matter referred to below, is not expected to have a materialadverse effect on the Company’s financial position or results of operation.

 

#### Stop & Shop

 

On January 8, 2003, Stop & Shop filed acomplaint with the United States District Court for the District of New Jersey(“USDC-NJ”) claiming the Company has no right to reallocate and thereforecontinue to collect the $5,000,000 of annual rent from Stop & Shoppursuant to the Master Agreement and Guaranty, because of the expiration of theEast Brunswick, Jersey City, Middletown, Union and Woodbridge leasesto which the $5,000,000 of additional rent was previously allocated.  Stop & Shop asserted that a prior orderof the Bankruptcy Court for the Southern District of New York dated February 6,2001, as modified on appeal to the District Court for the Southern District ofNew York on February 13, 2001, froze the Company’s right to re-allocatewhich effectively terminated the Company’s right to collect the additional rentfrom Stop & Shop.  On March 3,2003, after the Company moved to dismiss for lack of jurisdiction, Stop &Shop voluntarily withdrew its complaint. On March 26, 2003, Stop & Shop filed a new complaint in NewYork Supreme Court, asserting substantially the same claims as in its USDC-NJcomplaint.  On April 9, 2003, theCompany moved the New York Supreme Court action to the United States DistrictCourt for the Southern District of New York. Stop & Shop moved to remand and both sides moved for summaryjudgment.  On June 30, 2003, theDistrict Court ordered that the case be placed in suspense and ordered theparties to proceed with a motion for interpretation that the Company made inthe United States Bankruptcy Court for the Southern District of New York.  On July 24, 2003, the Bankruptcy Courtreferred the motion to mediation.  Themediation concluded in June 2004 without resolving the dispute.  On June 9, 2004, after reconvening thehearing on the Company’s motion for interpretation, the Bankruptcy Courtentered an order abstaining from hearing the Company’s motion.  On June 17, 2004, the Company filed anotice of appeal from the Bankruptcy Court’s order to the District Court.  On January 19, 2005, the District Courtissued a decision affirming the Bankruptcy Court’s decision and remanded theremoved action to the New York Supreme Court. The Company believes that the additional rent provision of the guarantyexpires at the earliest in 2012 and will vigorously oppose Stop & Shop’scomplaint.

 

#### Vornado OperatingCompany

 

In November 2004, a class action shareholderderivative lawsuit was brought in the Delaware Court of Chancery againstVornado Operating Company (“Vornado Operating”), its directors and theCompany.  The lawsuit sought to enjointhe dissolution of Vornado Operating, rescind the previously completed sale ofAmeriCold Logistics (owned 60% by Vornado Operating) to Americold Realty Trust(owned 60% by the Company) and damages. In addition, the plaintiffs claimed that the Vornado Operating directorsbreached their fiduciary duties.  On November 24,2004, a stipulation of settlement was entered into under which the Companyagreed to settle the lawsuit with a payment of approximately $4.5 million orabout $1 per Vornado Operating share or partnership unit before litigationexpenses. The proposed settlement payment would be in addition to theliquidation distribution of $2 per Vornado Operating share or unit that VornadoOperating made to its equity-holders when it dissolved on December 29,2004.  On January 20, 2005, the DelawareCourt of Chancery postponed deciding upon the proposed settlement and requestedfurther but limitedinformation before holding an additional hearing regarding the settlement,which has been scheduled for March 2005. The Company has accrued the proposed settlement payment andrelated legal costs as part of “general and administrative expense” in thefourth quarter of 2004.  The Company believes that the ultimate outcomeof this matter will not have a material effect on the Company’s consolidatedfinancial statements.

 

45

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**ITEM 4.**                             SUBMISSIONOF MATTERS TO A VOTE OFSECURITY HOLDERS

** **

No matters were submitted to a vote of securityholders during the fourth quarter of the year ended December 31, 2004.

 

**EXECUTIVE OFFICERS**OF THE REGISTRANT

** **

The Operating Partnership is managed by Vornado, itssole general partner.  The following is alist of the names, ages, principal occupations and positions with Vornado ofthe executive officers of Vornado and the positions held by such officersduring the past five years. All executive officers of Vornado have terms ofoffice that run until the next succeeding meeting of the Board of Trustees ofVornado following the Annual Meeting of Vornado’s Shareholders unless they areremoved sooner by the Board.

 
| **Name**               | ** ** | **Age** | ** ** | **PRINCIPAL OCCUPATION, POSITION AND OFFICE (current  and  during past five years with Vornado unless otherwise stated)**                                                                                                                                                                                                                                                  |
|------------------------|------------|---------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Steven Roth            |       | 63      |       | Chairman of the  Board, Chief Executive Officer and Chairman of the Executive Committee of the  Board; the Managing General Partner of Interstate Properties, an owner of  shopping centers and an investor in securities and partnerships; Chief  Executive Officer of Alexander’s, Inc. since March 1995, a Director  since 1989, and Chairman since May 2004. |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Michael D.  Fascitelli |       | 48      |       | President and a  Trustee since December 1996; President of Alexander’s Inc. since August 2000  and Director since December 1996; Partner at Goldman,  Sachs & Co. in charge of its real estate practice from December 1992  to December 1996; and Vice President at Goldman, Sachs & Co., prior  to December 1992.    |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Melvyn H. Blum         |       | 58      |       | Executive Vice  President—Development since January 2000; Senior Managing Director at  Tishman Speyer Properties in charge of its development activities in the  United States from July 1998 to January 2000; and Managing Director  of Development and Acquisitions at Tishman Speyer Properties prior to July 1998.                            |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Michelle Felman        |       | 42      |       | Executive Vice  President—Acquisitions since September 2000; Independent Consultant to  Vornado from October 1997 to September 2000; Managing  Director-Global Acquisitions and Business Development of GE Capital from 1991  to July 1997.                                                                                                       |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| David R.  Greenbaum    |       | 53      |       | President of the  New York City Office Division since April 1997 (date of the Company’s  acquisition); President of Mendik Realty (the predecessor to the  New York City Office Properties Division) from 1990 until April 1997.                                                                                                                       |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Christopher  Kennedy   |       | 41      |       | President of the  Merchandise Mart Division since September 2000; Executive Vice President  of the Merchandise Mart Division from April 1998 to September 2000;  Executive Vice President of Merchandise Mart Properties, Inc. from 1994 to April 1998.                                                                                                |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Joseph Macnow          |       | 59      |       | Executive Vice  President—Finance and Administration since January 1998 and Chief  Financial Officer since March 2001; Vice President-Chief Financial  Officer of the Company from 1985 to January 1998; Executive Vice  President and Chief Financial Officer of Alexander’s, Inc. since August 1995.                                       |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Sandeep Mathrani       |       | 42      |       | Executive Vice  President—Retail Real Estate since March 2002; Executive Vice  President, Forest City Ratner from 1994 to February 2002.                                                                                                                                                                                                               |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Mitchell N.  Schear    |       | 46      |       | President of  Charles E. Smith Commercial Realty since April 2003; President of  Kaempfer Company from 1998 to April 2003 (date acquired by the Company).                                                                                                                                                                                                        |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Wendy  Silverstein     |       | 44      |       | Executive Vice  President—Capital Markets since April 1998; Senior Credit Officer of  Citicorp Real Estate and Citibank, N.A. from 1986 to 1998.                                                                                                                                                                                                                 |
|                   |       |    |       |                                                                                                                                                                                                                                                                                                                                                                       |
| Robert H. Smith        |       | 76      |       | Chairman of  Charles E. Smith Commercial Realty since January 2002 (date  acquired by the Company); Co-Chief Executive Officer and Co-Chairman of the  Board of Charles E. Smith Commercial Realty L.P. (the predecessor to  Charles E. Smith Commercial Realty) prior to January 2002.                                                           |

 

46

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# **PART II**

# ** **

**ITEM 5.**       MARKETFOR THE REGISTRANT’S COMMONEQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

** **

There is no established trading market for the unitsof the Operating Partnership.  At March 1,2005, there were 1,556 Class A unitholders of record.

 

*Distributions*

 

During the year ended December 31, 2004, theCompany declared four quarterly distributions in the amounts of $0.87, $0.71,$0.71 and $0.76 per unit from the first to the fourth quarter,respectively.  The first quarterdistribution was comprised of a regular distribution of $0.71 per unit and aspecial capital gain cash distribution of $0.16 per unit.

 

During the year ended December 31, 2003, theCompany declared four quarterly distributions in the amounts of $0.68, $0.68,$0.68 and $0.87 per unit from the first to the fourth quarter,respectively.  The fourth quarterdistribution was comprised of a regular distribution of $0.71 per unit and aspecial capital gain cash distribution of $0.16 per unit.

 

*Recent Sales of Unregistered Securities*

* *

On May 27, 2004, the Companysold $35,000,000 of 7.2% Series D-11 Cumulative Redeemable Preferred Units toan institutional investor in a private placement. These units wereissued without registration under the Securities Act of 1933 in reliance on Section4(2) of that Act.

 

On December 17, 2004, the Company sold$20,000,000 of 6.55% Series D-12 Cumulative Redeemable Preferred Units to aninstitutional investor in a private placement. These units were issued without registration under the Securities Act of1933 in reliance on Section 4(2) of that Act.

 

On December 30, 2004, the Company sold$46,700,000 of 3.0% Series D-13 Cumulative Redeemable Preferred Units to aninstitutional investor in a private placement. These units were issued without registration under the Securities Act of1933 in reliance on Section 4(2) of that Act.

 

On November 17, 2003, the Company sold$80,000,000 of 7.00% Series D-10 Cumulative Redeemable Preferred Units to aninstitutional investor in a private placement. These units were issued without registration under the Securities Act of1933 in reliance on Section 4(2) of that Act.

 

During the year ended December 31, 2003, theCompany issued 695,894 Class A units. 12,500 of those Class A units were issued as consideration in connectionwith the October 7, 2003 acquisition of the Waterfront Interest.  The remainder of those units were issued toholders of the Company’s C-1 preferred units in a 1 for 1.1431 exchange of theC-1 preferred units.  These units wereissued without registration under the Securities Act of 1933 in reliance on Section4(2) of that Act.

 

Information relating to compensation plans under whichequity securities of Vornado are authorized for issuance is set forth underPart III, Item 12 of this annual report on Form 10-K and such information isincorporated herein by reference.

 

47

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**ITEM 6.**                             SELECTED FINANCIAL DATA:

 
| ** **                                                                                                    | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(in thousands, except unit and  per unit amounts)**                                                         | ** ** | **2004 (1)**                     | ** ** | **2003** | ** ** | **2002(2)** | ** ** | **2001** | ** ** | **2000** | ** ** |
|                                                                                                          |       |                             |       |   |   |   |   |   |   |   |   |
| **Operating Data:**                                                                                           |       |                             |       |   |   |   |   |   |   |   |   |
| Revenues:                                                                                                     |       |                             |       |   |   |   |   |   |   |   |   |
| Property rentals                                                                                              |       | $                                | 1,344,812  |   | $ | 1,256,073 |   | $ | 1,204,349 |   | $ | 813,089 |   | $ | 666,248 |   |
| Tenant expense reimbursements                                                                                 |       | 191,059                          |       | 179,115 |   | 154,727 |   | 129,013 |   | 116,422 |   |
| Temperature Controlled Logistics                                                                              |       | 87,428                           |       | — |   | — |   | — |   | — |   |
| Fee and other income                                                                                          |       | 83,963                           |       | 62,795 |   | 27,718 |   | 10,059 |   | 9,753 |   |
|                                                                                                          |       |                             |       |   |   |   |   |   |   |   |   |
| Total Revenues                                                                                                |       | 1,707,262                        |       | 1,497,983 |   | 1,386,794 |   | 952,161 |   | 792,423 |   |
| Expenses:                                                                                                     |       |                             |       |   |   |   |   |   |   |   |   |
| Operating                                                                                                     |       | 679,790                          |       | 581,550 |   | 517,958 |   | 385,449 |   | 305,141 |   |
| Depreciation and amortization                                                                                 |       | 242,914                          |       | 213,679 |   | 197,704 |   | 120,614 |   | 96,116 |   |
| General and administrative                                                                                    |       | 145,218                          |       | 121,857 |   | 100,035 |   | 71,716 |   | 47,093 |   |
| Amortization of officer’s deferred compensation  expense                                                 |       | —                           |       | — |   | 27,500 |   | — |   | — |   |
| Costs of acquisitions and development not  consummated                                                        |       | 1,475                            |       | — |   | 6,874 |   | 5,223 |   | — |   |
| Total Expenses                                                                                                |       | 1,069,397                        |       | 917,086 |   | 850,071 |   | 583,002 |   | 448,350 |   |
| Operating Income                                                                                              |       | 637,865                          |       | 580,897 |   | 536,723 |   | 369,159 |   | 344,073 |   |
| Income applicable to Alexander’s                                                                         |       | 8,580                            |       | 15,574 |   | 29,653 |   | 25,718 |   | 17,363 |   |
| Income from partially-owned entities                                                                          |       | 43,381                           |       | 67,901 |   | 44,458 |   | 80,612 |   | 86,654 |   |
| Interest and other investment income                                                                          |       | 203,995                          |       | 25,397 |   | 31,678 |   | 54,385 |   | 32,809 |   |
| Interest and debt expense                                                                                     |       | (241,968                         | )          | (228,860 | ) | (232,891 | ) | (167,430 | ) | (164,325 | ) |
| Net gain (loss) on disposition of wholly-owned and  partially-owned assets other than depreciable real estate |       | 19,775                           |       | 2,343 |   | (17,471 | ) | (8,070 | ) | — |   |
| Minority interest                                                                                             |       | (110                             | )          | (1,089 | ) | (3,534 | ) | (2,480 | ) | (1,965 | ) |
| Income from continuing operations                                                                             |       | 671,518                          |       | 462,163 |   | 388,616 |   | 351,894 |   | 314,609 |   |
| Income from discontinued operations                                                                           |       | 78,597                           |       | 176,388 |   | 11,815 |   | 25,837 |   | 19,791 |   |
| Cumulative effect of change in accounting principle                                                           |       | —                           |       | — |   | (30,129 | ) | (4,110 | ) | — |   |
| Net income                                                                                                    |       | 750,115                          |       | 638,551 |   | 370,302 |   | 373,621 |   | 334,400 |   |
| Preferred unit distributions                                                                                  |       | (94,070                          | )          | (116,619 | ) | (119,214 | ) | (130,815 | ) | (124,736 | ) |
|                                                                                                          |       |                             |       |   |   |   |   |   |   |   |   |
| Net income applicable to Class A units                                                                        |       | $                                | 656,045    |   | $ | 521,932 |   | $ | 251,088 |   | $ | 242,806 |   | $ | 209,664 |   |
|                                                                                                          |       |                             |       |   |   |   |   |   |   |   |   |
| Income from continuing operations - basic                                                                     |       | $                                | 4.01       |   | $ | 2.63 |   | $ | 2.12 |   | $ | 2.32 |   | $ | 2.05 |   |
| Income from continuing operations - diluted                                                                   |       | $                                | 3.84       |   | $ | 2.58 |   | $ | 2.06 |   | $ | 2.25 |   | $ | 2.00 |   |
| Income per Class A unit–basic                                                                            |       | $                                | 4.56       |   | $ | 3.97 |   | $ | 1.97 |   | $ | 2.55 |   | $ | 2.26 |   |
| Income per Class A unit–diluted                                                                          |       | $                                | 4.36       |   | $ | 3.81 |   | $ | 1.92 |   | $ | 2.47 |   | $ | 2.20 |   |
| Cash distributions declared for Class A units                                                                 |       | $                                | 3.05       |   | $ | 2.91 |   | $ | 2.97 |   | $ | 2.63 |   | $ | 1.97 |   |
| ** **                                                                                                    | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance Sheet Data:**                                                                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                                  |       | $                                | 11,580,517 |   | $ | 9,518,928 |   | $ | 9,018,179 |   | $ | 6,777,343 |   | $ | 6,403,210 |   |
| Real estate, at cost                                                                                          |       | 9,718,845                        |       | 7,629,736 |   | 7,217,515 |   | 4,426,560 |   | 4,220,307 |   |
| Accumulated depreciation                                                                                      |       | 1,404,441                        |       | 867,177 |   | 701,327 |   | 485,447 |   | 375,730 |   |
| Debt                                                                                                          |       | 4,936,633                        |       | 4,039,542 |   | 4,073,253 |   | 2,477,173 |   | 2,688,308 |   |
| Partners’ capital                                                                                        |       | 5,679,381                        |       | 4,995,804 |   | 4,644,206 |   | 4,024,235 |   | 3,519,417 |   |

 

----

(1)           Operating results for the yearended December 31, 2004, reflect the consolidation of the Company’sinvestment in Americold Realty Trust beginning on November 18, 2004.  Previously, this investment was accounted foron the equity method.

(2)           Operating results for the yearended December 31, 2002, reflect the Company’s January 1, 2002acquisition of the remaining 66% of Charles E. Smith Commercial RealtyL.P. (“CESCR”) and the resulting consolidation of CESCR’s operations.

 

48

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**ITEM 7.       MANAGEMENT’S DISCUSSION** AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS

 
| ** **                                                                                                                   | **Page** |
|------------------------------------------------------------------------------------------------------------------------------|----------|
| Overview                                                                                                                     | 50       |
| Overview – Leasing Activity                                                                                             | 54       |
| Critical Accounting  Policies                                                                                                | 57       |
| Results of Operations:                                                                                                       |     |
| Years  Ended December 31, 2004 and 2003                                                                                 | 64       |
| Years  Ended December 31, 2003 and 2002                                                                                 | 73       |
| Supplemental Information:                                                                                                    |     |
| Summary  of Net Income and EBITDA for the Three Months Ended  December 31, 2004 and 2003                                | 83       |
| Changes by segment in  EBITDA for the Three Months Ended  December 31, 2004 and 2003                                    | 86       |
| Changes  by segment in EBITDA for the Three Months Ended  December 31, 2004 as compared to September 30, 2004      | 87       |
| Americold  Realty Trust Proforma Net Income and EBITDA for the Three  Months and Years Ended December 31, 2004 and 2003 | 88       |
| Related Party Transactions                                                                                                   | 90       |
| Liquidity and Capital  Resources                                                                                             | 93       |
| Certain Future Cash  Requirements                                                                                            | 93       |
| Financing  Activities and Contractual Obligations                                                                            | 94       |
| Cash  Flows for the Year Ended December 31, 2004                                                                        | 95       |
| Cash  Flows for the Year Ended December 31, 2003                                                                        | 96       |
| Cash  Flows for the Year Ended December 31, 2002                                                                        | 98       |

 

49

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**Overview**

 

The Company owns and operates office, retail andshowroom properties with large concentrations of office and retail propertiesin the New York City metropolitan area and in the Washington, D.C. and NorthernVirginia area.  In addition, the Companyhas a 47.6% interest in an entity that owns and operates 88 cold storagewarehouses nationwide.

 

The Company’s business objective is to maximizeshareholder value.  The Company’smeasures its success in meeting this objective by Vornado’s total return to itsshareholders.  Below is a table comparingVornado’s performance to the Morgan Stanley REIT Index (“RMS”) for thefollowing periods ending December 31, 2004:

 
| ** **  | ** ** | **Total Return (1)** | ** ** |
|-------------|------------|----------------------|------------|
| ** **  | ** ** | **Vornado**          | ** ** | **RMS** | ** ** |
| One-year    |       | 46.5                 | %          | 31.5 | % |
| Three-years |       | 114.8                | %          | 86.4 | % |
| Five-years  |       | 207.3                | %          | 166.6 | % |
| Ten-years   |       | 612.5                | %          | 284.8 | %(2) |

 

----

(1)          Past performanceis not necessarily indicative of how the Company will perform in the future.

(2)          From inception onJuly 25, 1995.

 

The Company intends to continue to achieve itsbusiness objective by pursuing its investment philosophy and executing itsoperating strategies through:

 

•                  Maintaining a superior team ofoperating and investment professionals and an entrepreneurial spirit.

•                  Investing in properties in selectmarkets, such as New York City and Washington, D.C., where we believe there ishigh likelihood of capital appreciation.

•                  Acquiring quality properties at adiscount to replacement cost and where there is a significant potential forhigher rents.

•                  Investing in retail properties inselect under-stored locations such as the New York City metropolitan area.

•                  Developing/redeveloping the Company’sexisting properties to increase returns and maximize value.

 

The Company competes with a large number of realestate property owners and developers. Principal factors of competition are rent charged, attractiveness oflocation and quality and breadth of services provided.  The Company’s success depends upon, amongother factors, trends of the national and local economies, financial conditionand operating results of current and prospective tenants and customers,availability and cost of capital, construction and renovation costs, taxes,governmental regulations, legislation and population trends.  Economic growth has been fostered, in part,by low interest rates, Federal tax cuts, and increases in governmentspending.  To the extent economic growthstalls, the Company may experience lower occupancy rates which may lead tolower initial rental rates, higher leasing costs and a corresponding decreasein net income, funds from operations and cash flow.  Alternatively, if economic growth issustained, the Company may experience higher occupancy rates leading to higherinitial rents and higher interest rates causing an increase in the Company’sweighted average cost of capital and a corresponding effect on net income,funds from operations and cash flow.

 

## **2004 Acquisitions**

 

During the year ended December 31, 2004, theCompany completed $328,600,000 of acquisitions and investments in real estate,of which $246,600,000 related to the retail segment.  In addition, the Company made $183,400,000 ofmezzanine loans during 2004 which increased the outstanding balance of Notesand Mortgage Loans Receivable to $440,186,000 at December 31, 2004.  Following are the details of thesetransactions.

 

On February 3, 2004, the Company acquired theForest Plaza Shopping Center for approximately $32,500,000, of which$14,000,000 was paid in cash and $18,500,000 was debt assumed.  Forest Plaza is a 165,000 square footshopping center located in Staten Island, New York.

 

50

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**Overview -continued**

 

On March 19, 2004, the Company acquired a 62,000square foot free-standing retail building located at 25 W. 14thStreet in Manhattan for $40,000,000 in cash.

 

On July 1, 2004, the Companyacquired the Marriott hotel located in its Crystal City office complex from alimited partnership in which Robert H. Smith and Robert P. Kogod, trustees ofthe Company, together with family members own approximately 67 percent.  The purchase price of $21,500,000 was paid incash.  The hotel contains 343 rooms and is leased toan affiliate of Marriott International, Inc. until July 31, 2015, with one10-year extension option.  The land underthe hotel was acquired in 1999.

 

On July 29, 2004, the Company acquired a realestate portfolio containing 25 supermarkets for $65,000,000 in cash.  These properties, all of which are alllocated in Southern California and contain an aggregate of approximately766,000 square feet, were purchased from the Newkirk MLP, in which theCompany currently owns a 22.4% interest. The supermarkets are net leased to Stater Brothers for an initialterm expiring in 2008, with six 5-year extension options.  Stater Brothers is a Southern Californiaregional grocery chain that operates 158 supermarkets and has been inbusiness since 1936.

 

On August 30, 2004, the Company acquired a 68,000square foot free-standing building in Forest Hills, New York for $26,500,000 incash.  The property is located at 99-01Queens Boulevard and its principal tenants are Rite Aid and Fleet Bank.

 

On November 2, 2004, the Company acquired a 50%joint venture interest in a 92,500 square foot property located at BroomeStreet and Broadway in New York City. The Company contributed $4,462,000 of equity and provided a $24,000,000bridge loan with interest at 10% per annum. Upon the refinancing of the bridge loan, which is expected to close inthe second quarter of 2005, the Company will be repaid $15,106,000 and the balanceof $8,894,000 will remain in the venture as additional equity.

 

On November 12, 2004 and December 1, 2004,the Company acquired two shopping centers aggregating 185,000 square feet, inLodi, New Jersey and Long Island (Inwood), New York, for a total purchase priceof $36,600,000 in cash plus $10,900,000 of assumed debt.

 

In December 2004, the Company acquired two retailcondominiums aggregating 12,000 square feet, located at 386 and 387 WestBroadway in New York City for $16,900,000 in cash plus $4,700,000 of assumeddebt.

 

*Investment in GMH Communities L.P.*

 

On July 20, 2004, the Company committed to makeup to a $159,000,000 convertible preferred investment in GMH CommunitiesL.P. (“GMH”), a partnership focused on the student and military housingsectors.  Distributions accrued on thefull committed balance of the investment, whether or not drawn, from July 20,2004, at a rate of 16.27%.  In connectionwith this commitment, the Company received a placement fee of $3,200,000.  The Company also purchased for $1,000,000,warrants to acquire GMH common equity. These warrants entitle the Company to acquire (i) 6,666,667 limitedpartnership units in GMH at an exercise price of $7.50 per unit and (ii)5,496,724 limited partnership units, through May 6, 2006, at an exercise priceof $9.10 per unit.  As of November 3,2004, the Company had funded a total of $113,777,000 of the commitment.

 

On November 3, 2004, GCT closed its initialpublic offering (“IPO”) at a price of $12.00 per share.  GCT is a real estate investment trust thatconducts its business through GMH, of which it is the sole generalpartner.  In connection with the IPO, the$113,777,000 previously funded by the Company under the $159,000,000 commitmentwas repaid, together with accrued distributions of $13,381,000.  The Company also exercised warrants topurchase 6,666,667 limited partnership units at a price of $7.50 per unit, or$50,000,000 in total, which resulted in a net gain of $29,500,000.  The Company accounts for its interest in thepartnership units on the equity-method based on its 12.25% ownership interestand right to appoint one of its executive officers to GCT’s Board ofTrustees.  The Company records itspro-rata share of GMH’s net income or loss on a one-quarter lag basis as theCompany files its financial statements on Form 10-K or 10-Q prior to the timeGMH files its financial statements.

 

51

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**Overview -continued**

** **

Under the warrant agreement, the number of GMHpartnership units or GCT common shares underlying the warrants is adjusted fordividends declared by GCT.  On December 16,2004, GCT declared a dividend of $.16 per common share, which increased thenumber of shares underlying the warrants from 5,496,724 to 5,563,417 and theexercise price was decreased from $9.10 to $8.99 per share.   Because these warrants are derivatives anddo not qualify for hedge accounting treatment, the gains and losses resultingfrom the mark-to-market of the warrants at the end of each reporting period arerecognized as an increase or decrease in “interest and other investment income”on the Company’s consolidated statement of income.  In the quarter ended December 31, 2004,the Company recognized income of $24,190,000 from the mark-to-market of thesewarrants, which were valued using a trinomial option pricing model based on GCT’sclosing stock price on the NYSE of $14.10 per share on December 31, 2004.

 

Further, in connection with the IPO, the Companycontributed its 90% interest in Campus Club Gainesville, which it acquiredin 2000, in exchange for an additional 671,190 GMH limited partnership units.

 

Of the Company’s GMH units, 6,666,667 may be convertedinto an equivalent number of common shares of GCT commencing on May 2, 2005 and671,190 units may be converted commencing on November 2, 2005.  The Company has agreed not to sell any commonshares or units it owns or may acquire until May 2, 2005.

 

*Investment in Sears, Roebuck and Co.*

 

In July and August 2004, the Company acquired anaggregate of 1,176,600 common shares of Sears, Roebuck and Co. (“Sears”) for$41,945,000, an average price of $35.65 per share. Included in the cost is$1,361,000 for a performance-based participation.  These shares are recorded as marketablesecurities on the Company’s consolidated balance sheet and are classified as“available for sale.”  Appreciation ordepreciation in the fair market value of these shares is recorded as anincrease or decrease in “accumulated other comprehensive income” in the partners’capital section of the Company’s consolidated balance sheet and not recognizedin income.  At December 31, 2004, basedon Sears’ closing stock price of $51.03 per share, $18,105,000 of appreciationin the value of these shares was included in “accumulated other comprehensive income.”

 

In August and September 2004, the Companyacquired an economic interest in an additional 7,916,900 Sears common sharesthrough a series of privately negotiated transactions with a financialinstitution pursuant to which the Company purchased a call option andsimultaneously sold a put option at the same strike price on Sears commonshares.  These call and put options havean initial weighted-average strike price of $39.82 per share, or an aggregate of $315,250,000, expire in April 2006and provide for net cash settlement. Under these agreements, the strike price for each pair of optionsincreases at an annual rate of LIBOR plus 45 basis points and is credited forthe dividends received on the shares. The options provide the Company with the same economic gain or loss asif it had purchased the underlying common shares and borrowed the aggregatestrike price at an annual rate of LIBOR plus 45 basis points.  Because these options are derivatives and donot qualify for hedge accounting treatment, the gains or losses resulting fromthe mark-to-market of the options at the end of each reporting period arerecognized as an increase or decrease in “interest and other investment income”on the Company’s consolidated statement of income.  During the year ended December 31, 2004,the Company recorded net income of $81,730,000, comprised of (i) $88,782,000from the mark-to-market of the options on December 31, 2004, based onSears’ closing stock price of $51.03 per share and (ii) $2,295,000 for accrueddividends, partially offset by (i) $5,972,000 for a performance-basedparticipation, (ii) $2,371,000 for the increase in strike price resulting fromthe LIBOR charge and (iii) $1,004,000 of professional fees.

 

On November 16, 2004, Kmart Holding Corporation (“Kmart”)and Sears entered into an Agreement and Plan of Merger.  Upon the effective date of the merger, eachshare of Sears common stock will be converted into the right to receive, at theelection of the holder, (i) $50.00 in cash or (ii) 0.50 shares of common stockof the merged company, subject to proration so that 55% of the Sears shares areexchanged for shares of the merged company.

 

Based on Sears’ most recent filing with the Securitiesand Exchange Commission, the Company’s aggregate investment in Sears represents4.2% of Sears’ outstanding common shares.

 

52

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## **Overview –continued**

## ** **

## **2004 Dispositions**

## ** **

In anticipation of selling the Palisades ResidentialComplex, on February 27, 2004, the Company acquired the remaining 25%interest in the Palisades venture it did not previously own for approximately$17,000,000 in cash.  On June 29,2004, the Company sold the Palisades for $222,500,000, which resulted in a gainon sale after closing costs of $65,905,000.

 

On August 12, 2004, the Company sold its Dundalk,Maryland shopping center for $12,900,000, which resulted in a net gain on saleafter closing costs of $9,850,000.

 

2004 Financings

 

On January 6, 2004, the Company redeemed all ofits 8.375% Series D-2 Cumulative Redeemable Preferred Units at a redemptionprice equal to $50.00 per unit for an aggregate of $27,500,000 plus accrueddistributions.

 

On March 17, 2004, the Company redeemed all ofits Series B preferred units at a redemption price equal to $25.00 per unit foran aggregate of $85,000,000 plus accrued distributions.  The redemption amount exceeded the carryingamount by $3,195,000, representing the original issuance costs.  Upon redemption, these issuance costs wererecorded as a reduction to earnings in arriving at net income applicable to ClassA units, in accordance with the July 2003 EITF clarification of TopicD-42.

 

On May 27, 2004, the Companysold $35,000,000 of 7.2% Series D-11 Cumulative Redeemable Preferred Units toan institutional investor in a private placement. These perpetual preferredunits may be called without penalty at the Company’s option commencing in May2009.

 

On August 16, 2004, the Company completed apublic offering of $250,000,000 aggregate principal amount of 4.50% seniorunsecured notes due August 15, 2009. Interest on the notes is payable semi-annually on February 15, and August 15,commencing February 15, 2005.  Thenotes were priced at 99.797% of their face amount to yield 4.546%.  The notes are subject to the same financialcovenants as the Company’s previously issued senior unsecured debt.

 

On August 17, 2004, Vornado sold $75,000,000 of7.0% Series E Cumulative Redeemable Preferred Shares at a price of $25.00 pershare, in a public offering pursuant to an effective registrationstatement.  Simultaneously, the Companyissued an equivalent amount of Series E preferred units to Vornado.  The Company may redeem the Series E preferredunits at a redemption price of $25.00 per unit after August 20, 2009.

 

On November 10, 2004, Vornado sold $150,000,000of 6.75% Series F Cumulative Redeemable Preferred Shares at a price of $25.00per share, in a public offering pursuant to an effective registrationstatement.  Simultaneously, the Companyissued an equivalent amount of Series F preferred units to Vornado.  The Company may redeem the Series F preferredunits at a redemption price of $25.00 per unit after November 17, 2009.

 

On December 16, 2004, Vornado sold $200,000,000of 6.625% Series G Cumulative Redeemable Preferred Shares at a price of $25.00per share, in a public offering pursuant to an effective registrationstatement.  Simultaneously, the Companyissued an equivalent amount of Series G preferred units to Vornado.  The Company may redeem the Series G preferredunits at a redemption price of $25.00 per unit after January 19, 2005.

 

On December 17, 2004, the Company sold$20,000,000 of 6.55% Series D-12 Cumulative Redeemable Preferred Units to aninstitutional investor in a private offering. The Series D-12 units may be called without penalty at the option of theCompany commencing in December 2009.

 

On December 30, 2004, the Company sold$46,700,000 of 3.0% Series D-13 Cumulative Redeemable Preferred Units to aninstitutional investor in a private offering. The Series D-13 units may be called without penalty at the option of theCompany commencing in December 2011. The Series D-13 units may also be redeemed at the option of the holdercommencing on December 2006.

 

On January 19, 2005, the Company redeemed all ofVornado’s 8.5% Series C Cumulative Redeemable Preferred Shares and $80,000,000of its Series D-3 Perpetual Preferred Units at the stated redemption price of$25.00 per share or $115,000,000, plus accrued distributions.  The redemption amount exceeded the carryingamount by $6,052,000, representing the original issuance costs.  Upon redemption in the first quarter of 2005,these issuance costs were recorded as a reduction to earnings in arriving atnet income applicable to Class A units, in accordance with the July 2003EITF clarification of Topic D-42.

 

53

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### ***Overview –Leasing Activity***

### * *

The following table summarizes,by business segment, the leasing statistics which the Company views as keyperformance indicators.

 
| ** **                                                             | ** ** | **Office**         | ** ** | ** ** | ** ** | ** ** | ** ** | **Temperature  Controlled  Logistics** | ** ** |
|------------------------------------------------------------------------|------------|--------------------|------------|------------|------------|------------|------------|----------------------------------------|------------|
| **(Square feet and cubic feet in  thousands)**                         | ** ** | **New York  City** | ** ** | **CESCR**  | ** ** | **Retail** | ** ** | **Merchandise Mart**                   |
| **Office**                                                             | ** ** | **Showroom**       |
| **As of December 31, 2004:**                                      |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| Square feet/cubic feet                                                 |       | 13,412             |       | 14,216     |       | 14,210     |       | 2,837                                  |       | 5,589 |   | 17,563/443,700 |   |
| Number of properties                                                   |       | 20                 |       | 66         |       | 94         |       | 8                                      |       | 8 |   | 88 |   |
| Occupancy rate                                                         |       | 95.6               | %          | 91.5       | %(2)       | 93.9       | %          | 96.0                                   | %          | 97.6 | % | 76.9 | % |
|                                                                   |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| **Leasing Activity:**                                                  | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Year Ended December 31, 2004:**                                 | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Square feet                                                            |       | 1,502              |       | 2,824      |       | 1,021      |       | 569                                    |       | 1,038 |   | — |   |
| Initial rent (1)                                                       |       | $                  | 43.34      |       | $          | 28.93      |       | $                                      | 16.33      |   | $ | 22.85 |   | $ | 22.65 |   | — |   |
| Weighted average lease terms (years)                                   |       | 9.4                |       | 6.1        |       | 8.0        |       | 12.1                                   |       | 5.2 |   | — |   |
| Rent per square foot on relet space:                                   |       | —             |       |       |       |       |       |                                   |       |   |   |   |   |
| Square feet                                                            |       | 1,074              |       | 2,030      |       | 682        |       | 323                                    |       | 1,038 |   | — |   |
| Initial Rent (1)                                                       |       | $                  | 42.54      |       | $          | 29.38      |       | $                                      | 16.64      |   | $ | 22.92 |   | $ | 22.65 |   | — |   |
| Prior escalated rent                                                   |       | $                  | 40.02      |       | $          | 29.98      |       | $                                      | 13.99      |   | $ | 24.80 |   | $ | 22.92 |   | — |   |
| Percentage increase                                                    |       | 6.3                | %          | (2.0       | )%         | 18.9       | %          | (7.6                                   | )%         | (1.2 | )% | — |   |
| Rent per square foot on space previously vacant:                       |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| Square feet                                                            |       | 428                |       | 793        |       | 339        |       | 246                                    |       | — |   | — |   |
| Initial rent (1)                                                       |       | $                  | 45.35      |       | $          | 27.77      |       | $                                      | 15.71      |   | $ | 22.76 |   | — |   | — |   |
|                                                                   |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| Tenant improvements and leasing commissions per  square foot           |       | $                  | 38.63      |       | $          | 20.03      |       | $                                      | 4.89       |   | $ | 65.50 |   | $ | 5.38 |   | — |   |
| Tenant improvements and leasing commissions per  square foot per annum |       | $                  | 4.10       |       | $          | 3.28       |       | $                                      | 0.61       |   | $ | 5.42 |   | $ | 1.04 |   | — |   |
|                                                                   |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| **Quarter ended December 31,  2004:**                             | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Square feet                                                            |       | 263                |       | 568        |       | 184        |       | 81                                     |       | 305 |   | — |   |
| Initial rent (1)                                                       |       | $                  | 49.96      |       | $          | 29.05      |       | $                                      | 17.48      |   | $ | 25.60 |   | $ | 21.69 |   | — |   |
| Weighted average lease terms (years)                                   |       | 8.2                |       | 7.8        |       | 7.4        |       | 6.9                                    |       | 4.8 |   | — |   |
| Rent per square foot on relet space:                                   |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| Square feet                                                            |       | 153                |       | 322        |       | 103        |       | 36                                     |       | 305 |   | — |   |
| Initial rent (1)                                                       |       | $                  | 46.70      |       | $          | 29.30      |       | $                                      | 21.39      |   | $ | 30.87 |   | $ | 21.69 |   | — |   |
| Prior escalated rent                                                   |       | $                  | 40.74      |       | $          | 30.64      |       | $                                      | 17.87      |   | $ | 32.52 |   | $ | 22.31 |   | — |   |
| Percentage increase (decrease)                                         |       | 14.6               | %          | (4.4       | )%         | 19.7       | %          | (5.1                                   | )%         | (2.8 | )% | — |   |
| Rent per square foot on space previously vacant:                       |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| Square feet                                                            |       | 110                |       | 246        |       | 81         |       | 45                                     |       | — |   | — |   |
| Initial rent (1)                                                       |       | $                  | 54.48      |       | $          | 28.73      |       | $                                      | 12.55      |   | $ | 21.32 |   | — |   | — |   |
|                                                                   |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| Tenant improvements and leasing commissions per  square foot           |       | $                  | 36.67      |       | $          | 25.82      |       | $                                      | 6.54       |   | $ | 45.57 |   | $ | 4.15 |   | — |   |
| Tenant improvements and leasing commissions per  square foot per annum |       | $                  | 4.47       |       | $          | 3.31       |       | $                                      | 0.89       |   | $ | 6.64 |   | $ | 0.87 |   | — |   |

### * *

In addition to the leasing activity in the tableabove, in the year ended December 31, 2004, 51,000 square feet ofretail space included in the New York City Office segment was leased at aninitial rent of $118.39 per square foot and in the three months ended December 31,2004, 9,000 square feet of retail space was leased at an initial rent of $73.86per square foot.

 

54

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### ***Overview –*****Leasing Activity****– continued**

 
| ** **                                                             | ** ** | **Office**         | ** ** | ** ** | ** ** | ** ** | ** ** | **Temperature  Controlled  Logistics** | ** ** |
|------------------------------------------------------------------------|------------|--------------------|------------|------------|------------|------------|------------|----------------------------------------|------------|
| **(Square feet and cubic feet in  thousands)**                         | ** ** | **New York  City** | ** ** | **CESCR**  | ** ** | **Retail** | ** ** | **Merchandise Mart**                   |
| **Office**                                                             | ** ** | **Showroom**       |
| **As of December 31, 2003:**                                      | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Square feet/cubic feet                                                 |       | 13,253             |       | 13,963     |       | 12,888     |       | 2,808                                  |       | 5,624 |   | 17,476/440,700 |   |
| Number of properties                                                   |       | 20                 |       | 63         |       | 60         |       | 9                                      |       | 9 |   | 88 |   |
| Occupancy rate                                                         |       | 95.2               | %          | 93.9       | %          | 93.0       | %          | 92.6                                   | %          | 95.1 | % | 76.2 | % |
|                                                                   |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| **Leasing Activity:**                                                  | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Year Ended December 31, 2003:**                                 | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Square feet                                                            |       | 925                |       | 2,848      |       | 1,046      |       | 270                                    |       | 1,157 |   | — |   |
| Initial rent (1)                                                       |       | $                  | 44.60      |       | $          | 30.26      |       | $                                      | 15.56      |   | $ | 21.24 |   | $ | 23.43 |   | — |   |
| Weighted average lease terms (years)                                   |       | 9.1                |       | 4.8        |       | 12.8       |       | 9.8                                    |       | 5.2 |   |   |   |
| Rent per square foot on relet space:                                   |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| Square feet                                                            |       | 677                |       | 2,510      |       | 1,046      |       | 270                                    |       | 1,157 |   | — |   |
| Initial Rent (1)                                                       |       | $                  | 44.41      |       | $          | 30.62      |       | $                                      | 15.56      |   | $ | 21.24 |   | $ | 23.43 |   | — |   |
| Prior escalated rent                                                   |       | $                  | 38.51      |       | $          | 29.86      |       | $                                      | 13.75      |   | $ | 22.44 |   | $ | 23.28 |   | — |   |
| Percentage increase                                                    |       | 15.3               | %          | 2.5        | %          | 13.2       | %          | (5.3                                   | )%         | 0.6 | % | — |   |
| Rent per square foot on space previously vacant:                       |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| Square feet                                                            |       | 248                |       | 338        |       | —     |       | —                                 |       | — |   | — |   |
| Initial rent (1)                                                       |       | $                  | 45.09      |       | $          | 27.58      |       | —                                 |       | — |   | — |   | — |   |
|                                                                   |       |               |       |       |       |       |       |                                   |       |   |   |   |   |
| Tenant improvements and leasing commissions per  square foot           |       | $                  | 38.00      |       | $          | 13.54      |       | $                                      | 4.46       |   | $ | 40.35 |   | $ | 7.82 |   | — |   |
| Tenant improvements and leasing commissions per  square foot per annum |       | $                  | 4.17       |       | $          | 2.85       |       | $                                      | 0.35       |   | $ | 4.11 |   | $ | 1.51 |   | — |   |

 

----

(1)           Mostleases include periodic step-ups in rent, which are not reflected in theinitial rent per square foot leased.

(2)           ExcludesCrystal Plazas 3 and 4 containing an aggregate of 497 square feet which weretaken out of service for redevelopment. See discussion of Crystal City PTO space below.

 

55

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### ***Overview –*****Leasing Activity****– continued**

### * *

### ***Crystal City PTO Space***

### * *

The PTO vacated 937,000 square feet in Crystal City inthe fourth quarter of 2004, of which 497,000 has been taken out of service, andwill vacate another 1,002,000 square feet during 2005 and the first quarter of2006.  As of February 1, 2005, theCompany has leased 416,000 square feet of the PTO space vacated.  Of this space, 262,000 square feet was leasedto the Federal Supply Service which will be relocated from 240,000 square feetin other Crystal City buildings, 122,000 square feet was leased to the PublicBroadcasting Service and 32,000 square feet was leased to Lockheed Martin.

 

Below is a comparison of the Company’s actual leasingactivity to the Company’s projection for the lease-up of this space:

 
| ** **                           | ** ** | **Square Feet Leased  (in thousands)** | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|
| **Period in which  rent commences:** | ** ** | **Projection**                         | ** ** | **Actual Through  February 1, 2005** | ** ** |
| Q4 2004                              |       | —                                 |       | 32 |   |
| Q3 2005                              |       | —                                 |       | 122 |   |
| Q4 2005                              |       | 247                                    |       | — |   |
| Q1 2006                              |       | 793                                    |       | 262 |   |
| Q2 2006                              |       | 404                                    |       | — |   |
| Q3 2006                              |       | 252                                    |       | — |   |
| Q4 2006                              |       | 98                                     |       | — |   |
| Q1 2007                              |       | 145                                    |       | — |   |
|                                 |       | 1,939                                  |       | 416 |   |

 

Straight-line rent per square foot for the actual squarefeet leased is $32.34 as compared to $31.94 projected.  Actual tenant improvements and leasingcommissions per square foot is $45.25 as compared to $45.28 projected.

 

The Company’s original redevelopment plans for the PTOspace included taking Crystal Park One and Crystal Plaza Three and Four out ofservice.  Plans for Crystal Plaza Threeand Four have not changed.  Current plansfor Crystal Park One are to lease its 224,000 square feet to private sectortenants, which will not require taking the building out of service, as opposedto leasing it to another government agency which would have required taking itout of service.  As a result, the Companywill recognize approximately $4,000,000 of expense in 2005, which under theoriginal plan would have been capitalized as part of development costs.

 

56

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**Critical Accounting Policies**

** **

In preparing the consolidated financial statementsmanagement has made estimates and assumptions that affect the reported amountsof assets and liabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reporting periods. Actualresults could differ from those estimates. Set forth below is a summary of the accounting policies that managementbelieves are critical to the preparation of the consolidated financialstatements.   The summary should be readin conjunction with the more complete discussion of the Company’s accountingpolicies included in Note 2 to the consolidated financial statements in thisannual report on Form 10-K.

 

*Real Estate*

* *

Real estate is carried at cost, net of accumulateddepreciation and amortization.  As of December 31,2004, the Company’s carrying amount of its real estate, net of accumulateddepreciation is $8.3 billion. Maintenance and repairs are charged to operations as incurred.  Depreciation requires an estimate bymanagement of the useful life of each property and improvement as well as anallocation of the costs associated with a property to its variouscomponents.  If the Company does notallocate these costs appropriately or incorrectly estimates the useful lives ofits real estate, depreciation expense may be misstated.

 

Upon acquisitions of real estate, the Company assessesthe fair value of acquired assets (including land, buildings and improvements,identified intangibles such as acquired above and below market leases andacquired in-place leases and customer relationships) and acquired liabilitiesin accordance with Statement of Financial Accounting Standards (“SFAS”)No. 141: Business Combinations and SFAS No. 142: Goodwill and OtherIntangible Assets, and allocates purchase price based on theseassessments.  The Company assesses fairvalue based on estimated cash flow projections that utilize appropriatediscount and capitalization rates and available market information.  Estimates of future cash flows are based on anumber of factors including the historical operating results, known trends, andmarket/economic conditions that may affect the property.  The Company’s properties, including anyrelated intangible assets, are reviewed for impairment if events orcircumstances change indicating that the carrying amount of the assets may notbe recoverable.  If the Company incorrectlyestimates the values at acquisition or the undiscounted cash flows, initialallocations of purchase price and future impairment charges may bedifferent.  The impact of the Company’sestimates in connection with acquisitions and future impairment analysis couldbe material to the Company’s consolidated financial statements.

 

*Identified IntangibleAssets*

* *

*Upon an acquisition of a business the Companyrecords intangible assets acquired at their estimated fair value separate andapart from goodwill.  The Companyamortizes identified intangible assets that are determined to have finite liveswhich are based on the period over which the assets are expected to contributedirectly or indirectly to the future cash flows of the business acquired.  Intangible assets subject to amortization arereviewed for impairment whenever events or changes in circumstances indicatethat its carrying amount may not be recoverable.  An impairment loss is recognized if thecarrying amount of an intangible asset, including the related real estate whenappropriate, is not recoverable and its carrying amount exceeds its estimatedfair value.*

* *

*As of December 31, 2004 and 2003, the carryingamounts of the Company’s identified intangible assets are $176,314,000 and$130,875,000, respectively.  Such amountsare included in “other assets” on the Company’s consolidated balancesheet.  In addition, the Company has$71,272,000 and $47,359,000, of identified intangible liabilities as of December 31,2004 and 2003, which are included in “deferred credit” on the Company’sconsolidated balance sheets.  If theseassets are deemed to be impaired, or the estimated useful lives of finite-lifeintangibles change, the impact to the Company’s consolidated financialstatements could be material.*

 

57

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*Notes and Mortgage LoansReceivable*

* *

The Company’s policy is to record mortgages and notesreceivable at the stated principal amount net of any discount or premium.  As of December 31, 2004, the carryingamount of Notes and Mortgage Loans Receivable was $440,186,000.  The Company accretes or amortizes anydiscounts or premiums over the life of the related loan receivable utilizingthe effective interest method.  TheCompany evaluates the collectibility of both interest and principal of each ofits loans, if circumstances warrant, to determine whether it is impaired. Aloan is considered to be impaired, when based on current information andevents, it is probable that the Company will be unable to collect all amountsdue according to the existing contractual terms. When a loan is considered tobe impaired, the amount of the loss accrual is calculated by comparing therecorded investment to the value determined by discounting the expected futurecash flows at the loan’s effective interest rate or, as a practical expedient,to the value of the collateral if the loan is collateral dependent.  The impact of the Company’s estimates inconnection with the collectibility of both interest and principal of its loanscould be material to the Company’s consolidated financial statements.

 

*Partially-Owned Entities*

* *

As of December 31, 2004, the carrying amount ofinvestments and advances to partially-owned entities, including Alexander’s,was $605,300,000.  In determining whetherthe Company has a controlling interest in a partially-owned entity and therequirement to consolidate the accounts of that entity, it considers factorssuch as ownership interest, board representation, management representation,authority to make decisions, and contractual and substantive participatingrights of the partners/members as well as whether the entity is a variableinterest entity in which it will absorb the majority of the entity’s expectedlosses, if they occur, or receive the majority of the expected residual returns,if they occur, or both. The Company has concluded that it does not have acontrolling ownership interest with respect to the Company’s 80% interest inStarwood Ceruzzi Venture, and 50% interests in Monmouth Mall, Wells Kinzie,Orleans Hubbard and 825 Seventh Avenue.

 

The Company consolidates entities that it is able tocontrol.  The Company accounts forinvestments on the equity method when its ownership interest is greater than20% and less than 50%, and the Company does not have direct or indirect control.  When partially-owned entities are inpartnership form, the 20% threshold may be reduced.  Equity method investments are initiallyrecorded at cost and subsequently adjusted for the Company’s share of netincome or loss and cash contributions and distributions to and from theseentities.  All other investments areaccounted for on the cost method.

 

On a periodic basis the Company evaluates whetherthere are any indicators that the value of the Company’s investments inpartially-owned entities are impaired. The ultimate realization of the Company’s investment in partially-ownedentities is dependent on a number of factors including the performance of theinvestee and market conditions.  If theCompany determines that a decline in the value of the investee is other thantemporary, an impairment charge would be recorded.

 

*Allowance ForDoubtful Accounts*

 

*The Company periodically evaluatesthe collectibility of amounts due from tenants and maintains an allowance fordoubtful accounts ($17,339,000 as at December 31, 2004) for estimatedlosses resulting from the inability of tenants to make required payments underthe lease agreement.  The Company alsomaintains an allowance for receivables arising from the straight-lining ofrents ($6,787,000 as at December 31, 2004).  This receivable arises from earningsrecognized in excess of amounts currently due under the lease agreements.  Management exercises judgment in establishingthese allowances and considers payment history and current credit status indeveloping these estimates.  Theseestimates may differ from actual results, which could be material to theCompany’s consolidated financial statements. *

 

58

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*Revenue Recognition*

* *

The Company has the following revenue sources andrevenue recognition policies:

•                  Base Rents — income arising from tenant leases.  These rents are recognized over thenon-cancelable term of the related leases on a straight-line basis whichincludes the effects of rent steps and rent abatements under the leases.

•                  Percentage Rents — income arising from retail tenantleases which are contingent upon the sales of the tenant exceeding a definedthreshold.  These rents are recognized inaccordance with Staff Accounting Bulletin No. 104: Revenue Recognition, whichstates that this income is to be recognized only after the contingency has beenremoved (i.e. sales thresholds have been achieved).

•                  Hotel Revenues — income arising from the operationof the Hotel Pennsylvania which consists of rooms revenue, food and beveragerevenue, and banquet revenue.  Income isrecognized when rooms are occupied.  Foodand beverage and banquet revenue are recognized when the services have beenrendered.

•                  Trade Show Revenues — income arising from theoperation of trade shows, including rentals of booths.  This revenue is recognized in accordance withthe booth rental contracts when the trade shows have occurred.

•                  Expense Reimbursements — revenue arising from tenantleases which provide for the recovery of all or a portion of the operatingexpenses and real estate taxes of the respective property.  This revenue is accrued in the same periodsas the expenses are incurred.

•                  Temperature Controlled Logistics revenue – incomearising from the Company’s investment in Americold.  Storage and handling revenue is recognized asservices are provided.  Transportationfees are recognized upon delivery to customers.

•                  Management, Leasing and Other Fees – income arisingfrom contractual agreements with third parties or with partially-ownedentities.  This revenue is recognized asthe related services are performed under the respective agreements.

 

*Before the Company recognizes revenue, it assessesamong other things, its collectibility. If the Company’s assessment of the collectibility of its revenuechanges, the impact on the Company’s consolidated financial statements could bematerial.*

 

59

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**Net income and EBITDA (1)for the yearsended December 31, 2004, 2003 and 2002.**

 

Below is a summary of Net income and EBITDA(1) bysegment for the years ended December 31, 2004, 2003 and 2002.  On January 1, 2003, the Company revisedits definition of EBITDA to comply with the Securities and Exchange Commission’sRegulation G concerning non-GAAP financial measures.  The revised definition of EBITDA includesminority interest, gains (losses) on the sale of depreciable real estate andincome arising from the straight-lining of rent and the amortization of acquiredin-place leases.  Accordingly, EBITDA forall periods disclosed represents “Earnings before Interest, Taxes, Depreciationand Amortization.”  Management considersEBITDA a supplemental measure for making decisions and assessing the unleveredperformance of its segments as it is related to the return on assets as opposedto the levered return on equity.  Asproperties are bought and sold based on a multiple of EBITDA, managementutilizes this measure to make investment decisions as well as to compare the performanceof its assets to that of its peers. EBITDA is not a surrogate for net income because net income is afterinterest expense and accordingly, is a measure of return on equity as opposedto return on assets.

 
| ** **                                                                                 | ** ** | **December 31, 2004** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **(Amounts in thousands)**                                                                 | ** ** | **Total**                  | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics (3)** | ** ** | **Other (4)** | ** ** |
| Property rentals                                                                           |       | $                          | 1,268,764  |   | $ | 838,665 |   | $ | 160,620 |   | $ | 206,668 |   | $ | — |   | $ | 62,811 |   |
| Straight-line rents:                                                                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Contractual rent increases                                                                 |       | 35,214                     |       | 27,165 |   | 4,882 |   | 3,002 |   | — |   | 165 |   |
| Amortization of free rent                                                                  |       | 26,264                     |       | 10,118 |   | 10,998 |   | 5,154 |   | — |   | (6 | ) |
| Amortization of acquired below market leases, net                                          |       | 14,570                     |       | 9,697 |   | 4,873 |   | — |   | — |   | — |   |
| Total rentals                                                                              |       | 1,344,812                  |       | 885,645 |   | 181,373 |   | 214,824 |   | — |   | 62,970 |   |
| Expense reimbursements                                                                     |       | 191,059                    |       | 109,255 |   | 64,474 |   | 14,045 |   | — |   | 3,285 |   |
| Temperature Controlled Logistics                                                           |       | 87,428                     |       | — |   | — |   | — |   | 87,428 |   | — |   |
| Fee and other income:                                                                      |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Tenant cleaning fees                                                                       |       | 31,293                     |       | 31,293 |   | — |   | — |   | — |   | — |   |
| Management and leasing fees                                                                |       | 16,754                     |       | 15,501 |   | 1,084 |   | 155 |   | — |   | 14 |   |
| Other                                                                                      |       | 35,916                     |       | 25,573 |   | 1,617 |   | 8,662 |   | — |   | 64 |   |
| Total revenues                                                                             |       | 1,707,262                  |       | 1,067,267 |   | 248,548 |   | 237,686 |   | 87,428 |   | 66,333 |   |
| Operating expenses                                                                         |       | 679,790                    |       | 396,698 |   | 77,277 |   | 92,636 |   | 67,989 |   | 45,190 |   |
| Depreciation and amortization                                                              |       | 242,914                    |       | 161,381 |   | 26,327 |   | 34,025 |   | 7,968 |   | 13,213 |   |
| General and administrative                                                                 |       | 145,218                    |       | 38,446 |   | 13,187 |   | 22,487 |   | 4,264 |   | 66,834 |   |
| Costs of acquisitions not consummated                                                      |       | 1,475                      |       | — |   | — |   | — |   | — |   | 1,475 |   |
| Total expenses                                                                             |       | 1,069,397                  |       | 596,525 |   | 116,791 |   | 149,148 |   | 80,221 |   | 126,712 |   |
| Operating income (loss)                                                                    |       | 637,865                    |       | 470,742 |   | 131,757 |   | 88,538 |   | 7,207 |   | (60,379 | ) |
| Income applicable to Alexander’s                                                      |       | 8,580                      |       | 433 |   | 668 |   | — |   | — |   | 7,479 |   |
| Income (loss) from partially-owned entities                                                |       | 43,381                     |       | 2,728 |   | (1,678 | ) | 545 |   | 5,641 |   | 36,145 |   |
| Interest and other investment income                                                       |       | 203,995                    |       | 994 |   | 397 |   | 105 |   | 220 |   | 202,279 |   |
| Interest and debt expense                                                                  |       | (241,968                   | )          | (128,729 | ) | (58,625 | ) | (11,255 | ) | (6,379 | ) | (36,980 | ) |
| Net gain on disposition of wholly-owned and  partially-owned assets other than real estate |       | 19,775                     |       | 369 |   | — |   | — |   | — |   | 19,406 |   |
| Minority interest                                                                          |       | (110                       | )          | — |   | — |   | —— |   | (158 | ) | 48 |   |
| Income from continuing operations                                                          |       | 671,518                    |       | 346,537 |   | 72,519 |   | 77,933 |   | 6,531 |   | 167,998 |   |
| Income from discontinued operations                                                        |       | 78,597                     |       | 1,584 |   | 10,054 |   | — |   | — |   | 66,959 |   |
| Net income                                                                                 |       | 750,115                    |       | 348,121 |   | 82,573 |   | 77,933 |   | 6,531 |   | 234,957 |   |
| Interest and debt expense(2)                                                               |       | 313,289                    |       | 133,602 |   | 61,820 |   | 12,166 |   | 30,337 |   | 75,364 |   |
| Depreciation and amortization(2)                                                           |       | 296,980                    |       | 165,492 |   | 30,121 |   | 34,559 |   | 34,567 |   | 32,241 |   |
| Income taxes                                                                               |       | 1,664                      |       | 406 |   | — |   | 852 |   | 79 |   | 327 |   |
| EBITDA(1)                                                                                  |       | $                          | 1,362,048  |   | $ | 647,621 |   | $ | 174,514 |   | $ | 125,510 |   | $ | 71,514 |   | $ | 342,889 |   |
| Percentage of EBITDA (1) by segment                                                        |       | 100                        | %          | 47.5 | % | 12.8 | % | 9.2 | % | 5.3 | % | 25.2 | % |

 

Included in EBITDA (1) are (i) gains on sale of real estate of $75,755,of which $9,850 and $65,905 are in the Retail and Other segments, respectively,and (ii) net gains from the mark-to-market and conversion of derivativeinstruments of $135,372 and certain other gains and losses that affectcomparability which are in the Other segment. Excluding these items the percentages of EBITDA by segment are 63.6% forOffice, 16.6% for Retail, 12.4% for Merchandise Mart, 7.0% for TemperatureControlled Logistics and 0.4% for Other.

 

----

See Notes onpage 63.

 

60

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| ** **                                                                                                  | ** ** | **December 31, 2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **(Amounts in thousands)**                                                                                  | ** ** | **Total**                  | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics (3)** | ** ** | **Other (4)** | ** ** |
| Property rentals                                                                                            |       | $                          | 1,205,822  |   | $ | 819,277 |   | $ | 136,490 |   | $ | 197,554 |   | $ | — |   | $ | 52,501 |   |
| Straight-line rents:                                                                                        |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Contractual rent increases                                                                                  |       | 34,288                     |       | 27,296 |   | 3,108 |   | 3,875 |   | — |   | 9 |   |
| Amortization of free rent                                                                                   |       | 7,071                      |       | (561 | ) | 5,390 |   | 2,251 |   | — |   | (9 | ) |
| Amortization of acquired below market  leases, net                                                          |       | 8,892                      |       | 7,852 |   | 1,040 |   | — |   | — |   | — |   |
| Total rentals                                                                                               |       | 1,256,073                  |       | 853,864 |   | 146,028 |   | 203,680 |   | — |   | 52,501 |   |
| Expense reimbursements                                                                                      |       | 179,115                    |       | 102,727 |   | 56,900 |   | 16,402 |   | — |   | 3,086 |   |
| Fee and other income:                                                                                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Tenant cleaning fees                                                                                        |       | 29,062                     |       | 29,062 |   | — |   | — |   | — |   | — |   |
| Management and leasing fees                                                                                 |       | 12,812                     |       | 11,427 |   | 1,290 |   | — |   | — |   | 95 |   |
| Other                                                                                                       |       | 20,921                     |       | 8,852 |   | 4,694 |   | 7,344 |   | — |   | 31 |   |
| Total revenues                                                                                              |       | 1,497,983                  |       | 1,005,932 |   | 208,912 |   | 227,426 |   | — |   | 55,713 |   |
| Operating expenses                                                                                          |       | 581,550                    |       | 376,012 |   | 70,462 |   | 91,033 |   | — |   | 44,043 |   |
| Depreciation and amortization                                                                               |       | 213,679                    |       | 151,050 |   | 18,835 |   | 30,125 |   | — |   | 13,669 |   |
| General and administrative                                                                                  |       | 121,857                    |       | 37,229 |   | 9,783 |   | 20,215 |   | — |   | 54,630 |   |
| Total expenses                                                                                              |       | 917,086                    |       | 564,291 |   | 99,080 |   | 141,373 |   | — |   | 112,342 |   |
| Operating income (loss)                                                                                     |       | 580,897                    |       | 441,641 |   | 109,832 |   | 86,053 |   | — |   | (56,629 | ) |
| Income applicable to Alexander’s                                                                       |       | 15,574                     |       | — |   | 640 |   | — |   | — |   | 14,934 |   |
| Income (loss) from partially-owned entities                                                                 |       | 67,901                     |       | 2,426 |   | 3,752 |   | (108 | ) | 18,416 |   | 43,415 |   |
| Interest and other investment income                                                                        |       | 25,397                     |       | 2,956 |   | 359 |   | 93 |   | — |   | 21,989 |   |
| Interest and debt expense                                                                                   |       | (228,860                   | )          | (133,511 | ) | (59,674 | ) | (14,788 | ) | — |   | (20,887 | ) |
| Net gain on disposition of wholly-owned and  partially-owned assets other than depreciable real estate |       | 2,343                      |       | 180 |   | — |   | 188 |   | — |   | 1,975 |   |
| Minority interest                                                                                           |       | (1,089                     | )          | (1,119 | ) | — |   | — |   | — |   | 30 |   |
| Income from continuing operations                                                                           |       | 462,163                    |       | 312,573 |   | 54,909 |   | 71,438 |   | 18,416 |   | 4,827 |   |
| Income (loss) from discontinued operations                                                                  |       | 176,388                    |       | 173,949 |   | 4,850 |   | — |   | — |   | (2,411 | ) |
| Net income                                                                                                  |       | 638,551                    |       | 486,522 |   | 59,759 |   | 71,438 |   | 18,416 |   | 2,416 |   |
| Interest and debt expense (2)                                                                               |       | 296,059                    |       | 138,379 |   | 62,718 |   | 15,700 |   | 24,670 |   | 54,592 |   |
| Depreciation and amortization (2)                                                                           |       | 279,507                    |       | 155,743 |   | 21,642 |   | 30,749 |   | 34,879 |   | 36,494 |   |
| Income taxes                                                                                                |       | 1,627                      |       | 45 |   | — |   | — |   | — |   | 1,582 |   |
| EBITDA(1)                                                                                                   |       | $                          | 1,215,744  |   | $ | 780,689 |   | $ | 144,119 |   | $ | 117,887 |   | $ | 77,965 |   | $ | 95,084 |   |
| Percentage of EBITDA(1) by segment                                                                          |       | 100                        | %          | 64.2 | % | 11.9 | % | 9.7 | % | 6.4 | % | 7.8 | % |

 

Included in EBITDA are gains onsale of real estate of $161,789, of which and $157,200 and $4,589 are in theOffice and Retail segments, respectively. Excluding these items, the percentages of EBITDA by segment are 69.3%for Office, 15.9% for Retail, 13.5% for Merchandise Mart, 8.9% for Temperature ControlledLogistics and (7.6)% for Other.  

 

----

See Notes on page 63.

 

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| ** **                                                                                                 | ** ** | **December 31, 2002** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **(Amounts in thousands)**                                                                                 | ** ** | **Total**                  | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics (3)** | ** ** | **Other (4)** | ** ** |
| Property rentals                                                                                           |       | $                          | 1,154,206  |   | $ | 789,194 |   | $ | 120,451 |   | $ | 191,197 |   | $ | — |   | $ | 53,364 |   |
| Straight-line rents:                                                                                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Contractual rent increases                                                                                 |       | 30,994                     |       | 27,269 |   | 1,777 |   | 1,772 |   | — |   | 176 |   |
| Amortization of free rent                                                                                  |       | 6,796                      |       | 2,374 |   | 3,317 |   | 1,105 |   | — |   | — |   |
| Amortization of acquired below market  leases, net                                                         |       | 12,353                     |       | 12,188 |   | 165 |   | — |   | — |   | — |   |
| Total rentals                                                                                              |       | 1,204,349                  |       | 831,025 |   | 125,710 |   | 194,074 |   | — |   | 53,540 |   |
| Expense reimbursements                                                                                     |       | 154,727                    |       | 85,381 |   | 51,008 |   | 14,754 |   | — |   | 3,584 |   |
| Fee and other income:                                                                                      |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Tenant cleaning fees                                                                                       |       | —                     |       | — |   | — |   | — |   | — |   | — |   |
| Management and leasing fees                                                                                |       | 14,800                     |       | 13,317 |   | 1,450 |   | 33 |   | — |   | — |   |
| Other                                                                                                      |       | 12,918                     |       | 7,783 |   | 172 |   | 4,743 |   | — |   | 220 |   |
| Total revenues                                                                                             |       | 1,386,794                  |       | 937,506 |   | 178,340 |   | 213,604 |   | — |   | 57,344 |   |
| Operating expenses                                                                                         |       | 517,958                    |       | 329,198 |   | 61,500 |   | 86,022 |   | — |   | 41,238 |   |
| Depreciation and amortization                                                                              |       | 197,704                    |       | 142,124 |   | 14,957 |   | 26,716 |   | — |   | 13,907 |   |
| General and administrative                                                                                 |       | 100,035                    |       | 33,319 |   | 7,640 |   | 20,382 |   | — |   | 38,694 |   |
| Amortization of officer’s deferred compensation  expense                                              |       | 27,500                     |       | — |   | — |   | — |   | — |   | 27,500 |   |
| Costs of acquisitions and development not  consummated                                                     |       | 6,874                      |       | — |   | — |   | — |   | — |   | 6,874 |   |
| Total expenses                                                                                             |       | 850,071                    |       | 504,641 |   | 84,097 |   | 133,120 |   | — |   | 128,213 |   |
| Operating income (loss)                                                                                    |       | 536,723                    |       | 432,865 |   | 94,243 |   | 80,484 |   | — |   | (70,869 | ) |
| Income applicable to Alexander’s                                                                      |       | 29,653                     |       | — |   | 598 |   | — |   | — |   | 29,055 |   |
| Income (loss) from partially-owned entities                                                                |       | 44,458                     |       | 1,966 |   | (687 | ) | (339 | ) | 9,707 |   | 33,811 |   |
| Interest and other investment income                                                                       |       | 31,678                     |       | 6,465 |   | 323 |   | 507 |   | — |   | 24,383 |   |
| Interest and debt expense                                                                                  |       | (232,891                   | )          | (137,509 | ) | (56,643 | ) | (22,948 | ) | — |   | (15,791 | ) |
| Net gain (loss) disposition of wholly-owned  and partially-owned assets other than depreciable real estate |       | (17,471                    | )          | — |   | — |   | 2,156 |   | — |   | (19,627 | ) |
| Minority interest                                                                                          |       | (3,534                     | )          | (3,526 | ) | — |   | — |   | — |   | (8 | ) |
| Income (loss) from continuing operations  before cumulative effect of change in accounting principle       |       | 388,616                    |       | 300,261 |   | 37,834 |   | 59,860 |   | 9,707 |   | (19,046 | ) |
| Income (loss) from discontinued operations                                                                 |       | 11,815                     |       | 17,841 |   | 723 |   | — |   | — |   | (6,749 | ) |
| Cumulative effect of change in accounting  principle                                                       |       | (30,129                    | )          | — |   | — |   | — |   | (15,490 | ) | (14,639 | ) |
| Net income (loss)                                                                                          |       | 370,302                    |       | 318,102 |   | 38,557 |   | 59,860 |   | (5,783 | ) | (40,434 | ) |
| Cumulative effect of change in accounting  principle                                                       |       | 30,129                     |       | — |   | — |   | — |   | 15,490 |   | 14,639 |   |
| Interest and debt expense (2)                                                                              |       | 305,920                    |       | 143,068 |   | 58,409 |   | 23,461 |   | 25,617 |   | 55,365 |   |
| Depreciation and amortization (2)                                                                          |       | 257,707                    |       | 149,361 |   | 17,532 |   | 27,006 |   | 34,474 |   | 29,334 |   |
| EBITDA(1)                                                                                                  |       | $                          | 964,058    |   | $ | 610,531 |   | $ | 114,498 |   | $ | 110,327 |   | $ | 69,798 |   | $ | 58,904 |   |
| Percentage of EBITDA (1) by segment                                                                        |       | 100                        | %          | 63.3 | % | 11.9 | % | 11.4 | % | 7.2 | % | 6.2 | % |

 

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See Notes on the followingpage.

 

62

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## **Notes to the precedingtabular information:**

## ** **

(1)                                  EBITDArepresents “Earnings Before Interest, Taxes, Depreciation and Amortization.”  EBITDA should not be considered a substitutefor net income.  EBITDA may not becomparable to similarly titled measures employed by other companies.

(2)                                  Interest anddebt expense and depreciation and amortization included in the reconciliationof net income to EBITDA reflects the Company’s share of the interest and debtexpense and depreciation and amortization of its partially-owned entities.

(3)                                  Operatingresults for the year ended December 31, 2004, reflect the consolidation of theCompany’s investment in Americold Realty Trust beginning on November 18,2004.  Previously, this investment wasaccounted for on the equity method.  Seepage 88 for condensed proforma operating results of Americold Realty Trust forthe years ended December 31, 2004 and 2003, giving effect to the acquisition ofits tenant, Americold Logistics, as if it had occurred on January 1, 2003.

(4)                                  Other EBITDAis comprised of:

 
| ** **                                                    | ** ** | **For the Year Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------|------------|
| **(Amounts in thousands)**                                    | ** ** | **2004**                            | ** ** | **2003** | ** ** | **2002** | ** ** |
| Newkirk Master Limited Partnership:                           |       |                                |       |   |   |   |   |
| Equity in income (A)                                          |       | $                                   | 52,331     |   | $ | 68,341 |   | $ | 60,756 |   |
| Interest and other income (B)                                 |       | 18,186                              |       | 8,532 |   | 8,795 |   |
| Alexander’s (C)                                          |       | 25,909                              |       | 22,361 |   | 38,838 |   |
| Industrial warehouses                                         |       | 5,309                               |       | 6,208 |   | 6,223 |   |
| Hotel Pennsylvania                                            |       | 15,643                              |       | 4,573 |   | 7,636 |   |
| GMH Communities L.P. (D)                                      |       | —                              |       | — |   | — |   |
| Student Housing                                               |       | 1,440                               |       | 2,000 |   | 2,340 |   |
|                                                          |       | 118,818                             |       | 112,015 |   | 124,588 |   |
| Minority interest expense                                     |       | 48                                  |       | 30 |   | (8 | ) |
| Corporate general and administrative  expenses                |       | (62,854                             | )          | (51,461 | ) | (34,743 | ) |
| Investment income and other (E)                               |       | 215,639                             |       | 28,350 |   | 22,907 |   |
| Discontinued Operations:                                      |       |                                |       |   |   |   |   |
| Palisades                                                     |       | 3,792                               |       | 5,006 |   | 161 |   |
| 400 North LaSalle                                             |       | 1,541                               |       | (418 | ) | — |   |
| Gain on sale of Palisades                                     |       | 65,905                              |       | — |   | — |   |
| Net gain on sale of marketable securities                     |       | —                              |       | 2,950 |   | 12,346 |   |
| Primestone foreclosure and impairment loss                    |       | —                              |       | (1,388 | ) | (35,757 | ) |
| Amortization of Officer’s deferred  compensation expense |       | —                              |       | — |   | (27,500 | ) |
| Write-off of 20 Times Square  pre-development costs           |       | —                              |       | — |   | (6,874 | ) |
| Gain on transfer of mortgages                                 |       | —                              |       | — |   | 2,096 |   |
| Net gain on sale of air rights.                               |       | —                              |       | — |   | 1,688 |   |
|                                                          |       | $                                   | 342,889    |   | $ | 95,084 |   | $ | 58,904 |   |

 

----

(A)                              EBITDA for theyear ended December 31, 2004, includes the Company’s $2,901 share of impairmentlosses recorded by Newkirk MLP, partially offset by the Company’s $2,705 shareof gains on sale of real estate.  EBITDAfor the year ended December 31, 2003, includes the Company’s $9,900 share ofgains on sale of real estate and early extinguishment of debt, partially offsetby a charge of $1,210 for an impairment loss and a litigation settlement.  The remaining decrease in EBITDA from 2003 to2004 is due primarily to the sale of properties (primarily Stater BrothersSupermarkets).

(B)                                Interest andother income for the year ended December 31, 2004, includes a gain of $7,494,resulting from the exercise of an option by the Company’s joint venture partnerto acquire certain MLP units held by the Company.  The MLP units subject to this option had beenissued to the Company on behalf of the Company’s joint venture partner inexchange for the Company’s operating partnership units as part of the tenderoffers to acquire certain of the units of the MLP in 1998 and 1999.

(C)                                IncludesAlexander’s stock appreciation rights compensation expense, of which theCompany’s share was $25,340, $14,868 and $0 for the year ended December 31,2004, 2003 and 2002, respectively.  Theyear ended December 31, 2004, also includes the Company’s $1,274 share of again on sale of land parcel and the Company’s $1,010 share of Alexander’s losson early extinguishment of debt.

(D)                               The Company’sshare of EBITDA for the period from November 3, 2004 to December 31, 2004, willbe recognized in the quarter ended March 31, 2005, as the investee has notpublished its earnings for the year ended December 31, 2004 prior to the filingof the Company’s annual report on Form 10-K.

(E)                                 See page 70 fordetails.

 

63

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## **ResultsOf Operation**s - Years Ended December 31,2004 and December 31, 2003

 

#### Revenues

 

The Company’s revenues, which consist of propertyrentals, tenant expense reimbursements, Temperature Controlled Logisticsrevenues, hotel revenues, trade shows revenues, amortization of acquiredbelow market leases net of above market leases pursuant toSFAS No. 141 and 142, and fee income, were $1,707,262,000 for theyear ended December 31, 2004, compared to $1,497,983,000 in the prior year, anincrease of $209,279,000.  Below are thedetails of the increase (decrease) by segment:

 
| **(Amounts in thousands)  Property rentals:**                                                                         | ** ** | **Date of  Acquisition** | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics** | ** ** | **Other** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------|------------|------------|------------|------------|------------|-----------------------|------------|----------------------------------------|------------|-----------|------------|
| Increase  (decrease) due to:                                                                                          |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Acquisitions:                                                                                                         |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Bergen Mall                                                                                                           |       | December 2003            |       | $         | 10,156     |       | $          | —     |       | $                     | 10,156     |                                   | $          | —    |       | $ | — |   | $ | — |   |
| 2101 L Street                                                                                                         |       | August 2003              |       | 7,197     |       | 7,197      |       | —     |       | —                |       | —                                 |       | —    |       |
| So. California  supermarkets                                                                                          |       | July 2004                |       | 2,217     |       | —     |       | 2,217      |       | —                |       | —                                 |       | —    |       |
| Marriot Hotel                                                                                                         |       | July 2004                |       | 1,890     |       | 1,890      |       | —     |       | —                |       | —                                 |       | —    |       |
| 25 W. 14th  Street                                                                                                    |       | March 2004               |       | 2,212     |       | —     |       | 2,212      |       | —                |       | —                                 |       | —    |       |
| Forest Plaza  Shopping Center                                                                                         |       | February 2004            |       | 2,581     |       | —     |       | 2,581      |       | —                |       | —                                 |       | —    |       |
| 99-01 Queens  Boulevard                                                                                               |       | August 2004              |       | 491       |       | —     |       | 491        |       | —                |       | —                                 |       | —    |       |
| Lodi Shopping  Center                                                                                                 |       | November 2004            |       | 267       |       | —     |       | 267        |       | —                |       | —                                 |       | —    |       |
| Burnside Plaza  Shopping Center                                                                                       |       | December 2004            |       | 166       |       | —     |       | 166        |       | —                |       | —                                 |       | —    |       |
| Development  placed into service: 4 Union Square South                                                                |       |                     |       | 6,989     |       | —     |       | 6,989      |       | —                |       | —                                 |       | —    |       |
| Amortization of  acquired below market leases, net                                                                    |       |                     |       | 5,806     |       | 1,973      |       | 3,833      |       | —                |       | —                                 |       | —    |       |
| Operations:                                                                                                           |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Hotel activity                                                                                                        |       |                     |       | 13,075    | (1)        | —     |       | —     |       | —                |       | —                                 |       | 13,075    | (1)        |
| Trade shows  activity                                                                                                 |       |                     |       | 3,033     |       | —     |       | —     |       | 3,033                 |       | —                                 |       | —    |       |
| Leasing activity                                                                                                      |       |                     |       | 32,659    |       | 20,721     | (2)        | 6,433      |       | 8,111                 |       | —                                 |       | (2,606    | )          |
| Total increase in  property rentals                                                                                   |       |                     |       | 88,739    |       | 31,781     |       | 35,345     |       | 11,144                |       | —                                 |       | 10,469    |       |
| Tenant expense  reimbursements:                                                                                       |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Increase  (decrease) due to:                                                                                          |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Acquisitions                                                                                                          |       |                     |       | 7,561     |       | 1,157      |       | 6,404      |       | —                |       | —                                 |       | —    |       |
| Operations                                                                                                            |       |                     |       | 4,383     |       | 5,371      | (3)        | 1,170      |       | (2,357                | )(4)       | —                                 |       | 199       |       |
| Total increase  (decrease) in tenant expense reimbursements                                                           |       |                     |       | 11,944    |       | 6,528      |       | 7,574      |       | (2,357                | )          | —                                 |       | 199       |       |
| Temperature  Controlled Logistics (effect of consolidating Americold from November 18,  2004 vs. equity method prior) |       |                     |       | 87,428    |       | —     |       | —     |       | —                |       | 87,428                                 |       | —    |       |
| Fee and other  income:                                                                                                |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Increase  (decrease) in:                                                                                              |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Acquisitions  (Kaempfer Management Company)                                                                           |       |                     |       | 3,695     |       | 3,695      |       | —     |       | —                |       | —                                 |       | —    |       |
| Lease  cancellation fee income                                                                                        |       |                     |       | 8,505     |       | 9,829      | (5)        | (1,291     | )          | (33                   | )          | —                                 |       | —    |       |
| BMS Cleaning fees                                                                                                     |       |                     |       | 2,231     |       | 2,231      |       | —     |       | —                |       | —                                 |       | —    |       |
| Management and  leasing fees                                                                                          |       |                     |       | 328       |       | 379        |       | (206       | )          | 155                   |       | —                                 |       | —    |       |
| Other                                                                                                                 |       |                     |       | 6,409     |       | 6,892      | (6)        | (1,786     | )          | 1,351                 |       | —                                 |       | (48       | )          |
| Total increase  (decrease) in fee and other income                                                                    |       |                     |       | 21,168    |       | 23,026     |       | (3,283     | )          | 1,473                 |       | —                                 |       | (48       | )          |
| Total increase in  revenues                                                                                           |       |                     |       | $         | 209,279    |       | $          | 61,335     |       | $                     | 39,636     |                                   | $          | 10,260    |       | $ | 87,428 |   | $ | 10,620 |   |

 

----

See notes on following page.

 

See Leasing Activity on page 54 for furtherdetails and corresponding changes in occupancy.

 

64

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**Notes to preceding tabular information:**

 

(1)                                  Averageoccupancy and REVPAR were 78.9% and $77.56 for the year ended December 31, 2004compared to 63.7% and $58.00 for the prior year.

 

(2)                                  Reflectsincreases of $19,845 from New York City Office primarily from higher rents forspace relet.

 

(3)                                  Reflectshigher reimbursements from tenants resulting primarily from increases in New YorkCity Office real estate taxes and utilities.

 

(4)                                  Reflectslower reimbursements from tenants resulting primarily from a decrease inaccrued real estate taxes based on the finalization of 2003 real estate taxesin September of 2004.

 

(5)                                  Theincrease relates to early lease terminations at the Company’s 888 SeventhAvenue and 909 Third Avenue office properties for approximately 175 squarefeet, a substantial portion of which has been re-leased at equal or higherrents (see page 54).

 

(6)                                  Reflectsan increase of $4,541 from New York Office, which primarily relates to anincrease in Penn Plaza signage income.

 

65

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#### Expenses

 

The Company’s expenses were $1,069,397,000 for theyear ended December 31, 2004, compared to $917,086,000 in the prior year, anincrease of $152,311,000.

 

Below are the details of the increase (decrease) by segment:

 

 

 
| **(Amounts in thousands)  Operating:**                                                                         | ** ** | **Date of  Acquisition** | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics** | ** ** | **Other** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------|------------|------------|------------|------------|------------|-----------------------|------------|----------------------------------------|------------|-----------|------------|
| Increase  (decrease) due to:                                                                                   |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Acquisitions:                                                                                                  |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Bergen Mall                                                                                                    |       | December 2003            |       | $         | 6,015      |       | $          | —     |       | $                     | 6,015      |                                   | $          | —    |       | $ | — |   | $ | — |   |
| 2101 L Street                                                                                                  |       | August 2003              |       | 2,431     |       | 2,431      |       | —     |       | —                |       | —                                 |       | —    |       |
| 25 W. 14th  Street                                                                                             |       | March 2004               |       | 254       |       | —     |       | 254        |       | —                |       | —                                 |       | —    |       |
| Forest Plaza  Shopping Center                                                                                  |       | February 2004            |       | 986       |       | —     |       | 986        |       | —                |       | —                                 |       | —    |       |
| 99-01 Queens  Boulevard                                                                                        |       | August 2004              |       | 109       |       | —     |       | 109        |       | —                |       | —                                 |       | —    |       |
| Lodi Shopping  Center                                                                                          |       | November 2004            |       | 36        |       | —     |       | 36         |       | —                |       | —                                 |       | —    |       |
| Burnside Plaza  Shopping Center                                                                                |       | December 2004            |       | 66        |       | —     |       | 66         |       | —                |       | —                                 |       | —    |       |
| Development  placed into service:                                                                              |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| 4 Union Square  South                                                                                          |       |                     |       | 1,139     |       | —     |       | 1,139      |       | —                |       | —                                 |       | —    |       |
| Americold –  effect of consolidating Americold from November 18, 2004 vs. equity method  accounting prior |       |                     |       | 67,989    |       | —     |       | —     |       | —                |       | 67,989                                 |       | —    |       |
| Hotel activity                                                                                                 |       |                     |       | 1,862     |       | —     |       | —     |       | —                |       | —                                 |       | 1,862     |       |
| Trade shows  activity                                                                                          |       |                     |       | 1,946     |       | —     |       | —     |       | 1,946                 |       | —                                 |       | —    |       |
| Operations                                                                                                     |       |                     |       | 15,407    |       | 18,255     | (1)        | (1,790     | )(2)       | (343                  | )(3)       | —                                 |       | (715      | )          |
|                                                                                                           |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Total increase in  operating expenses                                                                          |       |                     |       | 98,240    |       | 20,686     |       | 6,815      |       | 1,603                 |       | 67,989                                 |       | 1,147     |       |
|                                                                                                           |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Depreciation and  amortization:                                                                                |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Increase  (decrease) due to:                                                                                   |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Acquisitions/Development                                                                                       |       |                     |       | 10,214    |       | 2,249      |       | 7,965      |       | —                |       | —                                 |       | —    |       |
| Americold –  effect of consolidating Americold from November 18, 2004 vs. equity method  accounting prior |       |                     |       | 7,968     |       | —     |       | —     |       | —                |       | 7,968                                  |       | —    |       |
| Operations                                                                                                     |       |                     |       | 11,053    | (4)        | 8,082      |       | (473       | )          | 3,900                 |       | —                                 |       | (456      | )          |
| Total increase (decrease)  in depreciation and amortization                                                    |       |                     |       | 29,235    |       | 10,331     |       | 7,492      |       | 3,900                 |       | 7,968                                  |       | (456      | )          |
|                                                                                                           |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| General and  administrative:                                                                                   |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
|   Increase  due to:                                                                                  |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Americold –  effect of consolidating Americold from November 18, 2004 vs. equity method  accounting prior |       |                     |       | 4,264     |       | —     |       | —     |       | —                |       | 4,264                                  |       | —    |       |
| Operations                                                                                                     |       |                     |       | 19,097    | (5)        | 1,217      |       | 3,404      |       | 2,272                 |       | —                                 |       | 12,204    |       |
| Total increase in  general and administrative                                                                  |       |                     |       | 23,361    |       | 1,217      |       | 3,404      |       | 2,272                 |       | 4,264                                  |       | 12,204    |       |
|                                                                                                           |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Cost of  acquisitions and development not consummated                                                          |       |                     |       | 1,475     | (6)        | —     |       | —     |       | —                |       | —                                 |       | 1,475     | (6)        |
|                                                                                                           |       |                     |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Total increase in  expenses                                                                                    |       |                     |       | $         | 152,311    |       | $          | 32,234     |       | $                     | 17,711     |                                   | $          | 7,775     |       | $ | 80,221 |   | $ | 14,370 |   |

 

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See notes on following page.

 

66

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(1)                                  Resultsprimarily from (i) a $8,134 increase in real estate taxes, of which $6,700relates to the New York Office portfolio, (ii) a $5,452 increase in utilitycosts, of which $2,816 and $2,636 relate to the New York Office and CESCRportfolios, respectively and (iii) a $1,192 increase due to higher of repairsand maintenance (primarily New York Office).

 

(2)                                  Resultsprimarily from a net decrease in the allowance for bad debts due to recoveriesin 2004.

 

(3)                                  Resultsprimarily from (i) reversal of overaccrual of 2003 real estate taxes of $3,928,based on finalization of 2003 taxes in September 2004, offset by (ii) increasein the allowance for straight-lined rent receivables in 2004 of $3,585.

 

(4)                                  Primarilydue to additions to buildings and improvements during 2003 and 2004.

 

(5)                                  Theincrease in general and administrative expenses results from:

 
| Bonuses to four executive vice presidents  in connection with the successful leasing, development and financing of  Alexander’s                          |   | $      | 6,500  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Costs of Vornado Operating Company  litigation in 2004 (see page 91 for further details)                                                                      |   | 4,643  |   |
| Legal fees in 2004 in connection with Sears  investment                                                                                                       |   | 1,004  |   |
| Increase in payroll and fringe benefits                                                                                                                       |   | 6,555  |   |
| Severance payments and the non-cash charge  related to the accelerated vesting of severed employees’ restricted stock in  2003 in excess of 2004 amounts |   | (2,319 | )      |
| Costs in 2003 in connection with the  relocation of CESCR’s accounting operations to the Company’s administrative  headquarters in New Jersey       |   | (1,123 | )      |
| Other, net                                                                                                                                                    |   | 3,837  |   |
|                                                                                                                                                          |   | $      | 19,097 |   |

 

(6)                                  Resultsfrom the write-off of costs associated with the Mervyn’s Department Storesacquisition not consummated.

 

67

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#### Income Applicableto Alexander’s

 

Income applicable to Alexander’s (loan interestincome, management, leasing, development and commitment fees, and equity inincome) was $33,920,000 before $25,340,000 of Alexander’s stock appreciationrights compensation (“SAR”) expense or $8,580,000 net, in the year endedDecember 31, 2004, compared to income of $30,442,000 before $14,868,000 of SARexpense or $15,574,000 net, in the year ended December 31, 2003, a decreaseafter SAR expense of $6,994,000.  Thisdecrease resulted primarily from (i) an increase in the Company’s share ofAlexander’s SAR expense of $10,472,000, (ii) the Company’s $1,434,000 share ofAlexander’s loss on early extinguishment of debt in 2004, partially offset by,(iii) income in 2004 from the commencement of leases with Bloomberg on November15, 2003 and other tenants in second half of 2004 at Alexander’s 731 LexingtonAvenue property and (iv) the Company’s $1,274 share of gain on sale of a landparcel in the quarter ended September 30, 2004.

 

#### Income fromPartially-Owned Entities

 

Below are the condensed statements of operations ofthe Company’s unconsolidated subsidiaries as well as the increase (decrease) inincome from these partially-owned entities for the years endedDecember 31, 2004 and 2003:

 
| **(Amounts in thousands)****For the year ended:**                | ** ** | **Total** | ** ** | **Newkirk  MLP** | ** ** | **Temperature  Controlled  Logistics (2)** | ** ** | **Monmouth  Mall** | ** ** | **Partially-  Owned  Office  Buildings** | ** ** | **Starwood  Ceruzzi Joint  Venture** | ** ** | **Other** | ** ** |
|------------------------------------------------------------------|------------|-----------|------------|------------------|------------|--------------------------------------------|------------|--------------------|------------|------------------------------------------|------------|--------------------------------------|------------|-----------|------------|
| **December  31, 2004:**                                          |       |      |       |             |       |                                       |       |               |       |                                     |       |                                 |       |      |       |
| Revenues                                                         |       |      |       | $                | 239,496    |                                       | $          | 131,053            |       | $                                        | 24,936     |                                 | $          | 118,660   |       | $ | 1,649 |   |   |   |
| Expenses:                                                        |       |      |       |             |       |                                       |       |               |       |                                     |       |                                 |       |      |       |
| Operating,  general and administrative                           |       |      |       | (23,495          | )          | (29,351                                    | )          | (9,915             | )          | (48,329                                  | )          | (3,207                               | )          |      |       |
| Depreciation                                                     |       |      |       | (45,134          | )          | (50,211                                    | )          | (6,573             | )          | (19,167                                  | )          | (634                                 | )          |      |       |
| Interest expense                                                 |       |      |       | (80,174          | )          | (45,504                                    | )          | (6,390             | )          | (32,659                                  | )          | —                               |       |      |       |
| Other, net                                                       |       |      |       | 45,344           |       | (5,387                                     | )          | (3,208             | )          | 975                                      |       | (4,791                               | )          |      |       |
| Net income (loss)                                                |       |      |       | $                | 136,037    |                                       | $          | 600                |       | $                                        | (1,150     | )                                    | $          | 19,480    |       | $ | (6,983 | ) |   |   |
|                                                             |       |      |       |             |       |                                       |       |               |       |                                     |       |                                 |       |      |       |
| Vornado’s  interest                                         |       |      |       | 22.4             | %          | 47.6                                       | %          | 50                 | %          | 17                                       | %          | 80                                   | %          |      |       |
| Equity in net  income (loss)                                     |       | $         | 22,860     |             | $          | 24,041                                     | (1)        | $                  | 360        |                                     | $          | (576                                 | )          | $         | 2,935      |   | $ | (5,586 | )(5) | $ | 1,686 |   |
| Interest and  other income                                       |       | 14,459    |       | 11,396           | (4)        | (20                                        | )          | 3,290              |       | (207                                     | )          | —                               |       | —    |       |
| Fee income                                                       |       | 6,062     |       | —           |       | 5,035                                      |       | 1,027              |       | —                                   |       | —                               |       | —    |       |
| Income (loss)  from partially-owned entities                     |       | $         | 43,381     |             | $          | 35,437                                     |       | $                  | 5,375      |                                     | $          | 3,741                                |       | $         | 2,728      |   | $ | (5,586 | ) | $ | 1,686 |   |
| **December  31, 2003:**                                          |       |      |       |             |       |                                       |       |               |       |                                     |       |                                 |       |      |       |
| Revenues                                                         |       |      |       | $                | 273,500    |                                       | $          | 119,605            |       | $                                        | 24,121     |                                 | $          | 99,590    |       | $ | 4,394 |   |   |   |
| Expenses:                                                        |       |      |       |             |       |                                       |       |               |       |                                     |       |                                 |       |      |       |
| Operating,  general and administrative                           |       |      |       | (15,357          | )          | (6,905                                     | )          | (10,520            | )          | (39,724                                  | )          | (3,381                               | )          |      |       |
| Depreciation                                                     |       |      |       | (51,777          | )          | (56,778                                    | )          | (4,018             | )          | (18,491                                  | )          | (998                                 | )          |      |       |
| Interest expense                                                 |       |      |       | (97,944          | )          | (41,117                                    | )          | (6,088             | )          | (27,548                                  | )          | —                               |       |      |       |
| Other, net                                                       |       |      |       | 43,083           |       | 5,710                                      |       | (3,220             | )          | 2,516                                    |       | (866                                 | )          |      |       |
| Net income (loss)                                                |       |      |       | $                | 151,505    |                                       | $          | 20,515             |       | $                                        | 275        |                                 | $          | 16,343    |       | $ | (851 | ) |   |   |
| Vornado’s  interest                                         |       |      |       | 22.6             | %          | 60                                         | %          | 50                 | %          | 15                                       | %          | 80                                   | %          |      |       |
| Equity in net  income (loss)                                     |       | $         | 51,057     |             | $          | 33,243                                     | (3)        | $                  | 12,869     |                                     | $          | 138                                  |       | $         | 2,426      |   | $ | (681 | )(5) | $ | 3,062 | (6) |
| Interest and  other income                                       |       | 10,292    |       | 7,002            |       | —                                     |       | 3,290              |       | —                                   |       | —                               |       | —    |       |
| Fee income                                                       |       | 6,552     |       | —           |       | 5,547                                      |       | 1,005              |       | —                                   |       | —                               |       | —    |       |
| Income (loss)  from partially-owned entities                     |       | $         | 67,901     |             | $          | 40,245                                     |       | $                  | 18,416     |                                     | $          | 4,433                                |       | $         | 2,426      |   | $ | (681 | ) | $ | 3,062 |   |
|                                                             |       |      |       |             |       |                                       |       |               |       |                                     |       |                                 |       |      |       |
| **Increase  (decrease) in income from partially-owned entities** |       | $         | (24,520    | )                | $          | (4,808                                     | )          | $                  | (13,041    | )(2)                                     | $          | (692                                 | )          | $         | 302        |   | $ | (4,905 | )(5) | $ | (1,376 | )(6) |
|                                                                  |            |           |            |                  |            |                                            |            |                    |            |                                          |            |                                      |            |           |            |  |  |  |  |  |  |  |  |  |

 

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See footnotes on following page.

 

68

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**Notes to preceding tabular information:**

 

(1)                                  Includes the Company’s $2,479 share ofgains on sale of real estate and the Company’s $2,901 share of impairmentlosses recorded by Newkirk MLP.  Excludesthe Company’s $7,119 share of the gain recognized by Newkirk MLP on the sale ofits Stater Brothers real estate portfolio to the Company on July 29, 2004,which was reflected as an adjustment to the basis of the Company’s investment.

 

(2)                                  On November 4, 2004, Americoldpurchased its tenant, AmeriCold Logistics, for $47,700in cash.  In addition, on November 18, 2004 theCompany and its 40% partner, CEI collectively sold 20.7% of Americold’s commonshares to Yucaipa for $145,000, which resulted in a gain, of which the Company’sshare was $18,789.  Beginning on November18, 2004, the Company is deemed to exercise controlover Americold and, accordingly, began to consolidate the operations and financial position ofAmericold into its accounts and ceased accounting for the investment onthe equity method.  Seepage 88 for further details.

 

(3)                                  Includes the Company’s $9,900 share ofgains on sale of real estate and early extinguishment of debt.

 

(4)                                  Includes a gain of $7,494, resulting fromthe exercise of an option by the Company’s joint venture partner to acquirecertain MLP units held by the Company.

 

(5)                                  Equity in income for the year endedDecember 31, 2004 includes the Company’s $3,833 share of an impairmentloss.  Equity in income for the yearended December 31, 2003 includes the Company’s $2,271 share of income from thesettlement of a tenant bankruptcy claim, partially offset by the Company’s $876share of a net loss on disposition of leasehold improvements.

 

(6)                                  Includes $5,583 for the Company’s shareof Prime Group Realty L.P.’s equity in net income of which $4,413 was for theCompany’s share of Prime Group’s lease termination fee income.  On May 23, 2003, the Company exchanged theunits it owned for common shares and no longer accounts for its investment inthe partnership on the equity method.

 

69

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#### Interest and OtherInvestment Income

 

Interest and other investment income (interest incomeon mortgage loans receivable, other interest income and dividend income) was$203,995,000 for the year ended December 31, 2004, compared to $25,397,000 inthe year ended December 31, 2003, an increase of $178,598,000.  This increase results from:

 
| **(Amounts in thousands)**                                                                                            | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|
| Income from the mark-to-market of Sears’  option position (see page 52 for details)                              |       | $          | 82,734     |       |
| Investment in GMH Communities L.P. (see  page 51 for details):                                                        |       |       |       |
| Net gain on exercise of warrants for 6.7  million GMH limited partnership units                                       |       | 29,452     |       |
| Net gain from the mark-to-market of 5.6  million warrants at December 31, 2004                                        |       | 24,190     |       |
| Distributions received on $159,000  commitment                                                                        |       | 16,581     |       |
| Increase in interest income on $275,000 GM  building mezzanine loans (1)                                              |       | 22,187     |       |
| Interest income recognized on the repayment  of the Company’s loan to Vornado Operating Company in November 2004 |       | 4,771      |       |
| Increase in interest income from mezzanine  loans in 2004                                                             |       | 5,495      |       |
| Other, net – primarily $5,655 of contingent  interest income in 2003 from the Dearborn Center loan               |       | (6,812     | )          |
|                                                                                                                  |       | $          | 178,598    |       |

 

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(1)                                  On January7, 2005, the Company was repaid $275,000 of loans secured by partnershipinterests in the General Motors Building. Vornado also received a prepayment penalty of $4,500 together withinterest through January 14, 2005 on $225,000 of these loans.  The $4,500 and an additional $879 ofunamortized fees will be included in income in the first quarter of 2005.

 

#### Interest and DebtExpense

 

Interest and debt expense was $241,968,000 for theyear ended December 31, 2004, compared to $228,860,000 in the year endedDecember 31, 2003, an increase of $13,108,000. This increase is primarily due to (i) $6,379,000 resulting from theconsolidation of the Company’s investment in Americold Realty Trust fromNovember 18, 2004 vs. equity method accounting prior, (ii) $7,411,000 from anincrease in average outstanding debt balances, primarily due to the issuance of$250,000,000 and $200,000,000 of senior unsecured notes in August 2004 andNovember 2003, respectively, and  (iii)$1,206,000 from an increase in the weighted average interest rate on total debtof three basis points.

 

#### Net Gain onDisposition of Wholly-owned and Partially-owned Assets other than DepreciableReal Estate

 

The following table sets forth the details of net gainon disposition of wholly-owned and partially-owned assets other thandepreciable real estate for the years ended December 31, 2004 and 2003:

 
| ** **                                                           | ** ** | **For the Year Ended  December 31,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------|------------|
| **(Amounts in thousands)**                                           | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| Wholly-owned Assets:                                                 |       |                                 |       |   |   |
| Gain on sale of residential condominiums  units                      |       | $                                    | 776        |   | $ | 282 |   |
| Net (loss) gain on sale of marketable  securities                    |       | (159                                 | )          | 2,950 |   |
| Loss on settlement of Primestone guarantees                          |       | —                               |       | (1,388 | ) |
| Gain on sale of land parcels                                         |       | —                               |       | 499 |   |
| Partially-owned Assets:                                              |       |                                 |       |   |   |
| Net gain on sale of a portion of investment  in Americold to Yucaipa |       | 18,789                               |       | — |   |
| Other                                                                |       | 369                                  |       | — |   |
|                                                                 |       | $                                    | 19,775     |   | $ | 2,343 |   |

 

70

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#### DiscontinuedOperations

 

Assets related to discontinued operations consistprimarily of real estate, net of accumulated depreciation.  The following table set forth the balances ofthe assets related to discontinued operations as of December 31, 2004 and 2003.

 
| **(Amounts in thousands)**                     | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|------------------|------------|
| ** **                                     | ** ** | **2004**         | ** ** | **2003** | ** ** |
| 400 North LaSalle                              |       | $                | 82,624     |   | $ | 80,685 |   |
| Arlington Plaza                                |       | 35,127           |       | 36,109 |   |
| Palisades (sold on June 29, 2004)              |       | —           |       | 138,629 |   |
| Baltimore (Dundalk) (sold on August 12,  2004) |       | —           |       | 2,167 |   |
| Vineland                                       |       | 908              |       | 908 |   |
|                                           |       | $                | 118,659    |   | $ | 258,498 |   |

 

The following table sets forth the balances of theliabilities related to discontinued operations (primarily mortgage notespayable) as of December 31, 2004 and 2003.

 
| **(Amounts in thousands)**        | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|------------------|------------|
| ** **                        | ** ** | **2004**         | ** ** | **2003** | ** ** |
| Arlington Plaza                   |       | $                | 15,867     |   | $ | 16,487 |   |
| 400 North LaSalle                 |       | 5,187            |       | 3,038 |   |
| Palisades (sold on June 29, 2004) |       | —           |       | 120,000 |   |
|                              |       | $                | 21,054     |   | $ | 139,525 |   |

 

The combined results of operations of the assetsrelated to discontinued operations for the years ended December 31, 2004 and2003 are as follows:

 
| **(Amounts in thousands)**          | ** ** | **December 31,** | ** ** |
|-------------------------------------|------------|------------------|------------|
| ** **                          | ** ** | **2004**         | ** ** | **2003** | ** ** |
| Total Revenues                      |       | $                | 19,799     |   | $ | 47,770 |   |
| Total Expenses                      |       | 16,957           |       | 33,171 |   |
| Net income                          |       | 2,842            |       | 14,599 |   |
| Gains on sale of real estate        |       | 75,755           |       | 161,789 |   |
| Income from discontinued operations |       | $                | 78,597     |   | $ | 176,388 |   |

 

On January 9,2003, the Company sold its Baltimore, Maryland shopping center for $4,752,000,which resulted in a net gain after closing costs of $2,644,000.

 

On October 10,2003, the Company sold Two Park Avenue, a 965,000 square foot office building,for $292,000,000, which resulted in a net gain on the sale after closing costsof $156,433,000.

 

On November 3,2003, the Company sold its Hagerstown, Maryland shopping center for $3,100,000,which resulted in a net gain on sale after closing costs of $1,945,000.

 

In anticipation of selling the Palisades ResidentialComplex, on February 27, 2004, the Company acquired the remaining 25% interestin the Palisades venture it did not previously own for approximately$17,000,000 in cash.  On June 29, 2004,the Company sold the Palisades for $222,500,000, which resulted in a net gainon sale after closing costs of $65,905,000.

 

On August 12, 2004, the Company sold its Dundalk,Maryland shopping center for $12,900,000, which resulted in a net gain on saleafter closing costs of $9,850,000.

 

71

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#### EBITDA

 

Below are the details of the changes by segment inEBITDA.

 
| **(Amounts in thousands)**                                         | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled Logistics** | ** ** | **Other** | ** ** |
|--------------------------------------------------------------------|------------|-----------|------------|------------|------------|------------|------------|-----------------------|------------|---------------------------------------|------------|-----------|------------|
|                                                               |       |      |       |       |       |       |       |                  |       |                                  |       |      |       |
| Year ended December 31, 2003                                       |       | $         | 1,215,744  |       | $          | 780,689    |       | $                     | 144,119    |                                  | $          | 117,887   |       | $ | 77,965 |   | $ | 95,084 |   |
| 2004 Operations:  Same store operations(1)                         |       |      |       | 18,793     |       | 7,333      |       | 10,144                |       | —                                |       |      |       |
| Acquisitions, dispositions and non-same  store income and expenses |       |      |       | (151,861   | )          | 23,062     |       | (2,521                | )          | (6,451                                | )          |      |       |
| Year ended December 31, 2004                                       |       | $         | 1,362,048  |       | $          | 647,621    |       | $                     | 174,514    |                                  | $          | 125,510   |       | $ | 71,514 |   | $ | 342,889 |   |
| % increase in same store operations                                |       |      |       | 3.1        | %(2)       | 5.5        | %          | 8.9                   | % (3)      | N/A                                   |  (4)  |      |       |

 

----

(1)          Representsoperations which were owned for the same period in each year and excludesnon-recurring income and expenses which are included in acquisitions,dispositions and non-same store income and expenses above.

(2)          EBITDA and the samestore percentage increase were $343,421 and 4.4% for the New York officeportfolio and $304,200 and 1.7% for the CESCR portfolio.

(3)          EBITDA and the samestore percentage increase reflect the commencement of the WPP Group leases (228square feet) in the third quarter of 2004 and the Chicago Sun Times lease (127square feet) in the second quarter of 2004. EBITDA for the year ended December 31, 2004, exclusive of theincremental impact of these leases was $121,876 or a 5.6% same store increaseover the prior year.

(4)          Not comparablebecause prior to November 4, 2004, (date the operations of AmeriCold Logisticswere combined with Americold Realty Trust), the Company reflected its equity inthe rent Americold received from AmeriCold Logistics.  Subsequent thereto, the Company reflects itsequity in the operations of the combined company.  See page 88 for condensed proforma operatingresults of Americold for the years ended December 31, 2004 and 2003, givingeffect to the acquisition of its tenant, AmeriCold Logistics, as if it hadoccurred on January 1, 2003.

 

72

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## **Results of Operations - Years Ended December 31,2003 and December 31, 2002**

 

#### Revenues

 

The Company’s revenues, which consist of propertyrentals, tenant expense reimbursements, hotel revenues, trade showsrevenues, amortization of acquired below market leases net of above marketleases pursuant to SFAS No. 141 and 142, and fee income, were$1,497,983,000 for the year ended December 31, 2003, compared to $1,386,794,000in the prior year, an increase of $111,189,000. Below are the details of the increase (decrease) by segment:

 
| **(Amounts in thousands)**                                                                           | ** ** | **Date of  Acquisition** | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Other** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------|------------|------------|------------|------------|------------|-----------------------|------------|-----------|------------|
| Property rentals:                                                                                    |       |                     |       |      |       |       |       |       |       |                  |       |      |       |
| Acquisitions:                                                                                        |       |                     |       |      |       |       |       |       |       |                  |       |      |       |
| Las Catalinas (acquisition of remaining 50%  and consolidation vs. equity method accounting for 50%) |       | September  2002          |       | $         | 8,546      |       | $          | —     |       | $                     | 8,546      |      | $          | — |   | $ | — |   |
| Crystal Gateway One                                                                                  |       | July 2002                |       | 5,851     |       | 5,851      |       | —     |       | —                |       | —    |       |
| 435 Seventh Avenue (placed in service)                                                               |       | August 2002              |       | 4,528     |       | —     |       | 4,528      |       | —                |       | —    |       |
| 2101 L Street                                                                                        |       | August 2003              |       | 4,958     |       | 4,958      |       | —     |       | —                |       | —    |       |
| Bergen Mall                                                                                          |       | December  2003           |       | 602       |       | —     |       | 602        |       | —                |       | —    |       |
| 424 Sixth Avenue                                                                                     |       | July 2002                |       | 557       |       | —     |       | 557        |       | —                |       | —    |       |
| (Decrease) increase in amortization of  acquired below market leases, net                            |       |                     |       | (3,461    | )          | (4,336     | )          | 875        |       | —                |       | —    |       |
| Operations:                                                                                          |       |                     |       |      |       |       |       |       |       |                  |       |      |       |
| Hotel activity                                                                                       |       |                     |       | 73        | (1)        | —     |       | —     |       | —                |       | 73        | (1)        |
| Trade Shows activity                                                                                 |       |                     |       | 3,807     | (2)        | —     |       | —     |       | 3,807                 | (2)        | —    |       |
| Leasing activity                                                                                     |       |                     |       | 26,263    |       | 16,366     | (3)        | 5,210      | (4)        | 5,799                 | (5)        | (1,112    | )          |
| Total increase (decrease) in property  rentals                                                       |       |                     |       | 51,724    |       | 22,839     |       | 20,318     |       | 9,606                 |       | (1,039    | )          |
|                                                                                                 |       |                     |       |      |       |       |       |       |       |                  |       |      |       |
| Tenant expense reimbursements:                                                                       |       |                     |       |      |       |       |       |       |       |                  |       |      |       |
| Acquisitions                                                                                         |       |                     |       | 4,290     |       | 238        |       | 4,052      |       | —                |       | —    |       |
| Operations                                                                                           |       |                     |       | 20,098    |       | 17,108     | (6)        | 1,840      |       | 1,648                 |       | (498      | )          |
| Total increase (decrease) in tenant expense  reimbursements                                          |       |                     |       | 24,388    |       | 17,346     |       | 5,892      |       | 1,648                 |       | (498      | )          |
| Fee and other income                                                                                 |       |                     |       |      |       |       |       |       |       |                  |       |      |       |
| Acquisitions:                                                                                        |       |                     |       |      |       |       |       |       |       |                  |       |      |       |
| BMS Tenant cleaning fees                                                                             |       |                     |       | 28,968    |       | 28,968     |       | —     |       | —                |       | —    |       |
| Kaempfer management and leasing fees                                                                 |       |                     |       | 2,441     |       | 2,441      |       | —     |       | —                |       | —    |       |
| Increase (decrease) in:                                                                              |       |                     |       |      |       |       |       |       |       |                  |       |      |       |
| Lease cancellation fee income                                                                        |       |                     |       | 4,429     |       | 514        |       | 2,056      |       | 1,859                 |       | —    |       |
| Management and leasing fees                                                                          |       |                     |       | (3,844    | )          | (3,667     | )(7)       | (160       | )          | (17                   | )          | —    |       |
| Other                                                                                                |       |                     |       | 3,083     |       | (15        | )          | 2,466      |       | 726                   |       | (94       | )          |
| Total increase (decrease) in fee and other  income                                                   |       |                     |       | 35,077    |       | 28,241     |       | 4,362      |       | 2,568                 |       | (94       | )          |
| Total increase (decrease) in revenues                                                                |       |                     |       | $         | 111,189    |       | $          | 68,426     |       | $                     | 30,572     |      | $          | 13,822 |   | $ | (1,631 | ) |

 

----

See notes on following page.

 

See Leasing Activity on page 54 for further details andcorresponding changes in occupancy.

 

73

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Notes to preceding tabular information:

 

(1)               Average occupancyand REVPAR for the Hotel Pennsylvania were 64% and $58 for the year endedDecember 31, 2003 compared to 65% and $58 for the prior year.

 

(2)               Reflects an increaseof $2,841 resulting from the rescheduling of two trade shows from the fourthquarter of 2002, in which they were previously held to the first quarter of2003, and $1,400 relates to a new show held for the first time in 2003,partially offset by lower trade show revenue in 2003 primarily due to a smallerApril Market show as a result of a conversion of trade show space to permanentspace.

 

(3)               Reflects increasesof $12,953 from New York City Office leasing activity and $3,413 from CESCR’sleasing activity.  These increasesresulted primarily from higher rents for space relet in 2003 and 2002 (fullyear impact in 2003 as compared to a partial year in 2002) and an increase inCESCR occupancy of .3% this year, partially offset by a decrease in NYC office occupancyof .6%.  Initial rent for the 677 squarefeet of space relet in New York City was $44.41 per square foot in 2003, a15.3% increase over prior escalated rent. Initial rent for the 2,510 square feet of space relet in CESCR portfoliowas $30.62 per square foot a 2.5% increase over prior escalated rents.  For further details of NYC and CESCR officeleasing activity see page 54.

 

(4)               Resulted primarilyfrom (i) an increase in the occupancy rate from 88.3% at December 31, 2002 to93.0% at December 31, 2003 as a result of leasing space previously vacated byBradlees and Kmart and (ii) higher rents for space relet in 2003 and 2002 (fullyear impact in 2003 as compared to a partial year in 2002).  Initial rent for the 1,046 square feet ofspace relet in 2003 was $15.56 per square foot, a 13.2% increase over priorrent.  For further details of Retailleasing activity see page 54.

 

(5)               Reflects anincrease in occupancy of Merchandise Mart office space of 0.9% from 2002,higher rents for 1,157 square feet of showroom space relet in 2003 and 911square feet relet in 2002 (full year impact in 2003 as compared to partial yearimpact in 2002), partially offset by a decrease in Merchandise Mart showroomoccupancy of .1% from 2002 and lower rents for 270 square feet of office spacerelet in 2003.  Initial rents for the1,157 square feet of showroom space relet in 2003 was $23.43, a 0.6% increaseover prior escalated rent.  Initial rentsfor the 270 square feet of office space relet in 2003 was $21.24, a 5.3%decrease over prior escalated rent.  Forfurther details of Merchandise Mart leasing activity see page 54.

 

(6)               Reflects higherreimbursements from tenants resulting primarily from increases in real estatetaxes.  The increases in Office andRetail were $19,383 and $3,247, before reductions of $2,215 and $1,407 in thecurrent quarter relating to the true-up of prior year’s billings.

 

(7)               Results primarilyfrom a $3,444 decrease in CESCR third party leasing revenue from $7,100 in 2002to $3,656 in 2003 as a result of the closing of one of the CESCR leasingoffices.

 

74

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#### Expenses

 

The Company’s expenses were $917,086,000 for the yearended December 31, 2003, compared to $850,071,000 in the prior year, anincrease of $67,015,000.  Below are thedetails of the increase (decrease) by segment:

 
| **(Amounts in thousands)**                                                                           | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Other** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------|------------|------------|------------|------------|------------|-----------------------|------------|-----------|------------|
| Operating:                                                                                           |       |      |       |       |       |       |       |                  |       |      |       |
| Acquisitions:                                                                                        |       |      |       |       |       |       |       |                  |       |      |       |
| BMS                                                                                                  |       | $         | 19,789     |       | $          | 19,789     |       | $                     | —     |      | $          | — |   | $ | — |   |
| Las Catalinas (acquisition of remaining 50%  and consolidation vs. equity method accounting for 50%) |       | 3,007     |       | —     |       | 3,007      |       | —                |       | —    |       |
| Crystal Gateway One                                                                                  |       | 1,742     |       | 1,742      |       | —     |       | —                |       | —    |       |
| Bergen Mall                                                                                          |       | 399       |       | —     |       | 399        |       | —                |       | —    |       |
| 2101 L Street                                                                                        |       | 1,531     |       | 1,531      |       | —     |       | —                |       | —    |       |
| 435 Seventh Avenue                                                                                   |       | 503       |       | —     |       | 503        |       | —                |       | —    |       |
| 424 Sixth Avenue                                                                                     |       | 98        |       | —     |       | 98         |       | —                |       | —    |       |
| Hotel activity                                                                                       |       | 2,769     |       | —     |       | —     |       | —                |       | 2,769     | (1)        |
| Trade Shows activity                                                                                 |       | 1,487     |       | —     |       | —     |       | 1,487                 | (2)        | —    |       |
| Operations                                                                                           |       | 32,267    | (3)        | 23,752     | (3)        | 4,955      | (3)        | 3,524                 | (3)        | 36        | (3)        |
|                                                                                                 |       | 63,592    |       | 46,814     |       | 8,962      |       | 5,011                 |       | 2,805     |       |
| Depreciation and amortization:                                                                       |       |      |       |       |       |       |       |                  |       |      |       |
| Acquisitions                                                                                         |       | 5,966     |       | 4,026      |       | 1,940      |       | —                |       | —    |       |
| Operations                                                                                           |       | 10,009    |       | 4,900      | (4)        | 1,938      |       | 3,409                 | (4)        | (238      | )          |
|                                                                                                 |       | 15,975    |       | 8,926      |       | 3,878      |       | 3,409                 |       | (238      | )          |
| General and administrative:                                                                          |       |      |       |       |       |       |       |                  |       |      |       |
| Acquisitions                                                                                         |       | 4,915     |       | 4,274      |       | 641        |       | —                |       | —    |       |
| Operations                                                                                           |       | 16,907    | (5)        | (364       | )          | 1,502      |       | (167                  | )          | 15,936    |       |
|                                                                                                 |       | 21,822    |       | 3,910      |       | 2,143      |       | (167                  | )          | 15,936    |       |
| Costs of acquisitions and development not  consummated                                               |       | (6,874    | )          | —     |       | —     |       | —                |       | (6,874    | )          |
|                                                                                                 |       |      |       |       |       |       |       |                  |       |      |       |
| Amortization of officer’s deferred  compensation expense                                        |       | (27,500   | )          | —     |       | —     |       | —                |       | (27,500   | )          |
|                                                                                                 |       |      |       |       |       |       |       |                  |       |      |       |
| Total increase (decrease) in expenses                                                                |       | $         | 67,015     |       | $          | 59,650     |       | $                     | 14,983     |      | $          | 8,253 |   | $ | (15,871 | ) |

 

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See notes on following page.

 

75

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Notes to preceding tabular information:

 

(1)          The increase inHotel Pennsylvania’s operating expenses was primarily due to a $1,700 increasein real estate taxes and a $500 increase in utility costs over the prior year.

 

(2)          Results primarilyfrom the rescheduling of two trade shows from the fourth quarter of 2002, inwhich they were previously held to the first quarter of 2003, and due to a newtrade show held for the first time in 2003.

 

(3)          Below are thedetails of the increases (decreases) in operating expenses by segment:

 
| ** **        | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise Mart** | ** ** | **Other** | ** ** |
|-------------------|------------|-----------|------------|------------|------------|------------|------------|----------------------|------------|-----------|------------|
| Real estate taxes |       | $         | 26,935     |       | $          | 20,904     | (a)        | $                    | 1,245      |      | $          | 4,724 |   | $ | 62 |   |
| Utilities         |       | (946      | )          | (906       | )          | 364        |       | (483                 | )          | 79        |       |
| Maintenance       |       | 5,286     |       | 2,997      |       | 2,302      |       | (33                  | )          | 20        |       |
| Ground rent       |       | 950       |       | 1,005      |       | (55        | )          | —               |       | —    |       |
| Bad debt expense  |       | (29       | )          | (1,541     | )          | 1,238      |       | 274                  |       | —    |       |
| Other             |       | 71        |       | 1,293      |       | (139       | )          | (958                 | )          | (125      | )          |
|              |       | $         | 32,267     |       | $          | 23,752     |       | $                    | 4,955      |      | $          | 3,524 |   | $ | 36 |   |

(a) Relates primarily to an increase in New York Office.

 

(4)          Increases indepreciation and amortization for the Office and Merchandise Mart segments areprimarily due to additions to buildings and improvements.

 

(5)          The increase ingeneral and administrative expenses results from:

 
| Increase in professional fees in connection  with information technology, corporate  governance, insurance, and other projects                                                                                                                |   | $     | 4,675  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------|--------|--------|
| Severance payments in 2003 to two senior  executives ($3,211) and the non-cash charge  related to the accelerated vesting of their restricted stock ($1,626)                                                                                  |   | 4,837 |   |
| Other severance                                                                                                                                                                                                                               |   | 860   |   |
| Increase in corporate payroll and fringe  benefits of which $755 is due to a decrease in  capitalized development payroll and $407 is due to the Company’s deferred  compensation  plan (offset by an equal amount of investment income) |   | 2,872 |   |
| Costs in connection with the relocation of  CESCR’s back office operations to the Company’s administrative headquarters  in New Jersey                                                                                              |   | 1,123 |   |
| Stock compensation expense (see below)                                                                                                                                                                                                        |   | 1,898 |   |
| Other                                                                                                                                                                                                                                         |   | 642   |   |
|                                                                                                                                                                                                                                          |   | $     | 16,907 |   |

 

As part of the 2002 annual compensation review, inlieu of stock options, on January 28, 2003 the Company granted 166,990restricted shares at $34.50 per share (the then closing stock price on theNYSE) to employees of the Company.  Theseawards vest over a 5-year period. Stock-based compensation expense is recognized on a straight-line basisover the vesting period.  In the yearended December 31, 2003, the Company recognized stock-based compensationexpense of $1,898,000 (excluding severance charges), of which $1,020,000related to January 2003 restricted stock awards.

 

76

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#### Income Applicableto Alexander’s

 

Income applicable to Alexander’s (interest income,management, leasing, development and commitment fees, and equity in income) was$15,574,000 for the year ended December 31, 2003, compared to $29,653,000 inthe prior year, a decrease of $14,079,000. This decrease resulted primarily from (i) Alexander’s stock appreciationrights compensation expense of which the Company’s share was $14,868,000 in2003 compared to zero in 2002, partially offset by (ii) Alexander’s gain on thesale of its Third Avenue property of which the Company’s share was $3,524,000in 2002, and (iii) income resulting from the commencement of the lease withBloomberg (87% of the space) on November 15, 2003 at Alexander’s 731 LexingtonAvenue property of which the Company’s share was $1,589,000.

 

#### Income fromPartially-Owned Entities

 

Below are the condensed statements of operations ofthe Company’s unconsolidated subsidiaries as well as the increase (decrease) inincome from these partially-owned entities for the years endedDecember 31, 2003 and 2002:

 
| **(Amounts in thousands)  For the year ended:**                  | ** ** | **Total** | ** ** | **Newkirk  MLP** | ** ** | **Temperature  Controlled  Logistics** | ** ** | **Monmouth  Mall** | ** ** | **Partially-  Owned  Office  Buildings** | ** ** | **Starwood  Ceruzzi  Joint  Venture** | ** ** | **Las  Catalinas  Mall** | ** ** | **Other** | ** ** |
|------------------------------------------------------------------|------------|-----------|------------|------------------|------------|----------------------------------------|------------|--------------------|------------|------------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|-----------|------------|
| **December  31, 2003:**                                          |       |      |       |             |       |                                   |       |               |       |                                     |       |                                  |       |                     |       |      |       |
| Revenues                                                         |       |      |       | $                | 273,500    |                                   | $          | 119,605            |       | $                                        | 24,121     |                                  | $          | 99,590                   |       | $         | 4,394      |   |   |   |   |   |
| Expenses:                                                        |       |      |       |             |       |                                   |       |               |       |                                     |       |                                  |       |                     |       |      |       |
| Operating,  general and administrative                           |       |      |       | (15,357          | )          | (6,905                                 | )          | (10,520            | )          | (39,724                                  | )          | (3,381                                | )          |                     |       |      |       |
| Depreciation                                                     |       |      |       | (51,777          | )          | (56,778                                | )          | (4,018             | )          | (18,491                                  | )          | (998                                  | )          |                     |       |      |       |
| Interest expense                                                 |       |      |       | (97,944          | )          | (41,117                                | )          | (6,088             | )          | (27,548                                  | )          | —                                |       |                     |       |      |       |
| Other, net                                                       |       |      |       | 43,083           |       | 5,710                                  |       | (3,220             | )          | 2,516                                    |       | (866                                  | )          |                     |       |      |       |
| Net income (loss)                                                |       |      |       | $                | 151,505    |                                   | $          | 20,515             |       | $                                        | 275        |                                  | $          | 16,343                   |       | $         | (851       | ) |   |   |   |   |
|                                                             |       |      |       |             |       |                                   |       |               |       |                                     |       |                                  |       |                     |       |      |       |
| Vornado’s  interest                                         |       |      |       | 22.6             | %          | 60                                     | %          | 50                 | %          | 15                                       | %          | 80                                    | %          |                     |       |      |       |
| Equity in net  income (loss)                                     |       | $         | 51,057     |             | $          | 33,243                                 | (1)   | $                  | 12,869     | (2)                                      | $          | 138                                   |       | $                        | 2,426      |      | $          | (681 | ) |   |   | $ | 3,062 |   |
| Interest and  other income                                       |       | 10,292    |       | 7,002            |       | —                                 |       | 3,290              | (3)        | —                                   |       | —                                |       |                     |       | —    |       |
| Fee income                                                       |       | 6,552     |       | —           |       | 5,547                                  |       | 1,005              |       | —                                   |       | —                                |       |                     |       | —    |       |
| Income (loss)  from partially-owned entities                     |       | $         | 67,901     |             | $          | 40,245                                 |       | $                  | 18,416     |                                     | $          | 4,433                                 |       | $                        | 2,426      |      | $          | (681 | ) | N/A | (4) | $ | 3,062 |   |
| **December  31, 2002:**                                          |       |      |       |             |       |                                   |       |               |       |                                     |       |                                  |       |                     |       |      |       |
| Revenues                                                         |       |      |       | $                | 295,369    |                                   | $          | 117,663            |       | $                                        | 5,760      |                                  | $          | 50,205                   |       | $         | 695        |   | $ | 10,671 |   |   |   |
| Expenses:                                                        |       |      |       |             |       |                                   |       |               |       |                                     |       |                                  |       |                     |       |      |       |
| Operating,  general and administrative                           |       |      |       | (8,490           | )          | (7,904                                 | )          | (2,510             | )          | (21,827                                  | )          | (2,265                                | )          | (3,102                   | )          |      |       |
| Depreciation                                                     |       |      |       | (34,010          | )          | (59,328                                | )          | (943               | )          | (9,094                                   | )          | (1,430                                | )          | (1,482                   | )          |      |       |
| Interest expense                                                 |       |      |       | (121,219         | )          | (42,695                                | )          | (1,520             | )          | (11,354                                  | )          | —                                |       | (3,643                   | )          |      |       |
| Other, net                                                       |       |      |       | (9,790           | )          | (2,150                                 | )          | 48                 |       | 389                                      |       | (200                                  | )          | (802                     | )          |      |       |
| Net income (loss)                                                |       |      |       | $                | 121,860    |                                   | $          | 5,586              |       | $                                        | 835        |                                  | $          | 8,319                    |       | $         | (3,200     | ) | $ | 1,642 |   |   |   |
|                                                             |       |      |       |             |       |                                   |       |               |       |                                     |       |                                  |       |                     |       |      |       |
| Vornado’s  interest                                         |       |      |       | 21.7             | %          | 60                                     | %          | 50                 | %          | 24                                       | %          | 80                                    | %          | 50                       | %          |      |       |
| Equity in net  income (loss)                                     |       | $         | 30,664     |             | $          | 26,500                                 |       | $                  | 4,144      |                                     | $          | 791                                   | (3)        | $                        | 1,966      |      | $          | (2,560 | ) | $ | 851 |   | $ | (1,028 | ) |
| Interest and  other income                                       |       | 8,000     |       | 8,000            |       | —                                 |       | —             |       | —                                   |       | —                                |       | —                   |       | —    |       |
| Fee income                                                       |       | 5,794     |       | —           |       | 5,563                                  |       | 231                |       | —                                   |       | —                                |       | —                   |       | —    |       |
| Income (loss)  from partially-owned entities                     |       | $         | 44,458     |             | $          | 34,500                                 |       | $                  | 9,707      |                                     | $          | 1,022                                 |       | $                        | 1,966      |      | $          | (2,560 | ) | $ | 851 |   | $ | (1,028 | ) |
|                                                             |       |      |       |             |       |                                   |       |               |       |                                     |       |                                  |       |                     |       |      |       |
| **Increase  (decrease) in income from partially-owned entities** |       | $         | 23,443     |             | $          | 5,745                                  | (1)        | $                  | 8,709      | (2)                                      | $          | 3,411                                 | (3)        | $                        | 460        |      | $          | 1,879 |   | $ | (851 | )(4) | $ | 4,090 |   |

 

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See notes on following page.

 

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Notes to preceding tabularinformation:

 

(1)          Theincrease reflects the Company’s share of the following items from the NewkirkMLP in 2003 including (i) $7,200 of net gains on the sale of 11 properties,(ii) a gain of $1,600 on the early extinguishment of debt, partially offset by,(iii) a charge of $538 in connection with a litigation claim, (iv) a charge of$353 for an asset impairment and (v) $930 in Federal and state taxes.

 

(2)          TheCompany reflects its 60% share of Vornado Crescent Portland Partnership’s (the “Landlord”)rental income it receives from AmeriCold Logistics, its tenant, which leasesthe underlying temperature controlled warehouses used in its business.  The Company’s joint venture does not recognizerental income unless earned and collection is assured or cash is received.  The Company did not recognize $25,087 of rentit was due for the year ended December 31, 2003, which together with previouslydeferred rent was $49,436 at December 31, 2003. The following summarizes the increase in income for the year endedDecember 31, 2003 over the prior year:

 
| Increase in rent from Tenant                                                                              |   | $     | 1,220  |   |
|-----------------------------------------------------------------------------------------------------------|--------|-------|--------|--------|
| Decrease in general and administrative  expenses                                                          |   | 544   |   |
| Gain on sale of real estate in 2003 ($486)  as compared to a loss on sale of real estate in 2002 ($2,026) |   | 2,512 |   |
| Income tax refund received in 2003                                                                        |   | 1,345 |   |
| Decrease in depreciation and interest  expense and other                                                  |   | 3,088 |   |
|                                                                                                      |   | $     | 8,709  |   |

 

(3)          The Companyacquired a 50% interest in the Monmouth Mall on October 10, 2002.  Equity in net income of the Monmouth Mallincludes the Company’s preferred return of $3,290 and $748 for the years endedDecember 31, 2003 and 2002.

 

(4)          On September 23,2002, the Company acquired the remaining 50% of the Mall and 25% of the Kmartanchor store it did not previously own. Accordingly, the operations of Las Catalinas are consolidated into theaccounts of the Company subsequent to September 23, 2002.

 

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#### Interest and OtherInvestment Income

 

Interest and other investment income (interest incomeon mortgage loans receivable, other interest income and dividend income) was$25,397,000 for the year ended December 31, 2003, compared to $31,678,000 inthe year ended December 31, 2002, a decrease of $6,281,000.  This decrease resulted primarily from(i) lower average investments at lower yields, partially offset by(ii) $5,655,000 of contingent interest income recognized in connection withthe repayment of the Dearborn Center loan and (iii) $5,028,000 of interestincome recognized on the $225,000,000 GM Building mezzanine loans, for theperiod from October 20, 2003 through December 31, 2003.

 

#### Interest and DebtExpense

 

Interest and debt expense was $228,860,000 for theyear ended December 31, 2003, compared to $232,891,000 in the year endedDecember 31, 2002, a decrease of $4,031,000. This decrease was primarily comprised of a $11,285,000 savings from a 77basis point reduction in weighted average interest rates of the Company’svariable rate debt, partially offset by (i) the consolidation as ofSeptember 2002 of the Las Catalinas operations which were previouslyincluded in income from partially-owned entities, (ii) a full year of interestexpense on the Company’s $500,000,000 Senior Unsecured Notes due 2007 whichwere issued in June 2002 and (iii) a reduction in interest capitalized inconnection with development projects.

 

#### Net (Loss) Gain onDisposition of Wholly-owned and Partially-owned Assets other than DepreciableReal Estate

 

The following table sets forth the details of net(loss) gain on disposition of wholly-owned and partially-owned assets otherthan depreciable real estate for the years ended December 31, 2003 and 2002:

 
| ** **                                                                                       | ** ** | **For the Year Ended  December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| **(Amounts in thousands)**                                                                       | ** ** | **2003**                             | ** ** | **2002** | ** ** |
| Wholly-owned Assets:                                                                             |       |                                 |       |   |   |
| Net gain on sale of marketable securities                                                        |       | $                                    | 2,950      |   | $ | 12,346 |   |
| Loss on settlement of Primestone guarantees  (2003) and foreclosure and impairment losses (2002) |       | (1,388                               | )          | (35,757 | ) |
| Gain on sale of land parcels                                                                     |       | 499                                  |       | — |   |
| Gain on sale of residential condominiums  units                                                  |       | 282                                  |       | 2,156 |   |
| Gain on transfer of mortgages                                                                    |       | —                               |       | 2,096 |   |
| Net gain on sale of air rights                                                                   |       | —                               |       | 1,688 |   |
|                                                                                             |       | $                                    | 2,343      |   | $ | (17,471 | ) |

 

*Primestone Foreclosure andImpairment Losses*

 

On September 28, 2000, the Company made a $62,000,000loan to Primestone Investment Partners, L.P. (“Primestone”).  The loan bore interest at 16% per annum.  Primestone defaulted on the repayment of thisloan on October 25, 2001. The loan was subordinate to $37,957,000 of other debtof the borrower that liened the Company’s collateral. On October 31, 2001,the Company purchased the other debt for its face amount.  The loans were secured by 7,944,893partnership units in Prime Group Realty, L.P., the operating partnership of PrimeGroup Realty Trust (NYSE:PGE) and the partnership units are exchangeable forthe same number of common shares of PGE. The loans were also guaranteed by affiliates of Primestone.

 

On November 19, 2001, the Company sold, pursuant to aparticipation agreement with a subsidiary of Cadim inc., a Canadianpension fund, a 50% participation in both loans at par for approximately$50,000,000 reducing the Company’s net investment in the loans at December 31,2001 to $56,768,000 including unpaid interest and fees of $6,790,000.  The participation did not meet the criteriafor “sale accounting” under SFAS 140 because Cadim was not free to pledgeor exchange the assets.

 

79

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On April 30, 2002, the Company and Cadim acquired the7,944,893 partnership units at a foreclosure auction.   The price paid for the units by applicationof a portion of Primestone’s indebtedness to the Company and Cadim was $8.35per unit, the April 30, 2002 closing price of shares of PGE on the New YorkStock Exchange.  On June 28, 2002,pursuant to the terms of the participation agreement, the Company transferred3,972,447 of the partnership units to Cadim.

 

In the second quarter of 2002, in accordance withforeclosure accounting, the Company recorded a loss on the Primestoneforeclosure of $17,671,000 calculated based on (i) the acquisition priceof the units and (ii) its valuation of the amounts realizable under theguarantees by affiliates of Primestone, as compared with the net carryingamount of the investment at April 30, 2002.  In the third quarter of 2002, the Company recorded a $2,229,000write-down on its investment based on costs expended to realize the value ofthe guarantees.  Further, in the fourthquarter of 2002, the Company recorded a $15,857,000 write-down of itsinvestment in Prime Group consisting of (i) $14,857,000 to adjust the carryingamount of the Prime Group units to $4.61 per unit, the closing price of PGEshares on the New York Stock Exchange at December 31, 2002 and (ii) $1,000,000for estimated costs to realize the value of the guarantees.  The Company considered the decline in thevalue of the units which are convertible into stock to be other than temporaryas of December 31, 2002, based on the fact that the market value of the stockhad been less than its cost for more than six months, the severity of thedecline, market trends, the financial condition and near-term prospects ofPrime Group and other relevant factors.

 

At December 31, 2002, the Company’s carrying amount ofthe investment was $23,908,000, of which $18,313,000 represents the carryingamount of the 3,972,447 partnership units owned by the Company ($4.61 perunit), $6,100,000 represents the amount expected to be realized under theguarantees, partially offset by $1,005,000 representing the Company’s share ofPrime Group’s net loss through September 30, 2002, as the Company recordedits share of Prime Group’s earnings on a one-quarter lag basis.

 

On June 11, 2003, the Company exercised its right toexchange the 3,972,447 units it owned in Prime Group Realty L.P. for 3,972,447common shares in Prime Group Realty Trust. Prior to the exchange, the Company accounted for its investment in thepartnership on the equity method. Subsequent to the exchange, the Company is accounting for its investmentin PGE as a marketable equity security-available for sale, as the Company’sshares represent less than a 20% ownership interest in PGE (which is not apartnership), the Company does not have significant influence and the commonshares have a readily determinable fair value. Accordingly, the carrying amount previously included in Investments andAdvances to Partially-Owned Entities was reclassified to Marketable Securitieson the Company’s consolidated balance sheet. The Company is also required to mark these securities to market based onthe closing price of the PGE shares on the NYSE at the end of each reportingperiod.  For the period from June 11,2003 through December 31, 2003, the Company recorded a $6,623,000 unrealizedgain, which is not included in the Company’s net income, but is reflected as acomponent of Accumulated Other Comprehensive Income in the Partners’ Capitalsection of the consolidated balance sheet. From the date of exchange, income recognition is limited to dividendsreceived on the PGE shares.

 

On June 13, 2003, the Company received its $5,000,000share of a settlement with affiliates of Primestone Investment Partners of theamounts due under the guarantees of the Primestone loans.  In connection therewith, the Companyrecognized a $1,388,000 loss on settlement of the guarantees, which has beenreflected as a component of “net gains on disposition of wholly-owned andpartially-owned assets” in the Company’s 2003 consolidated statement of income.

 

*Gain on Transfer of Mortgages*

 

In the year ended December 31, 2002, the Companyrecorded a net gain of $2,096,000 resulting from payments to the Company bythird parties that assumed certain of the Company’s mortgages.  Under these transactions the Company paid tothe third parties that assumed the Company’s obligations the outstandingamounts due under the mortgages and the third parties paid the Company for thebenefit of assuming the mortgages.  TheCompany has been released by the creditors underlying these loans.

 

*Net Gain on Sale of Air Rights*

 

In 2002, the Company constructed a $16.3 millioncommunity facility and low-income residential housing development (the “30th StreetVenture”), in order to receive 163,728 square feet of transferabledevelopment rights, generally referred to as “air rights”.  The Company donated the building to acharitable organization.  The Companysold 106,796 square feet of these air rights to third parties at anaverage price of $120 per square foot. An additional 28,821 square feet of air rights was sold toAlexander’s at a price of $120 per square foot for use at Alexander’s 59thStreet development project (the “59th Street Project”).  In each case, the Company received cash inexchange for air rights.  The Companyidentified third party buyers for the remaining 28,111 square feet of airrights of the 30th Street Venture. These third party buyers wanted to use the air rights

 

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for the development of twoprojects located in the general area of 86th Street which was not withinthe required geographical radius of the construction site nor in the sameCommunity Board as the low-income housing and community facility project.  The 30th Street Venture asked Alexander’sto sell 28,111 square feet of the air rights it already owned to the thirdparty buyers (who could use them) and the 30th Street Venture wouldreplace them with 28,111 square feet of air rights.  In October 2002, the Company sold28,111 square feet of air rights to Alexander’s for an aggregate salesprice of $3,059,000 (an average of $109 per square foot).   Alexander’s then sold an equal amount of airrights to the third party buyers for an aggregate sales price of $3,339,000 (anaverage of $119 per square foot).

 

*Net*Gainson Sale of Residential Condominium Units

* *

The Company recognized net gains of $282,000 and$2,156,000 during 2003 and 2002, from the sale of residential condominiums.

 

#### DiscontinuedOperations

 

Assets related to discontinued operations consistprimarily of real estate, net of accumulated depreciation.  The following table sets forth the balancesof the assets related to discontinued operations as of December 31, 2003 and2002.

 
| ** **                                     | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|------------------|------------|
| **(Amounts in thousands)**                     | ** ** | **2003**         | ** ** | **2002** | ** ** |
| Palisades (sold on June 29, 2004)              |       | $                | 138,629    |   | $ | 142,333 |   |
| 400 North LaSalle                              |       | 80,685           |       | 27,600 |   |
| Arlington Plaza                                |       | 36,109           |       | 36,666 |   |
| Baltimore (Dundalk) (sold on August 12,  2004) |       | 2,167            |       | 2,050 |   |
| Vineland                                       |       | 908              |       | 978 |   |
| Two Park Avenue (sold on October 10, 2003)     |       | —           |       | 123,076 |   |
| Baltimore (sold on January 9, 2003)            |       | —           |       | 2,218 |   |
| Hagerstown (sold on November 3, 2003)          |       | —           |       | 1,013 |   |
|                                           |       | $                | 258,498    |   | $ | 335,934 |   |

 

The following table sets forth the balances of theliabilities related to discontinued operations (primarily mortgage notespayable) as of December 31, 2003 and 2002.

 
| ** **                        | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|------------------|------------|
| **(Amounts in thousands)**        | ** ** | **2003**         | ** ** | **2002** | ** ** |
| Palisades (sold on June 29, 2004) |       | $                | 120,000    |   | $ | 100,000 |   |
| Arlington Plaza                   |       | 16,487           |       | 17,054 |   |
| 400 North LaSalle                 |       | 3,038            |       | — |   |
|                              |       | $                | 139,525    |   | $ | 117,054 |   |

 

The combined results of operations of the assetsrelated to discontinued operations for the years ended December 31, 2003 and2002 are as follows:

 
| ** **                          | ** ** | **December 31,** | ** ** |
|-------------------------------------|------------|------------------|------------|
| **(Amounts in thousands)**          | ** ** | **2003**         | ** ** | **2002** | ** ** |
| Total Revenues                      |       | $                | 47,770     |   | $ | 48,283 |   |
| Total Expenses                      |       | 33,171           |       | 36,468 |   |
| Net income                          |       | 14,599           |       | 11,815 |   |
| Net gains on sales of real estate   |       | 161,789          |       | — |   |
| Income from discontinued operations |       | $                | 176,388    |   | $ | 11,815 |   |

 

81

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On January 9,2003, the Company sold its Baltimore, Maryland shopping center for $4,752,000,which resulted in a net gain after closing costs of $2,644,000.

 

On October 10,2003, the Company sold Two Park Avenue, a 965,000 square–foot office building,for $292,000,000, which resulted in a net gain on the sale after closing costsof $156,433,000.

 

On November 3, 2003, the Company sold itsHagerstown, Maryland shopping center for $3,100,000, which resulted in a netgain on sale after closing costs of $1,945,000.

 

CumulativeEffect of Change in Accounting Principle

 

In September 2001, the Financial AccountingStandards Board issued SFAS No. 142, *Goodwill and OtherIntangible Assets* (effective January 1, 2002).  SFAS No. 142 specifies that goodwill andsome intangible assets will no longer be amortized but instead be subject toperiodic impairment testing.  In thefirst quarter of 2002, the Company wrote-off goodwill of approximately$30,129,000 of which (i) $15,490,000 represents its share of the goodwillarising from the Company’s investment in Temperature Controlled Logisticsand (ii) $14,639,000 represents goodwill arising from the Company’sacquisition of the Hotel Pennsylvania. The write-off was reflected as a cumulative effect of a change inaccounting principle in the 2002 consolidated statement income.

 

EBITDA

 

Below are the details of the changes by segment inEBITDA.

 
| **(Amounts in thousands)**                                         | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics** | ** ** | **Other** | ** ** |
|--------------------------------------------------------------------|------------|-----------|------------|------------|------------|------------|------------|-----------------------|------------|----------------------------------------|------------|-----------|------------|
|                                                               |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Year ended December 31,  2002                                 |       | $         | 964,058    |       | $          | 610,531    |       | $                     | 114,498    |                                   | $          | 110,327   |       | $ | 69,798 |   | $ | 58,904 |   |
| 2003  Operations:                                                  |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Same store  operations(1)                                          |       |      |       | 5,670      |       | 5,086      |       | 4,445                 |       | 3,517                                  | (3)        |      |       |
| Acquisitions,  dispositions and non-same store income and expenses |       |      |       | 164,488    |       | 24,535     |       | 3,115                 |       | 4,650                                  |       |      |       |
| Year ended December 31,  2003                                 |       | $         | 1,215,744  |       | $          | 780,689    |       | $                     | 144,119    |                                   | $          | 117,887   |       | $ | 77,965 |   | $ | 95,084 |   |
| % increase  in same store operations                               |       |      |       | 1.0        | %(2)       | 4.5        | %          | 4.1                   | %          | 4.8                                    | %(3)       |      |       |

 

----

(1)                                  Representsoperations which were owned for the same period in each year and excludesnon-recurring income and expenses which are included in acquisitions,dispositions and non-same store income and expenses above.

(2)                                  EBITDAand the same store percentage increase (decrease) were $488,419 ($331,886excluding gains on sale of real estate of $156,533) and 3.3% (excluding suchgains) for the New York office portfolio and $292,270 and (1.7%) for the CESCRportfolio.  36% of the same storedecrease at CESCR reflects a reduction in third party net leasing fees.

(3)                                  TheCompany reflects its 60% share of Vornado Crescent Portland Partnership’s (the “Landlord”)rental income it receives from AmeriCold Logistics, its tenant, which leasesthe underlying temperature controlled warehouses used in its business.  The Company’s joint venture does notrecognize rental income unless earned and collection is assured or cash isreceived.  The Company did not recognize$25,087 of rent it was due for the year ended December 31, 2003, whichtogether with previously deferred rent is $49,436.  The tenant has advised the Landlord that(i) its revenue for the year ended December 31, 2003 from thewarehouses it leases from the Landlord, is lower than last year by 1.3%, and(ii) its gross profit before rent at these warehouses for thecorresponding period is higher than last year by $607 (a 0.4% increase).  In addition, in 2003, the tenant and theLandlord had lower general and administrative expenses and the Landlordreceived $885 of EBITDA from its investment in the quarries it acquired in December 2002which was reflected in the gross profit of the tenant in the prior year.

 

82

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**SupplementalInformation**

 

**ThreeMonths Ended December 31, 2004 and December 31, 2003**

 

Below is a summary of Net Income and EBITDA(1) bysegment for the three months ended December 31, 2004 and 2003.

 
| ** **                                                                                              | ** ** | **For The Three Months Ended December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **(Amounts in thousands)**                                                                              | ** ** | **Total**                                              | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics (3)** | ** ** | **Other (4)** | ** ** |
| Property  rentals                                                                                       |       | $                                                      | 326,684    |   | $ | 208,933 |   | $ | 45,025 |   | $ | 54,787 |   | $ | — |   | $ | 17,939 |   |
| Straight-line  rents:                                                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Contractual  rent increases                                                                             |       | 9,795                                                  |       | 7,332 |   | 1,280 |   | 1,092 |   | — |   | 91 |   |
| Amortization  of free rent                                                                              |       | 7,507                                                  |       | 3,312 |   | 2,366 |   | 1,828 |   | — |   | 1 |   |
| Amortization  of acquired below market leases, net                                                      |       | 3,268                                                  |       | 1,928 |   | 1,340 |   | — |   | — |   | — |   |
| Total  rentals                                                                                          |       | 347,254                                                |       | 221,505 |   | 50,011 |   | 57,707 |   | — |   | 18,031 |   |
| Expense  reimbursements                                                                                 |       | 49,381                                                 |       | 28,545 |   | 18,488 |   | 1,434 |   | — |   | 914 |   |
| Temperature  Controlled Logistics                                                                       |       | 87,428                                                 |       | — |   | — |   | — |   | 87,428 |   | — |   |
| Fee and  other income:                                                                                  |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Tenant  cleaning fees                                                                                   |       | 8,606                                                  |       | 8,606 |   | — |   | — |   | — |   | — |   |
| Management  and leasing fees                                                                            |       | 3,560                                                  |       | 3,278 |   | 296 |   | 5 |   | — |   | (19 | ) |
| Other                                                                                                   |       | 8,485                                                  |       | 4,814 |   | 50 |   | 3,607 |   | — |   | 14 |   |
| Total  revenues                                                                                         |       | 504,714                                                |       | 266,748 |   | 68,845 |   | 62,753 |   | 87,428 |   | 18,940 |   |
| Operating  expenses                                                                                     |       | 223,575                                                |       | 102,016 |   | 20,561 |   | 23,094 |   | 67,989 |   | 9,915 |   |
| Depreciation  and amortization                                                                          |       | 70,521                                                 |       | 42,300 |   | 7,410 |   | 9,898 |   | 7,968 |   | 2,945 |   |
| General and  administrative                                                                             |       | 55,062                                                 |       | 9,863 |   | 3,681 |   | 6,744 |   | 4,264 |   | 30,510 |   |
| Total  expenses                                                                                         |       | 349,158                                                |       | 154,179 |   | 31,652 |   | 39,736 |   | 80,221 |   | 43,370 |   |
| Operating  income (loss)                                                                                |       | 155,556                                                |       | 112,569 |   | 37,193 |   | 23,017 |   | 7,207 |   | (24,430 | ) |
| Income  applicable to Alexander’s                                                                  |       | 4,203                                                  |       | 88 |   | 174 |   | — |   | — |   | 3,941 |   |
| Income from  partially-owned entities                                                                   |       | 9,739                                                  |       | 749 |   | 556 |   | 64 |   | 37 |   | 8,333 |   |
| Interest and  other investment income                                                                   |       | 167,331                                                |       | 361 |   | 180 |   | 22 |   | 220 |   | 166,548 |   |
| Interest and  debt expense                                                                              |       | (65,883                                                | )          | (31,212 | ) | (14,144 | ) | (2,799 | ) | (6,379 | ) | (11,349 | ) |
| Net gain on  disposition of wholly-owned and partially-owned assets other than depreciable  real estate |       | 18,999                                                 |       | 369 |   | — |   | — |   | — |   | 18,630 |   |
| Minority  interest                                                                                      |       | (158                                                   | )          | — |   | — |   | — |   | (158 | ) | — |   |
| Income from  continuing operations                                                                      |       | 289,787                                                |       | 82,924 |   | 23,959 |   | 20,304 |   | 927 |   | 161,673 |   |
| Income  (loss) from discontinued operations                                                             |       | 201                                                    |       | 252 |   | (189 | ) | — |   | — |   | 138 |   |
| Net income                                                                                              |       | 289,988                                                |       | 83,176 |   | 23,770 |   | 20,304 |   | 927 |   | 161,811 |   |
| Interest and  debt expense (2)                                                                          |       | 78,474                                                 |       | 32,473 |   | 15,022 |   | 3,025 |   | 7,326 |   | 20,628 |   |
| Depreciation  and amortization(2)                                                                       |       | 78,378                                                 |       | 43,409 |   | 8,690 |   | 10,031 |   | 8,601 |   | 7,647 |   |
| Income taxes                                                                                            |       | 829                                                    |       | 113 |   | — |   | 573 |   | 79 |   | 64 |   |
| EBITDA(1)                                                                                               |       | $                                                      | 447,669    |   | $ | 159,171 |   | $ | 47,482 |   | $ | 33,933 |   | $ | 16,933 |   | $ | 190,150 |   |

 

----

See notes on page 85.

 

83

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| ** **                                                                                              | ** ** | **For The Three Months Ended December 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **(Amounts in thousands)**                                                                              | ** ** | **Total**                                              | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics (3)** | ** ** | **Other (4)** | ** ** |
| Property  rentals                                                                                       |       | $                                                      | 309,598    |   | $ | 205,493 |   | $ | 35,442 |   | $ | 51,906 |   | $ | — |   | $ | 16,757 |   |
| Straight-line  rents:                                                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Contractual  rent increases                                                                             |       | 7,740                                                  |       | 5,102 |   | 173 |   | 2,504 |   | — |   | (39 | ) |
| Amortization  of free rent                                                                              |       | 2,423                                                  |       | 237 |   | 1,415 |   | 780 |   | — |   | (9 | ) |
| Amortization  of acquired below market leases, net                                                      |       | 2,189                                                  |       | 1,640 |   | 549 |   | — |   | — |   | — |   |
| Total  rentals                                                                                          |       | 321,950                                                |       | 212,472 |   | 37,579 |   | 55,190 |   | — |   | 16,709 |   |
| Expense  reimbursements                                                                                 |       | 45,476                                                 |       | 27,893 |   | 14,275 |   | 2,949 |   | — |   | 359 |   |
| Fee and  other income:                                                                                  |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Tenant  cleaning fees                                                                                   |       | 7,300                                                  |       | 7,300 |   | — |   | — |   | — |   | — |   |
| Management  and leasing fees                                                                            |       | 3,031                                                  |       | 2,620 |   | 347 |   | — |   | — |   | 64 |   |
| Other                                                                                                   |       | 7,592                                                  |       | 2,292 |   | 326 |   | 5,026 |   | — |   | (52 | ) |
| Total  revenues                                                                                         |       | 385,349                                                |       | 252,577 |   | 52,527 |   | 63,165 |   | — |   | 17,080 |   |
| Operating  expenses                                                                                     |       | 147,766                                                |       | 92,839 |   | 17,153 |   | 26,391 |   | — |   | 11,383 |   |
| Depreciation  and amortization                                                                          |       | 58,892                                                 |       | 39,969 |   | 6,322 |   | 8,924 |   | — |   | 3,677 |   |
| General and  administrative                                                                             |       | 35,324                                                 |       | 10,426 |   | 2,177 |   | 5,872 |   | — |   | 16,849 |   |
| Total  expenses                                                                                         |       | 241,982                                                |       | 143,234 |   | 25,652 |   | 41,187 |   | — |   | 31,909 |   |
| Operating  income (loss)                                                                                |       | 143,367                                                |       | 109,343 |   | 26,875 |   | 21,978 |   | — |   | (14,829 | ) |
| Income  applicable to Alexander’s                                                                  |       | 3,233                                                  |       | — |   | 161 |   | — |   | — |   | 3,072 |   |
| Income  (loss) from partially-owned entities                                                            |       | 13,736                                                 |       | 358 |   | 847 |   | (253 | ) | 7,213 |   | 5,571 |   |
| Interest and  other investment income                                                                   |       | 9,176                                                  |       | 1,066 |   | 211 |   | 10 |   | — |   | 7,889 |   |
| Interest and  debt expense                                                                              |       | (58,575                                                | )          | (33,288 | ) | (14,780 | ) | (3,637 | ) | — |   | (6,870 | ) |
| Net gain on  disposition of wholly-owned and partially-owned assets other than depreciable  real estate |       | 2,950                                                  |       | — |   | — |   | — |   | — |   | 2,950 |   |
| Minority  interest                                                                                      |       | 8                                                      |       | — |   | — |   | — |   | — |   | 8 |   |
| Income  (loss) from continuing operations                                                               |       | 113,895                                                |       | 77,479 |   | 13,314 |   | 18,098 |   | 7,213 |   | (2,209 | ) |
| Income  (loss) from discontinued operations                                                             |       | 158,541                                                |       | 157,468 |   | 1,998 |   | — |   | — |   | (925 | ) |
| Net income (loss)                                                                                       |       | 272,436                                                |       | 234,947 |   | 15,312 |   | 18,098 |   | 7,213 |   | (3,134 | ) |
| Interest and  debt expense(2)                                                                           |       | 72,841                                                 |       | 34,555 |   | 15,583 |   | 3,854 |   | 6,158 |   | 12,691 |   |
| Depreciation  and amortization(2)                                                                       |       | 78,270                                                 |       | 40,871 |   | 6,796 |   | 9,282 |   | 8,722 |   | 12,599 |   |
| Income taxes                                                                                            |       | 1,627                                                  |       | 45 |   | — |   | — |   | — |   | 1,582 |   |
| EBITDA(1)                                                                                               |       | $                                                      | 425,174    |   | $ | 310,418 |   | $ | 37,691 |   | $ | 31,234 |   | $ | 22,093 |   | $ | 23,738 |   |

 

----

See notes on following page.

 

84

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Notes to preceding tabular information:

 

(1)                                  EBITDArepresents “Earnings Before Interest, Taxes, Depreciation and Amortization.”  EBITDA should not be considered a substitutefor net income.  EBITDA may not becomparable to similarly titled measures employed by other companies.

(2)                                  Interestand debt expense and depreciation and amortization included in thereconciliation of net income to EBITDA reflects amounts which are netted inincome from partially-owned entities.

(3)                                  Operatingresults for the year ended December 31, 2004, reflect the consolidation ofthe Company’s investment in Americold beginning on November 18, 2004.  Previously, this investment was accounted foron the equity method.  See page 88 forcondensed proforma operating results of Americold for the three months ended December 31,2004 and 2003, giving effect to the acquisition of its tenant, AmeriColdLogistics, as if it had occurred on January 1, 2003.

(4)                                  OtherEBITDA is comprised of:

 
| ** **                                     | ** ** | **For the Three Months  Ended December 31,** | ** ** |
|------------------------------------------------|------------|---------------------------------------------------|------------|
| **(Amounts in thousands)**                     | ** ** | **2004**                                          | ** ** | **2003** | ** ** |
| Newkirk:                                       |       |                                              |       |   |   |
| Equity in  income of MLP                       |       | $                                                 | 13,746     |   | $ | 15,119 |   |
| Interest and  other income                     |       | 2,540                                             |       | 2,311 |   |
| Alexander’s                               |       | 8,839                                             |       | 5,896 |   |
| Hotel  Pennsylvania                            |       | 7,680                                             |       | 4,023 |   |
| Industrial  warehouses                         |       | 1,506                                             |       | 1,365 |   |
| Student  Housing                               |       | 186                                               |       | 494 |   |
|                                           |       | 34,497                                            |       | 29,208 |   |
| Minority  interest expense                     |       | —                                            |       | 8 |   |
| Corporate  general and administrative expenses |       | (29,488                                           | )          | (16,758 | ) |
| Investment  income and other (a)               |       | 184,311                                           |       | 7,069 |   |
| Discontinued  Operations:                      |       |                                              |       |   |   |
| Palisades                                      |       | (7                                                | )          | 1,697 |   |
| 400 North  LaSalle                             |       | 837                                               |       | (436 | ) |
| Gains on  sale of marketable securities        |       | —                                            |       | 2,950 |   |
|                                           |       | $                                                 | 190,150    |   | $ | 23,738 |   |

 

----

(a)                                  Thethree months ended December 31, 2004 includes (i) $81,730 of income fromthe mark-to-market of the Sears’ option position, (ii) $29,452 of net gain onexercise of GMH warrants for limited partnership units, (iii) $24,190 of incomefrom the mark-to-market of the remaining GMH warrants, (iv) $11,081 of interestincome on $159,000 GMH commitment, (v) $22,187 of interest income on the GMbuilding mezzanine loans and (vi) $4,771 of interest income on the repayment ofthe Company’s loan to Vornado Operating.

 

85

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In comparing the financial results of the Company’ssegments on a sequential quarterly basis, the following should be noted:

 

•                  The third quarter of the Office and Merchandise Martsegments have historically been impacted by higher net utility costs than ineach other quarter of the year;

•                  The fourth quarter of the Retail segment hashistorically been higher than each of the first three quarters due to the recognitionof percentage rental income; and

•                  The second and fourth quarter of the MerchandiseMart segment have historically been higher than the first and third quartersdue to major trade shows occurring in those quarters.

 

Below are the details ofthe changes by segment in EBITDAfor the three months ended December 31, 2004 compared to the three monthsended December 31, 2003.

 
| **(Amounts in thousands)**                                        | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics** | ** ** | **Other** | ** ** |
|-------------------------------------------------------------------|------------|-----------|------------|------------|------------|------------|------------|-----------------------|------------|----------------------------------------|------------|-----------|------------|
| Three months  ended December 31, 2003                        |       | $         | 425,174    |       | $          | 310,418    |       | $                     | 37,691     |                                   | $          | 31,234    |       | $ | 22,093 |   | $ | 23,738 |   |
| 2004  Operations:                                                 |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Same store  operations(1)                                         |       |      |       | 2,872      |       | 2,223      |       | 2,829                 | (3)        | —                                 |       |      |       |
| Acquisitions,  dispositions and non-recurring income and expenses |       |      |       | (154,119   | )          | 7,568      |       | (130                  | )          | (5,160                                 | )          |      |       |
| Three months  ended December 31, 2004                        |       | $         | 447,669    |       | $          | 159,171    |       | $                     | 47,482     |                                   | $          | 33,933    |       | $ | 16,933 |   | $ | 190,150 |   |
| % increase  in same store operations                              |       |      |       | 1.9        | %(2)       | 6.2        | %          | 9.7                   | %(3)       | N/A                                    | %(4)       |      |       |

 

----

(1)                                  Representsoperations, which were owned for the same period in each year.

(2)                                  EBITDAand same store percentage increase (decrease) was $87,445 and 4.8% for the NewYork City office portfolio and $71,726 and (1.2%) for the CESCR portfolio.

(3)                                  EBITDAand the same store percentage increase reflect the commencement of leases withWPP Group (228,000 square feet) in the third quarter of 2004 and the ChicagoSun Times (127,000 square feet) in the second quarter of 2004.  EBITDA for the year ended December 31,2004, exclusive of the incremental impact of these leases was $31,844,representing a 2.5% same store percentage increase.

(4)                                  Notcomparable because prior to November 4, 2004, (date the operations ofAmeriCold Logistics were combined with Americold), the Company reflected itsequity in the rent Americold received from AmeriCold Logistics.  Subsequent thereto, the Company reflects itsequity in the operations of the combined company.  See page 88 for condensed proforma operatingresults of Americold for the three months ended December 31, 2004 and2003, giving effect to the acquisition of its tenant, AmeriCold Logistics, asif it had occurred on January 1, 2003.

 

86

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Below are the details ofthe changes by segment in EBITDA for the three months ended December 31,2004 compared to the three months ended September 30, 2004:

 
| **(Amounts in thousands)**                                        | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics** | ** ** | **Other** | ** ** |
|-------------------------------------------------------------------|------------|-----------|------------|------------|------------|------------|------------|-----------------------|------------|----------------------------------------|------------|-----------|------------|
| Three months  ended September 30, 2004                       |       | $         | 297,209    |       | $          | 165,704    |       | $                     | 52,148     |                                   | $          | 30,591    |       | $ | 19,191 |   | $ | 29,575 |   |
| 2004  Operations:                                                 |       |      |       |       |       |       |       |                  |       |                                   |       |      |       |
| Same store  operations(1)                                         |       |      |       | 1,948      |       | 3,721      |       | 1,998                 | (4)        | —                                 |       |      |       |
| Acquisitions,  dispositions and non-recurring income and expenses |       |      |       | (8,481     | )          | (8,387     | )(3)       | 1,344                 |       | (2,258                                 | )          |      |       |
| Three months  ended December 31, 2004                        |       | $         | 447,669    |       | $          | 159,171    |       | $                     | 47,482     |                                   | $          | 33,933    |       | $ | 16,933 |   | $ | 190,150 |   |
| % increase  in same store operations                              |       |      |       | 1.3        | %(2)       | 9.0        | %          | 6.7                   | %(4)       | N/A                                    | (5)        |      |       |

 

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(1)                                  Represents operations, which were ownedfor the same period in each year.

(2)                                  EBITDA and same store percentage increase(decrease) was $87,445 and 4.7% for the New York City office portfolio and$71,726 and (2.4%) for the CESCR portfolio.

(3)                                  EBITDA for the three months ended September 30,2004 includes a gain on the sale of the Company’s Dundalk Shopping Center of$9,850.

(4)                                  Primarily due to seasonality of tradeshows operations.

(5)                                  Not comparable because prior to November 4,2004, (date the operations of AmeriCold Logistics were combined withAmericold), the Company reflected its equity in the rent Americold receivedfrom AmeriCold Logistics.  Subsequentthereto, the Company reflects its equity in the operations of the combinedcompany.  See page 88 for condensedproforma operating results of Americold for the three months ended December 31,2004 and 2003, giving effect to the acquisition of its tenant, AmeriColdLogistics, as if it had occurred on January 1, 2003.

 

Below is areconciliation of net income and EBITDA for the three months ended September 30,2004.

 
| **(Amounts in thousands)**                                     | ** ** | **Total** | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics** | ** ** | **Other** | ** ** |
|----------------------------------------------------------------|------------|-----------|------------|------------|------------|------------|------------|-----------------------|------------|----------------------------------------|------------|-----------|------------|
| Net income  for the three months ended September 30, 2004 |       | $         | 141,973    |       | $          | 88,666     |       | $                     | 29,648     |                                   | $          | 19,299    |       | $ | 2,781 |   | $ | 1,579 |   |
| Interest and  debt expense                                     |       | 80,335    |       | 34,092     |       | 15,720     |       | 3,013                 |       | 7,796                                  |       | 19,714    |       |
| Depreciation  and amortization                                 |       | 74,294    |       | 42,673     |       | 6,780      |       | 8,000                 |       | 8,614                                  |       | 8,227     |       |
| Income taxes                                                   |       | 607       |       | 273        |       | —     |       | 279                   |       | —                                 |       | 55        |       |
| EBITDA for  the three months ended September 30, 2004     |       | $         | 297,209    |       | $          | 165,704    |       | $                     | 52,148     |                                   | $          | 30,591    |       | $ | 19,191 |   | $ | 29,575 |   |

 

87

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**Investmentin Americold Realty Trust**

 

Prior to November 18, 2004, the Company owned a60% interest in Vornado Crescent Portland Partnership (“VCPP”) which ownedAmericold Realty Trust (“Americold”). Americold owns 88 temperature controlled warehouses, all of which wereleased to AmeriCold Logistics.  On November 4,2004, Americold purchased its tenant, AmeriCold Logistics, for $47,700,000 incash.  On November 18, 2004, theCompany and its 40% partner, Crescent Real Estate Equities Company (“CEI”)collectively sold 20.7% of Americold’s common shares to The Yucaipa Companies (“Yucaipa”)for $145,000,000, which resulted in a gain, of which the Company’s share was$18,789,000. The sale price was based on a $1.450 billion valuation forAmericold before debt and other obligations. Yucaipa is a private equity firm with significant expertise in the fooddistribution, logistics and retail industries. Upon closing of the sale to Yucaipa on November 18, 2004, Americoldis owned 47.6% by the Company, 31.7% by CEI and 20.7% by Yucaipa. Pursuant tothe sales agreement: (i) Yucaipa may earn a promote of 20% of the increase inthe value of Americold through December 31, 2007, limited to 10% of theCompany’s and CEI’s remaining interest in Americold; (ii) the annual assetmanagement fee payable by CEI to the Company has been reduced fromapproximately $5,500,000 to $4,548,000, payable quarterly through October 30,2027.  CEI, at its option, may terminatethe payment of this fee at any time after November 2009, by paying theCompany a termination fee equal to the present value of the remaining paymentsthrough October 30, 2007, discounted at 10%.  In addition, CEI is obligated to pay a prorata portion of the termination fee to the extent it sells a portion of itsequity interest in Americold; and (iii) VCPP was dissolved.  The Company has the right to appoint three ofthe five members to Americold’s Board of Trustees.  Consequently, the Company is deemed toexercise control over Americold and, on November 18, 2004, the Companybegan to consolidate the operations and financial position of Americold intoits accounts and no longer accounts for its investment on the equity method.

 

The following is a proforma presentation of the results of operations of Americold for the three monthsand years ended December 31, 2004 and 2003, giving effect to theacquisition of AmeriCold Logistics as if it had occurred on January 1,2003.

 
| **(Amounts in thousands)**                | ** ** | **For the Year Ended  December 31,** | ** ** | **For the Three Months Ended  December 31,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                | **2004**   | ** **                                | **2003**   | ** **                                        | **2004**   | ** ** | **2003** | ** ** |
| Revenue                                   |       | $                                         | 701,707    |                                              | $          | 655,286 |   | $ | 191,595 |   | $ | 176,610 |   |
| Cost of  operations                       |       | 545,971                                   |       | 482,284                                           |       | 146,694 |   | 128,390 |   |
| Gross margin                              |       | 155,736                                   |       | 173,002                                           |       | 44,901 |   | 48,220 |   |
| Depreciation,  depletion and amortization |       | 72,059                                    |       | 71,860                                            |       | 17,666 |   | 17,950 |   |
| Interest  expense                         |       | 52,285                                    |       | 41,634                                            |       | 13,799 |   | 10,440 |   |
| General and  administrative expense       |       | 32,940                                    |       | 35,355                                            |       | 6,946 |   | 10,426 |   |
| Other  expense (income), net              |       | 11,137                                    |       | (601                                              | )          | 5,879 |   | (1,778 | ) |
| Net (loss)  income                        |       | (12,685                                   | )          | 24,754                                            |       | 611 |   | 11,182 |   |
| Depreciation  and amortization            |       | 71,622                                    |       | 71,386                                            |       | 17,567 |   | 17,836 |   |
| Interest  expense                         |       | 52,285                                    |       | 41,634                                            |       | 13,799 |   | 10,440 |   |
| Income taxes                              |       | 4,640                                     |       | 1,989                                             |       | 775 |   | (1,344 | ) |
| EBITDA                                    |       | $                                         | 115,862    |                                              | $          | 139,763 |   | $ | 32,752 |   | $ | 38,114 |   |
| Same store %  increase (decrease)         |       | (5.3                                      | )%         |                                              |       | .8 | % |   |   |

 

Revenue was $701,707,000 for the year ended December 31,2004, compared to $655,286,000 for the year ended December 31, 2003, anincrease of $46,421,000.  The increase inrevenue for the year ended December 31, 2004 was primarily due to (i)$36,406,000 from Americold’s transportation management services business fromboth new and existing customers, (ii) $6,692,000 from new managed warehousecontracts, net of a contract termination in the fourth quarter of 2004 and(iii) an increase in handling and accessorial services.

 

88

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Gross margin from owned warehouses was $150,515,000 or34.4%, for the year ended December 31, 2004, compared to $159,909,000, or36.9%, for the year ended December 31, 2003, a decrease of$9,394,000.  This decrease was primarilyattributable to (i) lower productivity related to new business at the Atlantawarehouses, (ii) lower average occupancy at the Carthage warehouse and (iii) achange in revenue mix as higher margin storage revenues declined and lowermargin handling revenues increased.

 

Gross margin from other operations (i.e.,transportation, management services and managed warehouses) was $5,221,000 forthe year ended December 31, 2004, compared to $13,093,000 for the yearended for the year ended December 31, 2003, a decrease of $7,872,000.  This decrease was primarily the result of (i)a $5,062,000 change in the estimate of unbilled transportation revenue, (ii)lower margins in the transportation management services business due totightened truck supply in 2004 as a result of new legislation reducing thehours that drivers are permitted to drive in a day, partially offset by (iii) anincrease in gross margin from new and existing managed warehouse customers.

 

Interest expense was $52,285,000 for the year ended December 31,2004, compared to $41,634,000 for the year ended December 31, 2003, anincrease of $10,651,000.  The increase wasprimarily due to higher average debt outstanding as Americold obtained amortgage financing on 28 of its unencumbered properties in February 2004.

 

General and administrative expense was $32,940,000 forthe year ended December 31, 2004, compared to $35,355,000 for the prioryear, a decrease of $2,415,000.  Thisdecrease resulted primarily from a lower bonus provision.

 

Other expense, net, was $11,137,000 for the year endedDecember 31, 2004, compared to other income, net, of $601,000 for the yearended December 31, 2003, a decrease of $11,738,000.  This decrease resulted primarily from (i)$7,569,000 for the write-off of the remaining net book value of two vacantwarehouse facilities and assets related to a managed warehouse contract thatwas terminated 2004, (ii) $2,241,000 of income in 2003 resulting from a taxrefund, and (iii) a gain of $850,000 in 2003 resulting from a sale ofwarehouse.

 

89

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**RelatedParty Transactions**

 

*Loan andCompensation Agreements*

 

In accordance with the terms of the employmentarrangement with Steven Roth, Vornado’s Chief Executive Officer, and subject toa letter agreement dated November 1999, Mr. Roth may draw up to$15,000,000 of loans on a revolving basis. Each loan bears interest, payable quarterly, at the applicable Federalrate on the date the loan is made and matures on the sixth anniversary of suchloan.  Loans are collateralized by assetswith a value of not less than two times the amount outstanding.  At December 31, 2004, the outstandingbalance under this arrangement was $13,122,500 (of which $4,704,500 is shown asa reduction in partners’ capital).  Theamount outstanding matures in January 2006 and bears interest at aweighted average rate of 4.49% per annum.

 

At December 31, 2004, the balance of the loan duefrom Michael Fascitelli, Vornado’s President, in accordance with his employmentagreement was $8,600,000.  The loanmatures in December 2006 and bears interest, payable quarterly, at aweighted average rate of 3.97% (based on the applicable Federal rate).

 

Effective January 1, 2002, the Company extendedits employment agreement with Mr. Fascitelli for a five-year period through December 31,2006.  Pursuant to the extendedemployment agreement, Mr. Fascitelli is entitled to receive a deferred paymenton December 31, 2006 of 626,566 Vornado common shares which are valued forcompensation purposes at $27,500,000 (the value of the shares on March 8,2002, the date the extended employment agreement was executed).  The shares are held in a rabbi trust for thebenefit of Mr. Fascitelli and vested 100% on December 31, 2002.  The extended employment agreement does notpermit diversification, allows settlement of the deferred compensationobligation by delivery of these shares only, and permits the deferred deliveryof these shares.  The value of theseshares was amortized ratably over the one-year vesting period as compensationexpense.

 

Pursuant to the Company’s annual compensation reviewin February 2002 with Joseph Macnow, Vornado’s Chief FinancialOfficer, the Compensation Committee approved a $2,000,000 loan toMr. Macnow, bearing interest at the applicable federal rate of 4.65% perannum and due in June 2007.  Theloan was funded on July 23, 2002 and is collateralized by assets with avalue of not less than two times the loan amount.

 

On March 11,2004, the Company loaned $2,000,000 to Melvyn Blum, an executive officer of Vornado,pursuant to the revolving credit facility contained in his January 2000employment agreement.  The loan bearsinterest at 1.57% per annum (the Federal rate) and is due in March 2007.

 

On February 22, 2005, Vornado and SandeepMathrani, Executive Vice President – Retail Division, entered into a newemployment agreement.  Pursuant to theagreement, the Company granted Mr. Mathrani (i) 16,836 restricted sharesof  Vornado’s stock, (ii) stock optionsto acquire 300,000 of Vornado’s common shares at an exercise price of $71.275per share and (iii) the right to receive 200,000 stock options over the next twoyears at the then prevailing market price. In addition, Mr. Mathrani repaid the $500,000 loan the Company providedhim under his prior employment agreement.

 

*Transactionswith Affiliates and Officers and Trustees of Vornado*

 

Alexander’s

 

The Company owns 33% of Alexander’s.  Mr. Roth and Mr. Fascitelli areOfficers and Directors of Alexander’s, the Company provides various services toAlexander’s in accordance with management, development and leasing agreementsand the Company has made loans to Alexander’s aggregating $124,000,000 at December 31,2004.  These agreements and the loans aredescribed in Note 5 - Investments in Partially-Owned Entities to the Company’sconsolidated financial statements in this annual report on Form 10-K.  In addition, in 2002, the Company sold airrights to Alexander’s, details of which are provided in Note 3 – Acquisitionsand Dispositions to the Company’s consolidated financial statements  in this annual report on Form 10-K.

 

90

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Interstate Properties

 

As of December 31, 2004, Interstate Propertiesand its partners beneficially owned approximately 10.8% of the common shares ofbeneficial interest of the Company and 27.4% of Alexander’s common stock.  Interstate Properties is a generalpartnership in which Steven Roth, David Mandelbaum and Russell B.Wight, Jr. are the partners. Mr. Roth is the Chairman of the Board and Chief Executive Officerof the Company, the managing general partner of Interstate Properties, and theChief Executive Officer and a director of Alexander’s.  Messrs. Mandelbaum and Wight are trustees of Vornadoand also directors of Alexander’s.

 

The Company manages and leases the real estate assetsof Interstate Properties pursuant to a management agreement for which theCompany receives an annual fee equal to 4% of base rent and percentagerent.  The management agreement has aterm of one year and is automatically renewable unless terminated by either ofthe parties on sixty days’ notice at the end of the term. The Company believesbased upon comparable fees charged by other real estate companies that itsterms are fair to the Company.  TheCompany earned $726,000, $703,000 and $747,000 of management fees under themanagement agreement for the years ended December 31, 2004, 2003 and2002.  In addition, during fiscal years2003 and 2002, as a result of a previously existing leasing arrangement withAlexander’s, Alexander’s paid to Interstate $587,000 and $703,000,respectively, for the leasing and other services actually rendered by theCompany.  Upon receipt of these payments,Interstate promptly paid them over to the Company without retaining anyinterest therein.  This arrangement was terminatedat the end of 2003 and all payments by Alexander’s thereafter for these leasingand other services are made directly to the Company.

 

Vornado Operating Company (“Vornado Operating”)

 

In October 1998, Vornado Operating was spun offfrom the Company in order to own assets that the Company could not itself ownand conduct activities that the Company could not itself conduct.  Vornado Operating’s primary asset was its 60%investment in AmeriCold Logistics, which leased 88 refrigerated warehouses fromAmericold, owned 60% by the Company.  TheCompany granted Vornado Operating a $75,000,000 unsecured revolving creditfacility that was to expire on December 31, 2004.  Borrowings under the revolving creditfacility bore interest at LIBOR plus 3%. The Company received a commitment fee equal to 1% per annum on theaverage daily unused portion of the facility. At the time of its dissolution referred to below, Vornado Operating hadoutstanding 4,068,924 shares and its operating partnership had outstanding447,017 units.  At such time, trusteesand officers of the Company held approximately 24.3% of the common shares andunits of Vornado Operating.  In addition,Messrs. Roth, Fascitelli, Macnow, Wight and West each served as an officerand/or director of Vornado Operating.

 

On December 31, 2002, the Company and CrescentReal Estate Equities formed a joint venture to acquire the Carthage, Missouriand Kansas City, Kansas quarries from AmeriCold Logistics for $20,000,000 incash (appraised value).  The Companycontributed cash of $8,800,000 to the joint venture representing its 44%interest.  AmeriCold Logistics used theproceeds from the sale to repay a portion of a loan to Vornado Operating.  Vornado Operating then repaid $9,500,000 ofthe amount outstanding under the Company’s revolving credit facility.   In addition, during 2004 and 2003, thisjoint venture acquired $21,930,000 and $5,720,000 of trade receivables fromAmeriCold Logistics for $21,500,000 and $5,606,000, respectively.  These receivables were subsequently collectedin full.

 

On November 4, 2004, Americold purchased itstenant, AmeriCold Logistics, for $47,700,000 in cash.  As part of this transaction, VornadoOperating repaid the $21,989,000 balance of the loan to the Company as well as$4,771,000 of unpaid interest.  Becausethe Company fully reserved for the interest income on this loan beginning in January 2002,it recognized $4,771,000 of income upon collection in the fourth quarter 2004.

 

In November 2004, a class action shareholderderivative lawsuit was brought in the Delaware Court of Chancery againstVornado Operating Company (“Vornado Operating”), its directors and theCompany.  The lawsuit sought to enjointhe dissolution of Vornado Operating, rescind the previously completed sale ofAmeriCold Logistics (owned 60% by Vornado Operating) to Americold Realty Trust(owned 60% by the Company) and damages. In addition, the plaintiffs claimed that the Vornado Operating directorsbreached their fiduciary duties.  On November 24,2004, a stipulation of settlement was entered into under which the Companyagreed to settle the lawsuit with a payment of approximately $4.5 million orabout $1 per Vornado Operating share or partnership unit before litigationexpenses. The proposed settlement payment would be in addition to theliquidation distribution of $2 per Vornado Operating share or unit that VornadoOperating made to its equityholders when it dissolved on December 29,2004.  On January 20, 2005, theDelaware Court of Chancery postponed deciding upon the proposed settlement andrequested further butlimited information before holding an additional hearing regarding thesettlement, which has been scheduled for March 2005.  The Company has accrued the proposedsettlement payment and related legal costs as part of “general andadministrative expense” in the fourth quarter of 2004.  TheCompany believes that the ultimate outcome of this matter will not have amaterial effect on the Company’s consolidated financial statements.

 

91

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Other

 

On January 1, 2003, the Company acquired BMS, acompany which provides cleaning and related services principally to the Company’sManhattan office properties, for $13,000,000 in cash from the estate ofBernard Mendik and certain other individuals including David R. Greenbaum,an executive officer of the Company.  TheCompany paid BMS $53,024,000, for the year ended December 31, 2002 forservices rendered to the Company’s Manhattan office properties.  Although the terms and conditions of thecontracts pursuant to which these services were provided were not negotiated atarms length, the Company believes based upon comparable amounts charged toother real estate companies that the terms and conditions of the contracts werefair to the Company.

 

On August 4, 2003, the Company completed theacquisition of 2101 L Street, a 370,000 square foot office building located inWashington D.C.  The consideration forthe acquisition consisted of approximately 1.1 million newly issued OperatingPartnership units (valued at approximately $49,517,000) and the assumption ofexisting mortgage debt and transaction costs totaling approximately$32,000,000.  Robert H. Smith andRobert P. Kogod, trustees of Vornado, together with family members ownedapproximately 24 percent of the limited partnership that sold the building andMr. Smith was a general partner.  On August 5,2003, the Company repaid the mortgage of $29,056,000.

 

On October 7, 2003, the Company acquired a 2.5%interest in the planned redevelopment of Waterfront, located at 401 M Street, amixed-use project in Washington D.C. for $2,171,000, of which the Company paid$1,545,000 in cash and issued 12,500 Vornado Realty L.P. partnership unitsvalued at $626,000.  The partnershipunits were issued to Mitchell N. Schear, one of the partners in theWaterfront interest, and the President of the Company’s CESCR division.

 

On July 1, 2004, theCompany acquired the Marriott hotel located in its Crystal City office complexfrom a limited partnership in which Robert H. Smith and Robert P. Kogod,trustees of the Company, together with family members own approximately 67percent.  The purchase price of$21,500,000 was paid in cash.  The hotelcontains 343 rooms and is leased to an affiliate of Marriott International,Inc. until July 31, 2015, with one 10-year extension option.  The land under the hotel was acquired in1999.

 

On October 1, 2004, the Company increased itsownership interest in the Investment Building in Washington, D.C. to 5% byacquiring an additional 2.8% interest for $2,240,000 in cash.  The Company’s original interest in theproperty was acquired in connection with the acquisition of the KaempferCompany in April 2003.  Mitchell N.Schear, President of the Company’s CESCR division and other former members ofKaempfer management were also partners in the Investment Building partnership.

 

During 2002, the Company paid approximately $147,000for legal services to a firm in which one of Vornado’s trustees is a member.

 

92

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**Liquidityand Capital Resources**

 

The Companyanticipates that cash from continuing operations over the next twelve monthswill be adequate to fund its business operations, dividends to shareholders anddistributions to unitholders of the Operating Partnership and recurring capitalexpenditures, and together with existing cash balances will be greater than itsanticipated cash requirements including development and redevelopmentexpenditures and debt amortization. Capital requirements for significant acquisitions may require fundingfrom borrowings or equity offerings.

 

As at December 31, 2004, the Company and Vornadohave an effective shelf registration under which Vornado can offer an aggregateof approximately $397,990,000 of equity securities and Vornado Realty L.P.can offer an aggregate of $1,550,770,000 of debt securities.  On January 26, 2005, the Company andVornado filed a registration statement to increase the amount of equity anddebt securities that can be offered to up to $2.5 billion and $5.0 billion,respectively.  On February 3, 2005,the registration statement was declared effective.

 

*CertainFuture Cash Requirements*

 

For 2005 the Company has budgeted approximately$180,000,000 for capital expenditures excluding acquisitions as follows:

 
| **(Amounts in millions except square foot data)**          | ** ** | **Total** | ** ** | **New York  Office** | ** ** | **CESCR  Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Other (1)** | ** ** |
|------------------------------------------------------------|------------|-----------|------------|----------------------|------------|-------------------|------------|------------|------------|-----------------------|------------|---------------|------------|
| Expenditures  to maintain assets                           |       | $         | 57.5       |                 | $          | 16.0              |       | $          | 21.0       |                  | $          | 4.0           |       | $ | 10.0 |   | $ | 6.5 |   |
| Tenant  improvements                                       |       | 101.5     |       | 22.0                 |       | 60.5              |       | 6.0        |       | 13.0                  |       | —        |       |
| Leasing  commissions                                       |       | 24.5      |       | 7.0                  |       | 13.0              |       | 1.5        |       | 3.0                   |       | —        |       |
| Total Tenant  Improvements and Leasing Commissions         |       | 126.0     |       | 29.0                 |       | 73.5              |       | 7.5        |       | 16.0                  |       | —        |       |
| *Per  square foot*                                         |       |      |       | $                    | 40.00      |              | $          | 28.25      |       | $                     | 9.10       |          | $          | 13.60 |   | $ | — |   |
| *Per  square foot per annum*                               |       |      |       | $                    | 4.20       |              | $          | 5.65       |       | $                     | 0.90       |          | $          | 2.25 |   | $ | — |   |
| Total Capital  Expenditures and Leasing Commissions        |       | $         | 183.5      |                 | $          | 45.0              |       | $          | 94.5       |                  | $          | 11.5          |       | $ | 26.0 |   | $ | 6.5 |   |
|                                                       |       |      |       |                 |       |              |       |       |       |                  |       |          |       |
| *Square  feet budgeted to be leased  (in  thousands)* |       |      |       | 725                  |       | 2,600             |       | 825        |       | 1,175                 |       |          |       |
| *Weighted  average lease term*                             |       |      |       | 9.5                  |       | 5.0               |       | 10.0       |       | 6.0                   |       |          |       |

 

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(1)                                  Hotel Pennsylvania, Paramus Office andWarehouses.

 

During the year ended December 31, 2004, actualcash basis capital expenditures and leasing commissions were $186,850,000, ascompared to a budget of $194,200,000.

 

In addition to the capital expenditures reflectedabove, the Company is currently engaged in certain development andredevelopment projects for which it has budgeted approximately$470,000,000.  Of this amount$310,000,000 is estimated to be expended in 2005.

 

The table above excludes Americold’s 2005 budget of$23,000,000 for capital expenditures as Americold is expected to fund theseexpenditures without contributions from the Company.  In addition, no cash requirements have beenbudgeted for the capital expenditures of Alexander’s, Newkirk MLP, or any otherentity that is partially owned by the Company. These investees are also expected to fund their own cash requirements.

 

93

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*Financing Activities and Contractual Obligations*

 

Below is a schedule of the Company’s contractualobligations and commitments at December 31, 2004.

 
| **(Amounts in thousands)**                                       | ** ** | **Total** | ** ** | **Less than  1 Year** | ** ** | **1 – 3 Years** | ** ** | **3 – 5 Years** | ** ** | **Thereafter** | ** ** |
|------------------------------------------------------------------|------------|-----------|------------|-----------------------|------------|----------------------|------------|----------------------|------------|----------------|------------|
| Contractual  Cash Obligations:                                   |       |      |       |                  |       |                 |       |                 |       |           |       |
| Mortgages  and Notes Payable (principal and interest)            |       | $         | 5,464,579  |                  | $          | 402,556              |       | $                    | 1,302,976  |           | $          | 1,405,875 |   | $ | 2,353,172 |   |
| Senior  Unsecured Notes due 2007                                 |       | 544,916   |       | 12,850                |       | 532,066              |       | —               |       | —         |       |
| Senior  Unsecured Notes due 2009                                 |       | 302,026   |       | 11,250                |       | 22,500               |       | 268,276              |       | —         |       |
| Senior Unsecured  Notes due 2010                                 |       | 256,779   |       | 9,500                 |       | 19,000               |       | 19,000               |       | 209,279        |       |
| Operating  leases                                                |       | 1,030,448 |       | 20,427                |       | 40,902               |       | 40,900               |       | 928,219        |       |
| Purchase  obligations, primarily construction   commitments |       | 49,200    |       | 49,200                |       | —               |       | —               |       | —         |       |
| Capital  lease obligations                                       |       | 69,658    |       | 17,722                |       | 18,288               |       | 13,741               |       | 19,907         |       |
| Total  Contractual Cash Obligations                              |       | $         | 7,717,606  |                  | $          | 523,505              |       | $                    | 1,935,732  |           | $          | 1,747,792 |   | $ | 3,510,577 |   |
|                                                             |       |      |       |                  |       |                 |       |                 |       |           |       |
| Commitments:                                                     |       |      |       |                  |       |                 |       |                 |       |           |       |
| Capital  commitments to partially-owned entities                 |       | $         | 9,696      |                  | $          | 9,696                |       | $                    | —     |           | $          | — |   | $ | — |   |
| Standby  Letters of Credit                                       |       | 32,306    |       | 31,986                |       | 320                  |       | —               |       | —         |       |
| Other  Guarantees                                                |       | —    |       | —                |       | —               |       | —               |       | —         |       |
| Total  Commitments                                               |       | $         | 42,002     |                  | $          | 41,682               |       | $                    | 320        |           | $          | — |   | $ | — |   |

 

At December 31, 2004, the Company has$567,851,000 available under its $600,000,000 revolving credit facility ($32,149,000 was utilized for letters ofcredit), which matures in July 2006. Further, the Company has a number of properties that are unencumbered.

 

The Company’s credit facility contains customaryconditions precedent to borrowing such as the bring down of customaryrepresentations and warranties as well as compliance with financial covenantssuch as minimum interest coverage and maximum debt to marketcapitalization.  The facility providesfor higher interest rates in the event of a decline in the Company’s ratingsbelow Baa3/BBB.  This facility alsocontains customary events of default that could give rise to acceleration andinclude such items as failure to pay interest or principal and breaches offinancial covenants such as maintenance of minimum capitalization and minimuminterest coverage.

 

The Company carries comprehensive liability and allrisk property insurance ((i) fire, (ii) flood, (iii) extended coverage, (iv) “actsof terrorism” as defined in the Terrorism Risk Insurance Act of 2002 whichexpires in 2005 and (v) rental loss insurance) with respect to its assets.  In April 2004, the Company reviewed itsall risk policies and increased its coverage for Acts of Terrorism for each ofits New York Office, CESCR Office, Retail and Merchandise Mart divisions.  Below is a summary of the all risk propertyinsurance and terrorism risk insurance for each of the Company’s businesssegments:

 
| ** **                        | ** ** | **Coverage Per Occurrence** | ** **    |
|-----------------------------------|------------|-----------------------------|---------------|
| ** **                        | ** ** | **All Risk (1)**            | ** **    | **Sub-Limits for   Acts of Terrorism** | ** ** |
| New York  Office                  |       | $                           | 1,400,000,000 |   | $ | 750,000,000 |   |
| CESCR Office                      |       | 1,400,000,000               |          | 750,000,000 |   |
| Retail                            |       | 500,000,000                 |          | 500,000,000 |   |
| Merchandise  Mart                 |       | 1,400,000,000               |          | 750,000,000 |   |
| Temperature  Controlled Logistics |       | 225,000,000                 |          | 225,000,000 |   |
|                                   |            |                             |               |  |  |  |  |

 

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(1)                                  Limitedas to terrorism insurance by the sub-limit shown in the adjacent column.

 

In addition to the coverage above, the Company carrieslesser amounts of coverage for terrorist acts not covered by the Terrorism RiskInsurance Act of 2002.

 

The Company’s debt instruments, consisting of mortgageloans secured by its properties (which are generally non-recourse to theCompany), its senior unsecured notes due 2007, 2009 and 2010 and its revolvingcredit agreement, contain customary covenants requiring the Company to maintaininsurance. Although the Company believes that it has adequate insurancecoverage under these agreements, the Company may not be able to obtain anequivalent amount of coverage at reasonable costs in the future.  Further if lenders insist on greater coveragethan the Company is able to obtain, or if the Terrorism Risk Insurance Act of2002 is not extended; it could adversely affect the Company’s ability tofinance and/or refinance its properties and expand its portfolio.

 

In conjunction with the closing of Alexander’sLexington Avenue construction loan on July 3, 2002, the Company agreed toguarantee to the construction lender, the lien free, timely completion of theconstruction of the project and funding of all project costs in excess of astated budget, as defined in the loan agreement, if not funded by Alexander’s.

 

94

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*Cash Flows for the Year Ended December 31, 2004*

 

Cash and cash equivalents were $599,282,000 at December 31,2004, as compared to $320,542,000 at December 31, 2003, an increase of$278,740,000.

 

Cash flows provided by operating activities of $661,573,000was primarily comprised of (i) net income of $750,115,000, (ii) a netchange in operating assets and liabilities of $14,957,000, partially offset by(iii) adjustments for non-cash items of $104,974,000.  The adjustments for non-cash items wereprimarily comprised of (i) depreciation and amortization of $253,822,000,(ii) minority interest of $110,000, partially offset by (iii) net gains onmark-to-market of derivatives of $135,372,000 (Sears option shares and GMHwarrants), (iv) net gains on sale of real estate of $75,755,000, (v) net gainson dispositions of wholly-owned and partially-owned assets other than realestate of $19,775,000, (vi) the effect of straight-lining of rental income of$61,473,000, (vii) equity in net income of partially-owned entities andincome applicable to Alexander’s of $51,961,000, and (viii) amortizationof below market leases, net of $14,570,000.

 

Net cash used in investing activities of $350,729,000was primarily comprised of (i) capital expenditures of $117,942,000,(ii) development and redevelopment expenditures of $139,669,000,(iii) investment in notes and mortgages receivable of $330,101,000,(iv) investments in partially-owned entities of $158,467,000, (v)acquisitions of real estate and other of $286,310,000, (vi) purchases ofmarketable securities of $59,714,000, partially offset by (vii) proceeds fromthe sale of real estate of $233,005,000, (viii) distributions frompartially-owned entities of $303,745,000, (ix) repayments on notesreceivable of $174,276,000, (x) cash received upon consolidation ofAmericold Realty Trust of $21,694,000 and (xi) cash restricted primarily for mortgageescrows of $8,754,000.

 

Net cash used in financing activities of $32,104,000was primarily comprised of (i) distributions to Class A unitholders of $435,345,000,(ii) distributions to preferred unitholders of $94,077,000, (iii)repayments of borrowings of $702,823,000, (iv) redemption of perpetualpreferred units of $112,467,000, partially offset by proceeds from (v)borrowings of $745,255,000, (vi) proceeds from the issuance of preferred unitsof $510,439,000 and (vii) the exercise of employee unit options of $61,935,000.

 

Below are the details of capital expenditures, leasingcommissions and development and redevelopment expenditures and a reconciliationof total expenditures on an accrual basis to the cash expended in the yearended December 31, 2004.  See page54 for per square foot data.

 
| **(Amounts in thousands)**                                          | ** ** | **Total** | ** ** | **New York  Office** | ** ** | **CESCR** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Other** | ** ** |
|---------------------------------------------------------------------|------------|-----------|------------|----------------------|------------|-----------|------------|------------|------------|-----------------------|------------|-----------|------------|
| Capital  Expenditures (Accrual basis):                              |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Expenditures  to maintain the assets:                               |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Recurring                                                           |       | $         | 50,963     |                 | $          | 11,673    |       | $          | 16,272     |                  | $          | 2,344     |       | $ | 18,881 |   | $ | 1,793 |   |
| Non-recurring                                                       |       | —    |       | —               |       | —    |       | —     |       | —                |       | —    |       |
|                                                                |       | 50,963    |       | 11,673               |       | 16,272    |       | 2,344      |       | 18,881                |       | 1,793     |       |
| Tenant  improvements:                                               |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Recurring                                                           |       | 101,026   |       | 41,007               |       | 22,112    |       | 3,346      |       | 34,561                |       | —    |       |
| Non-recurring                                                       |       | 7,548     |       | —               |       | 7,548     |       | —     |       | —                |       | —    |       |
| Total                                                               |       | 108,574   |       | 41,007               |       | 29,660    |       | 3,346      |       | 34,561                |       | —    |       |
|                                                                |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Leasing  Commissions:                                               |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Recurring                                                           |       | 33,118    |       | 18,013               |       | 6,157     |       | 671        |       | 8,277                 |       | —    |       |
| Non-recurring                                                       |       | 1,706     |       |                 |       | 1,706     |       | —     |       | —                |       | —    |       |
|                                                                |       | 34,824    |       | 18,013               |       | 7,863     |       | 671        |       | 8,277                 |       | —    |       |
| Total  Capital Expenditures and Leasing Commissions (accrual basis) |       | 194,361   |       | 70,693               |       | 53,795    |       | 6,361      |       | 61,719                |       | 1,793     |       |
| Adjustments  to reconcile accrual basis to cash basis:              |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Expenditures  in the current year applicable to prior periods       |       | 61,137    |       | 29,660               |       | 26,463    |       | 1,518      |       | 3,496                 |       | —    |       |
| Expenditures  to be made in future periods for the current period   |       | (68,648   | )          | (27,562              | )          | (22,186   | )          | (2,172     | )          | (16,728               | )          | —    |       |
| Total  Capital Expenditures and Leasing Commissions (Cash basis)    |       | $         | 186,850    |                 | $          | 72,791    |       | $          | 58,072     |                  | $          | 5,707     |       | $ | 48,487 |   | $ | 1,793 |   |

 

95

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| **(Amounts in thousands)**                    | ** ** | **Total** | ** ** | **New York  Office** | ** ** | **CESCR** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Other** | ** ** |
|-----------------------------------------------|------------|-----------|------------|----------------------|------------|-----------|------------|------------|------------|-----------------------|------------|-----------|------------|
| Development  and Redevelopment: Expenditures: |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Crystal  Plazas (PTO)                         |       | $         | 10,993     |                 | $          | —    |       | $          | 10,993     |                  | $          | —    |       | $ | — |   | $ | — |   |
| 640 Fifth  Avenue                             |       | 15,067    |       | 15,067               |       | —    |       | —     |       | —                |       | —    |       |
| 4 Union  Square South                         |       | 28,536    |       | —               |       | —    |       | 28,536     |       | —                |       | —    |       |
| Crystal  Drive Retail                         |       | 25,465    |       | —               |       | 25,465    |       | —     |       | —                |       | —    |       |
| Other                                         |       | 59,608    |       | 4,027                |       | 220       |       | 33,851     |       | 21,262                |       | 248       |       |
|                                          |       | $         | 139,669    |                 | $          | 19,094    |       | $          | 36,678     |                  | $          | 62,387    |       | $ | 21,262 |   | $ | 248 |   |

 

Capital expenditures are categorized as follows:

 

Recurring — capital improvements expended to maintaina property’s competitive position within the market and tenant improvements andleasing commissions for costs to re-lease expiring leases or renew or extendexisting leases.

 

Non-recurring — capital improvements completed in theyear of acquisition and the following two years which were planned at the timeof acquisition and tenant improvements and leasing commissions for spacewhich was vacant at the time of acquisition of a property.

 

Development and redevelopment expenditures include allhard and soft costs associated with the development or redevelopment of aproperty, including tenant improvements, leasing commissions and capitalizedinterest and operating costs until the property is substantially complete andready for its intended use.

 

*Cash Flows for the Year Ended December 31, 2003*

 

Cash and cash equivalents were $320,542,000 at December 31,2003, as compared to $208,200,000 at December 31, 2002, an increase of$112,342,000.

 

Cash flow provided by operating activities of$528,951,000 was primarily comprised of (i) net income of $638,551,000,partially offset by, (ii) adjustments for non-cash items of $77,863,000,and (iii) the net change in operating assets and liabilities of$31,737,000.  The adjustments fornon-cash items were primarily comprised of (i) depreciation andamortization of $219,911,000, (ii) minority interest of $827,000,partially offset by, (iii) gains on sale of real estate of $161,789,000,(iv) the effect of straight-lining of rental income of $41,947,000, (v) equityin net income of partially-owned entities and Alexander’s of $83,475,000 and(vi) amortization of below market leases, net of $9,047,000.

 

Net cash used in investing activities of $130,292,000was comprised of (i) investment in notes and mortgages receivable of $230,375,000,(ii) acquisitions of real estate of $216,361,000, (iii) development andredevelopment expenditures of $123,436,000, (iv) capital expenditures of$120,593,000, (v) investments in partially-owned entities of $15,331,000,(vi) purchases of marketable securities of $17,356,000, partially offset by,(vii) proceeds received from the sale of real estate of $299,852,000,(viii) distributions from partially-owned entities of $154,643,000,(ix) restricted cash, primarily mortgage escrows of $101,292,000,(x) repayments on notes receivable of $29,421,000 and (xi) proceedsfrom the sale of marketable securities of $7,952,000.

 

Net cash used in financing activities of $286,317,000was primarily comprised of (i) repayments of borrowings of $752,422,000,(ii) distributions to Class A unitholders of $390,139,000,(iii) distributions to preferred unitholders of $116,619,000, (iv)redemption of perpetual preferred units of $103,243,000, partially offset by(v) proceeds from borrowings of $812,487,000, (vi) proceeds from theissuance of preferred units of $119,967,000, and (vii) proceeds from theexercise of employee unit options of $145,152,000.

 

96

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Below are the details of capital expenditures, leasingcommissions and development and redevelopment expenditures for the year ended December 31,2003.

 
| **(Amounts in thousands)**                                           | ** ** | **Total** | ** ** | **New York  Office** | ** ** | **CESCR** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Other** | ** ** |
|----------------------------------------------------------------------|------------|-----------|------------|----------------------|------------|-----------|------------|------------|------------|-----------------------|------------|-----------|------------|
| Capital  Expenditures (Accrual basis):                               |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Expenditures  to maintain the assets:                                |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Recurring                                                            |       | $         | 31,421     |                 | $          | 14,201    |       | $          | 6,125      |                  | $          | 592       |       | $ | 10,071 |   | $ | 432 |   |
| Non-recurring                                                        |       | 13,829    |       | —               |       | 4,907     |       | —     |       | 8,922                 |       | —    |       |
|                                                                 |       | 45,250    |       | 14,201               |       | 11,032    |       | 592        |       | 18,993                |       | 432       |       |
| Tenant  improvements:                                                |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Recurring                                                            |       | 67,436    |       | 23,415               |       | 23,850    |       | 3,360      |       | 16,811                |       | —    |       |
| Non-recurring                                                        |       | 7,150     |       | —               |       | 7,150     |       | —     |       | —                |       | —    |       |
|                                                                 |       | 74,586    |       | 23,415               |       | 31,000    |       | 3,360      |       | 16,811                |       | —    |       |
|                                                                 |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Leasing  Commissions:                                                |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Recurring                                                            |       | 19,931    |       | 10,453               |       | 6,054     |       | 273        |       | 3,151                 |       | —    |       |
| Non-recurring                                                        |       | 1,496     |       | —               |       | 1,496     |       | —     |       | —                |       | —    |       |
|                                                                 |       | 21,427    |       | 10,453               |       | 7,550     |       | 273        |       | 3,151                 |       | —    |       |
| Total  Capital Expenditures and Leasing Commissions (accrual basis): |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Recurring                                                            |       | 118,788   |       | 48,069               |       | 36,029    |       | 4,225      |       | 30,033                |       | 432       |       |
| Nonrecurring                                                         |       | 22,475    |       | —               |       | 13,553    |       | —     |       | 8,922                 |       | —    |       |
| Total                                                                |       | 141,263   |       | 48,069               |       | 49,582    |       | 4,225      |       | 38,955                |       | 432       |       |
| Adjustments  to reconcile accrual basis to cash basis:               |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| Expenditures  in the current year applicable to prior periods        |       | 47,174    |       | 10,061               |       | 17,886    |       | 11,539     |       | 7,688                 |       | —    |       |
| Expenditures  to be made in future periods for the current period    |       | (56,465   | )          | (21,172              | )          | (26,950   | )          | (1,830     | )          | (6,513                | )          | —    |       |
| Total  Capital Expenditures and Leasing Commissions (Cash basis)     |       | $         | 131,972    |                 | $          | 36,958    |       | $          | 40,518     |                  | $          | 13,934    |       | $ | 40,130 |   | $ | 432 |   |

 

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(1)                                  Includesreimbursements from tenants for expenditures incurred in the prior year.

 
| **(Amounts in thousands)**                    | ** ** | **Total** | ** ** | **New York  Office** | ** ** | **CESCR** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Other** | ** ** |
|-----------------------------------------------|------------|-----------|------------|----------------------|------------|-----------|------------|------------|------------|-----------------------|------------|-----------|------------|
| Development  and Redevelopment: Expenditures: |       |      |       |                 |       |      |       |       |       |                  |       |      |       |
| 400 North  LaSalle                            |       | $         | 42,433     |                 | $          | —    |       | $          | —     |                  | $          | —    |       | $ | — |   | $ | 42,433 |   |
| 640 Fifth  Avenue                             |       | 29,138    |       | 29,138               |       | —    |       | —     |       | —                |       | —    |       |
| 4 Union  Square South                         |       | 14,009    |       | —               |       | —    |       | 14,009     |       | —                |       | —    |       |
| Crystal  Drive Retail                         |       | 12,495    |       | —               |       | 12,495    |       | —     |       | —                |       | —    |       |
| Other                                         |       | 25,361    |       | 5,988                |       | —    |       | 18,851     |       | 143                   |       | 379       |       |
|                                          |       | $         | 123,436    |                 | $          | 35,126    |       | $          | 12,495     |                  | $          | 32,860    |       | $ | 143 |   | $ | 42,812 |   |

 

 

97

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*Cash Flows for the Year Ended December 31, 2002*

 

Cash flow provided by operating activities of$499,825,000 was primarily comprised of (i) net income of $370,302,000,(ii) adjustments for non-cash items of $166,470,000, partially offset by,(iii) the net change in operating assets and liabilities of $36,947,000.  The adjustments for non-cash items wereprimarily comprised of (i) depreciation and amortization of $205,826,000,(ii) minority interest of $3,534,000, (iii) net loss on dispositions ofwholly-owned and partially-owned assets other than depreciable real estate of$17,471,000, (iv) a cumulative effect of change in accounting principle of$30,129,000, (v) amortization of officer’s deferred compensation of$27,500,000, (vi) costs of acquisitions not consummated of $6,874,000,partially offset by (vii) the effect of straight-lining of rental income of$38,119,000, (viii) equity in net income of partially-owned entities andAlexander’s of $74,111,000, and (ix) amortization of below market leases, netof $12,634,000.

 

Net cash used in investing activities of $24,117,000was primarily comprised of (i) capital expenditures of $96,018,000, (ii)development and redevelopment expenditures of $91,199,000,(iii) investment in notes and mortgages receivable of $56,935,000, (iv) investmentsin partially-owned entities of $73,242,000, (v) acquisitions of realestate of $23,665,000, (vi) restricted cash, primarily mortgage escrows of$21,471,000, partially offset by (vii) proceeds from the repayment ofnotes and mortgage loans receivable of $124,500,000, (viii) distributions frompartially-owned entities of $126,077,000, and (ix) proceeds from sales ofmarketable securities of $87,836,000.

 

Net cash used in financing activities of $533,092,000was primarily comprised of (i) repayments on borrowings of $731,238,000,(ii) distributions to Class A unitholders of $364,730,000, (iii)distributions to preferred unitholders of $119,214,000, (iv) redemptions ofperpetual preferred units of $25,000,000, partially offset by (v) proceeds fromborrowings of $628,335,000, (vi) proceeds from the issuance of Class A units of$56,453,000 and (vii) proceeds from employee unit option exercises of$26,272,000.

 

Below are the details of 2002 capital expenditures,leasing commissions and development and redevelopment expenditures.

 
| **(Amounts in thousands)**                           | ** ** | **Total** | ** ** | **New York  City Office** | ** ** | **CESCR** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Other** | ** ** |
|------------------------------------------------------|------------|-----------|------------|---------------------------|------------|-----------|------------|------------|------------|-----------------------|------------|-----------|------------|
| Capital  Expenditures:                               |       |      |       |                      |       |      |       |       |       |                  |       |      |       |
| Expenditures  to maintain the assets:                |       |      |       |                      |       |      |       |       |       |                  |       |      |       |
| Recurring                                            |       | $         | 27,881     |                      | $          | 9,316     |       | $          | 13,686     |                  | $          | 1,306     |       | $ | 2,669 |   | $ | 904 |   |
| Non-recurring                                        |       | 35,270    |       | 6,840                     |       | 16,455    |       | —     |       | 11,975                |       | —    |       |
|                                                 |       | $         | 63,151     |                      | $          | 16,156    |       | $          | 30,141     |                  | $          | 1,306     |       | $ | 14,644 |   | $ | 904 |   |
| Tenant  improvements:                                |       |      |       |                      |       |      |       |       |       |                  |       |      |       |
| Recurring                                            |       | $         | 24,847     |                      | $          | 12,017    |       | $          | 5,842      |                  | $          | 2,309     |       | $ | 4,679 |   | — |   |
| Non-recurring                                        |       | 6,957     |       | 2,293                     |       | 4,664     |       | —     |       | —                |       | —    |       |
|                                                 |       | $         | 31,804     |                      | $          | 14,310    |       | $          | 10,506     |                  | $          | 2,309     |       | $ | 4,679 |   | — |   |
| Leasing  Commissions:                                |       |      |       |                      |       |      |       |       |       |                  |       |      |       |
| Recurring                                            |       | $         | 14,345     |                      | $          | 8,854     |       | $          | 4,416      |                  | $          | 353       |       | $ | 614 |   | $ | 108 |   |
| Non-recurring                                        |       | 4,205     |       | 2,067                     |       | 2,138     |       | —     |       | —                |       | —    |       |
|                                                 |       | $         | 18,550     |                      | $          | 10,921    |       | $          | 6,554      |                  | $          | 353       |       | $ | 614 |   | $ | 108 |   |
|                                                 |       |      |       |                      |       |      |       |       |       |                  |       |      |       |
| Total  Capital Expenditures and Leasing Commissions: |       |      |       |                      |       |      |       |       |       |                  |       |      |       |
| Recurring                                            |       | $         | 67,073     |                      | $          | 30,187    |       | $          | 23,944     |                  | $          | 3,968     |       | $ | 7,962 |   | $ | 1,012 |   |
| Non-recurring                                        |       | 46,432    |       | 11,200                    |       | 23,257    |       | —     |       | 11,975                |       | —    |       |
|                                                 |       | $         | 113,505    |                      | $          | 41,387    |       | $          | 47,201     |                  | $          | 3,968     |       | $ | 19,937 |   | $ | 1,012 |   |
| Development  and Redevelopment Expenditures:         |       |      |       |                      |       |      |       |       |       |                  |       |      |       |
| 400 North  LaSalle                                   |       | $         | 27,600     |                      | $          | —    |       | $          | —     |                  | $          | —    |       | $ | — |   | $ | 27,600 |   |
| Palisades-Fort  Lee, NJ                              |       | 16,750    |       | —                    |       | —    |       | —     |       | —                |       | 16,750    |       |
| 640 Fifth  Avenue                                    |       | 16,749    |       | 16,749                    |       | —    |       | —     |       | —                |       | —    |       |
| 435 7th  Avenue                                      |       | 12,353    |       | —                    |       | —    |       | 12,353     |       | —                |       | —    |       |
| 4 Union  Square South                                |       | 2,410     |       | —                    |       | —    |       | 2,410      |       | —                |       | —    |       |
| Other                                                |       | 15,337    |       | 10,234                    |       | 1,496     |       | (596       | )          | 1,529                 |       | 2,674     |       |
|                                                 |       | $         | 91,199     |                      | $          | 26,983    |       | $          | 1,496      |                  | $          | 14,167    |       | $ | 1,529 |   | $ | 47,024 |   |

 

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**ITEM 7A.**                                            QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

** **

The Company has exposure to fluctuations in marketinterest rates.  Market interest ratesare highly sensitive to many factors, beyond the control of the Company.  Various financial vehicles exist which wouldallow management to mitigate the impact of interest rate fluctuations on theCompany’s cash flows and earnings.

 

As of December 31, 2004, the Company has aninterest rate swap as described in footnote 1 to the table below.  In addition, during 2003 the Companypurchased two interest rate caps with notional amounts aggregating$295,000,000, and simultaneously sold two interest rate caps with the sameaggregate notional amount on substantially the same terms as the capspurchased.  As the significant terms ofthese arrangements are the same, the effects of a revaluation of theseinstruments are expected to substantially offset one another.  Management may engage in additional hedgingstrategies in the future, depending on management’s analysis of the interestrate environment and the costs and risks of such strategies.

 

The Company’s exposure to a change in interest rateson its consolidated and non-consolidated debt (all of which arises out ofnon-trading activity) is as follows:

 
| ** **                                            | ** ** | **2004**                       | ** ** | **2003**                             | ** ** |
|-------------------------------------------------------|------------|--------------------------------|------------|--------------------------------------|------------|
| **($ in thousands, except per unit amounts)**    | ** ** | **December 31,  Balance** | ** ** | **Weighted  Average  Interest Rate** | ** ** | **Effect of 1%  Change In  Base Rates** | ** ** | **December 31,  Balance** | ** ** | **Weighted  Average  Interest Rate** | ** ** |
|                                                  |       |                           |       |                                 |       |   |   |   |   |   |   |
| Consolidated  debt:                                   |       |                           |       |                                 |       |   |   |   |   |   |   |
| Variable  rate (1)                                    |       | $                              | 1,114,981  |                                 | 3.45       | % | $ | 11,150 |   | $ | 1,270,899 |   | 2.22 | % |
| Fixed rate                                            |       | 3,841,530                      |       | 6.68                                 | %          | — |   | 2,906,566 |   | 7.19 | % |
|                                                  |       | $                              | 4,956,511  |                                 | 5.95       | % | 11,150 |   | $ | 4,177,465 |   | 5.68 | % |
|                                                  |       |                           |       |                                 |       |   |   |   |   |   |   |
| Debt of  non-consolidated entities:                   |       |                           |       |                                 |       |   |   |   |   |   |   |
| Variable  rate                                        |       | $                              | 122,007    |                                 | 4.67       | % | 1,220 |   | $ | 153,140 |   | 3.64 | % |
| Fixed rate                                            |       | 547,935                        |       | 6.73                                 | %          | — |   | 777,427 |   | 7.07 | % |
|                                                  |       | $                              | 669,942    |                                 | 6.36       | % | 1,220 |   | $ | 930,567 |   | 6.51 | % |
|                                                  |       |                           |       |                                 |       |   |   |   |   |   |   |
| Total change  in the Company’s annual net income |       |                           |       |                                 |       | $ | 12,370 |   |   |   |   |   |
| Per Class A  unit-diluted                             |       |                           |       |                                 |       | $ | .08 |   |   |   |   |   |

 

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(1)                                  Includes $512,791 and $525,279,respectively, for the Company’s senior unsecured notes due 2007, as the Companyentered into interest rate swap agreements that effectively converted theinterest rate from a fixed rate of 5.625% to a floating rate of LIBOR plus..7725%, based upon the trailing 3 month LIBOR rate (2.57% at December 31,2004).  In accordance with SFAS No.133: Accounting for Derivative Instruments and Hedging Activities, as amended,accounting for these swaps requires the Company to fair value the debt at eachreporting period.  At December 31,2004 and 2003, the fair value adjustment was $13,148 and $25,780, and isincluded in the balance of the senior unsecured notes above.

 

The fair value of the Company’s debt, based ondiscounted cash flows at the current rate at which similar loans would be madeto borrowers with similar credit ratings for the remaining term of such debt,exceeds the aggregate carrying amount by approximately $256,518,000 at December 31,2004.

 

As of December 31, 2004, the Company hasmezzanine loans receivable of $440,186,000. The Company receives interest on these loans based on a floating rate (afixed spread plus 30, 60 or 90 day LIBOR). The Company believes that a portion of its exposure to a change ininterest rates on its floating rate debt, as illustrated above, is mitigated bythe outstanding balances of these loans receivable.

 

99

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*DerivativeInstruments*

 

As of December 31, 2004,the Company has the following derivative instruments that do not qualify forhedge accounting treatment:

 

The Company has an economic interest in 7,916,900Sears common shares through a series of privately negotiated transactions witha financial institution pursuant to which the Company purchased a call optionand simultaneously sold a put option at the same strike price on Sears commonshares.  These call and put options havean initial weighted-average strike price of $39.82 per share, or an aggregate of $315,250,000, expire in April 2006and provide for net cash settlement. Under these agreements, the strike price for each pair of optionsincreases at an annual rate of LIBOR plus 45 basis points and is credited forthe dividends received on the shares. The options provide the Company with the same economic gain or loss asif it had purchased the underlying common shares and borrowed the aggregatestrike price at an annual rate of LIBOR plus 45 basis points.  Because these options are derivatives and donot qualify for hedge accounting treatment, the gains or losses resulting fromthe mark-to-market of the options at the end of each reporting period are recognizedas an increase or decrease in “interest and other investment income” on theCompany’s consolidated statement of income. During the year ended December 31,2004, the Company recorded net income of $81,730,000, comprised of (i)$88,782,000 from the mark-to-market of the options on December 31, 2004,based on Sears’ closing stock price of $51.03 per share and (ii) $2,295,000 foraccrued dividends, partially offset by (i) $5,972,000 for a performance-basedparticipation, (ii) $2,371,000 for the increase in strike price resulting fromthe LIBOR charge and (iii) $1,004,000 of professional fees.

 

Under a warrant agreement with GMH Communities L.P.,the Company holds 5.6 million warrants to purchase partnership units of GMH atan adjusted exercise price of $8.99 per share. Because these warrants are derivatives and do not qualify for hedgeaccounting treatment, the gains or losses resulting from the mark-to-market ofthe warrants at the end of each reporting period are recognized as an increaseor decrease in “interest and other investment income” on the Company’sconsolidated statement of income.  In thequarter ended December 31, 2004, the Company recognized income of$24,190,000 from the mark-to-market of these warrants based on GCT’s closingstock price on the NYSE of $14.10 per share on December 31, 2004.

 

100

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***ITEM 8.***                                                 FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA

*** ***

**INDEX TO FINANCIAL STATEMENTS**

 
|                                                                                                          |   | **Page** |
|---------------------------------------------------------------------------------------------------------------|--------|----------|
| Report  of Independent Registered Public Accounting Firm                                                      |   | 102      |
| Consolidated Balance Sheets at December 31, 2004 and 2003                                                |   | 103      |
| Consolidated Statements of Income for the  years ended December 31, 2004, 2003, and 2002                 |   | 104      |
| Consolidated Statements of Partners’  Capital for the years ended December 31, 2004, 2003, and 2002 |   | 105      |
| Consolidated Statements of Cash Flows for  the years ended December 31, 2004, 2003, and 2002             |   | 107      |
| Notes to Consolidated Financial Statements                                                                    |   | 109      |

 

101

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Partners

Vornado Realty L.P.

New York, New York

 

We have audited the accompanying consolidated balance sheets of VornadoRealty L.P. (the “Company”) as of December 31, 2004 and 2003, and therelated consolidated statements of income, partners’ capital, and cash flowsfor each of the three years in the period ended December 31, 2004.  Our audits also included the financialstatement schedules included in Item 15. These financial statements and financial statement schedules are theresponsibility of the Company’s management. Our responsibility is to express an opinion on the financial statementsand financial statement schedules based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement.  Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly,in all material respects, the financial position of Vornado Realty L.P. at December 31,2004 and 2003, and the results of its operations and its cash flows for each ofthe three years in the period ended December 31, 2004, in conformity withaccounting principles generally accepted in the United States of America.  Also, in our opinion, such financialstatement schedules, when considered in relation to the basic consolidatedfinancial statements taken as a whole, present fairly, in all materialrespects, the information set forth therein.

 

As discussed in Note 2 to the consolidated financial statements, on January 1,2002, the Company applied the provisions of Statement of Financial AccountingStandards No. 142, *“Goodwill and OtherIntangible Assets.”*

 

We have also audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the effectiveness of theCompany’s internal control over financial reporting as of December 31,2004, based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated March 7, 2005expressed an unqualified opinion on management’s assessment of theeffectiveness of the Company’s internal control over financial reporting and anunqualified opinion on the effectiveness of the Company’s internal control overfinancial reporting.

 

 

DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

March 7, 2005

 

102

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**VORNADO REALTY L.P.**

 

**CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                            | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| **(Amounts in thousands, except unit and per unit amounts)**                                                          | ** ** | **2004**              | ** ** | **2003** | ** ** |
| **ASSETS**                                                                                                            |       |                  |       |   |   |
| Real estate,  at cost:                                                                                                |       |                  |       |   |   |
| Land                                                                                                                  |       | $                     | 1,681,792  |   | $ | 1,488,255 |   |
| Buildings  and improvements                                                                                           |       | 7,548,425             |       | 5,936,786 |   |
| Development  costs and construction in progress                                                                       |       | 180,968               |       | 132,668 |   |
| Leasehold  improvements and equipment                                                                                 |       | 307,660               |       | 72,027 |   |
| Total                                                                                                                 |       | 9,718,845             |       | 7,629,736 |   |
| Less  accumulated depreciation and amortization                                                                       |       | (1,404,441            | )          | (867,177 | ) |
| Real estate,  net                                                                                                     |       | 8,314,404             |       | 6,762,559 |   |
| Cash and  cash equivalents, including U.S. government obligations under repurchase  agreements of $23,110 and $30,310 |       | 599,282               |       | 320,542 |   |
| Escrow  deposits and restricted cash                                                                                  |       | 229,193               |       | 161,833 |   |
| Marketable  securities                                                                                                |       | 185,394               |       | 81,491 |   |
| Investments  and advances to partially-owned entities, including Alexander’s of $204,762  and $207,872           |       | 605,300               |       | 900,600 |   |
| Due from  officers                                                                                                    |       | 21,735                |       | 19,628 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $17,339 and $15,246                                   |       | 164,524               |       | 83,913 |   |
| Notes and  mortgage loans receivable                                                                                  |       | 440,186               |       | 285,965 |   |
| Receivable  arising from the straight-lining of rents, net of allowance of $6,787 and  $2,830                         |       | 324,266               |       | 267,269 |   |
| Other assets                                                                                                          |       | 577,574               |       | 376,630 |   |
| Assets  related to discontinued operations                                                                            |       | 118,659               |       | 258,498 |   |
|                                                                                                                  |       | $                     | 11,580,517 |   | $ | 9,518,928 |   |
| **LIABILITIES  AND PARTNERS’ CAPITAL**                                                                           |       |                  |       |   |   |
| Notes and  mortgages payable                                                                                          |       | $                     | 3,974,537  |   | $ | 3,314,522 |   |
| Senior  unsecured notes                                                                                               |       | 962,096               |       | 725,020 |   |
| Accounts  payable and accrued expenses                                                                                |       | 408,889               |       | 226,023 |   |
| Officers  compensation payable                                                                                        |       | 32,506                |       | 23,349 |   |
| Deferred  credit                                                                                                      |       | 102,387               |       | 72,728 |   |
| Other  liabilities                                                                                                    |       | 113,402               |       | 18,902 |   |
| Liabilities  related to discontinued operations                                                                       |       | 21,054                |       | 139,525 |   |
| Total  liabilities                                                                                                    |       | 5,614,871             |       | 4,520,069 |   |
| Minority  interest                                                                                                    |       | 286,265               |       | 3,055 |   |
| Commitments  and contingencies                                                                                        |       |                  |       |   |   |
| Partners’  Capital:                                                                                              |       |                  |       |   |   |
| Equity                                                                                                                |       | 5,458,649             |       | 5,037,919 |   |
| Earnings in  excess (less than) distributions                                                                         |       | 182,203               |       | (38,497 | ) |
|                                                                                                                  |       | 5,640,852             |       | 4,999,422 |   |
| Class A  units issued to officer’s trust                                                                         |       | (65,753               | )          | (65,753 | ) |
| Deferred  compensation units earned but not yet delivered                                                             |       | 70,727                |       | 70,610 |   |
| Deferred  compensation units issued but not yet earned                                                                |       | (9,523                | )          | (7,295 | ) |
| Accumulated  other comprehensive income                                                                               |       | 47,782                |       | 3,524 |   |
| Due from  officers for purchase of Class A units of beneficial interest                                               |       | (4,704                | )          | (4,704 | ) |
| Total  Partners’ Capital                                                                                         |       | 5,679,381             |       | 4,995,804 |   |
|                                                                                                                  |       | $                     | 11,580,517 |   | $ | 9,518,928 |   |

 

See notes to consolidatedfinancial statements.

 

103

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**VORNADO REALTY L.P.**

 

**CONSOLIDATED STATEMENTS OF INCOME**

 
| ** **                                                                                                     | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(Amounts in thousands, except per unit amounts)**                                                            | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                                           |       |                             |       |   |   |   |   |
| **Revenues:**                                                                                                  |       |                             |       |   |   |   |   |
| Property  rentals                                                                                              |       | $                                | 1,344,812  |   | $ | 1,256,073 |   | $ | 1,204,349 |   |
| Tenant  expense reimbursements                                                                                 |       | 191,059                          |       | 179,115 |   | 154,727 |   |
| Temperature  Controlled Logistics                                                                              |       | 87,428                           |       | — |   | — |   |
| Fee and  other income                                                                                          |       | 83,963                           |       | 62,795 |   | 27,718 |   |
| Total  revenues                                                                                                |       | 1,707,262                        |       | 1,497,983 |   | 1,386,794 |   |
| Expenses:                                                                                                      |       |                             |       |   |   |   |   |
| Operating                                                                                                      |       | 679,790                          |       | 581,550 |   | 517,958 |   |
| Depreciation  and amortization                                                                                 |       | 242,914                          |       | 213,679 |   | 197,704 |   |
| General and  administrative                                                                                    |       | 145,218                          |       | 121,857 |   | 100,035 |   |
| Amortization  of officer’s deferred compensation expense                                                  |       | —                           |       | — |   | 27,500 |   |
| Costs of  acquisitions and development not consummated                                                         |       | 1,475                            |       | — |   | 6,874 |   |
| Total  expenses                                                                                                |       | 1,069,397                        |       | 917,086 |   | 850,071 |   |
| Operating  income                                                                                              |       | 637,865                          |       | 580,897 |   | 536,723 |   |
| Income  applicable to Alexander’s                                                                         |       | 8,580                            |       | 15,574 |   | 29,653 |   |
| Income from  partially-owned entities                                                                          |       | 43,381                           |       | 67,901 |   | 44,458 |   |
| Interest and  other investment income                                                                          |       | 203,995                          |       | 25,397 |   | 31,678 |   |
| Interest and  debt expense (including amortization of deferred financing costs of $7,072,  $5,893 and $8,339)  |       | (241,968                         | )          | (228,860 | ) | (232,891 | ) |
| Net gain  (loss) on disposition of wholly-owned and partially-owned assets other than  depreciable real estate |       | 19,775                           |       | 2,343 |   | (17,471 | ) |
| Minority  interest                                                                                             |       | (110                             | )          | (1,089 | ) | (3,534 | ) |
| Income from  continuing operations                                                                             |       | 671,518                          |       | 462,163 |   | 388,616 |   |
| Income from  discontinued operations                                                                           |       | 78,597                           |       | 176,388 |   | 11,815 |   |
| Cumulative  effect of change in accounting principle                                                           |       | —                           |       | — |   | (30,129 | ) |
| Net income                                                                                                     |       | 750,115                          |       | 638,551 |   | 370,302 |   |
| Preferred  unit distributions                                                                                  |       | (94,070                          | )          | (116,619 | ) | (119,214 | ) |
| **NET  INCOME applicable to Class A units**                                                                    |       | $                                | 656,045    |   | $ | 521,932 |   | $ | 251,088 |   |
|                                                                                                           |       |                             |       |   |   |   |   |
| **INCOME  PER CLASS A UNIT – BASIC:**                                                                     |       |                             |       |   |   |   |   |
| Income from  continuing operations                                                                             |       | $                                | 4.01       |   | $ | 2.63 |   | $ | 2.12 |   |
| Income from  discontinued operations                                                                           |       | .55                              |       | 1.34 |   | .09 |   |
| Cumulative  effect of change in accounting principle                                                           |       | —                           |       | — |   | (.24 | ) |
| Net income  per Class A unit                                                                                   |       | $                                | 4.56       |   | $ | 3.97 |   | $ | 1.97 |   |
|                                                                                                           |       |                             |       |   |   |   |   |
| **INCOME  PER CLASS A UNIT – DILUTED**                                                                    |       |                             |       |   |   |   |   |
| Income from  continuing operations                                                                             |       | $                                | 3.84       |   | $ | 2.58 |   | $ | 2.06 |   |
| Income from  discontinued operations                                                                           |       | .52                              |       | 1.23 |   | .09 |   |
| Cumulative  effect of change in accounting principle                                                           |       | —                           |       | — |   | (.23 | ) |
| Net income  per Class A unit                                                                                   |       | $                                | 4.36       |   | $ | 3.81 |   | $ | 1.92 |   |

 

See notes to consolidatedfinancial statements.

 

104

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**VORNADO REALTY L.P.**

 

**CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL**

 
| **(Amounts  in thousands, except per unit amounts)**                                            | ** ** | **Preferred  Units** | ** ** | **Limited  Partners  Units** | ** ** | **General  Partner’s  Units** | ** ** | **Earnings in  Excess  (less than)  Distributions** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Other** | ** ** | **Partners’  Capital** | ** ** | **Comprehensive  Income (Loss)** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------------------|------------|------------------------------|------------|------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|-----------|------------|-----------------------------|------------|----------------------------------|------------|
|                                                                                            |       |                 |       |                         |       |                               |       |                                                |       |                                                 |       |      |       |                        |       |                             |       |
| **Balance, January 1, 2002**                                                               |       | 468,977              |       | 1,453,863                    |       | 2,194,262                          |       | (95,647                                             | )          | 7,484                                                |       | (4,704    | )          | 4,024,235                   |       | $                                | 391,027    |   |
| Net Income                                                                                      |       | —               |       | —                       |       | —                             |       | 370,302                                             |       | —                                               |       | —    |       | 370,302                     |       | $                                | 370,302    |   |
| Distributions paid on Preferred Units:                                                          |       |                 |       |                         |       |                               |       |                                                |       |                                                 |       |      |       |                        |       |                             |       |
| Series A Preferred Units  ($3.25 per unit)                                                      |       | —               |       | —                       |       | —                             |       | (6,167                                              | )          | —                                               |       | —    |       | (6,167                      | )          | —                           |       |
| Series B and C Preferred Units  ($2.125 per unit)                                               |       | —               |       | —                       |       | —                             |       | (17,000                                             | )          | —                                               |       | —    |       | (17,000                     | )          | —                           |       |
| Other Preferred Units                                                                           |       | —               |       | —                       |       | —                             |       | (96,047                                             | )          | —                                               |       | —    |       | (96,047                     | )          | —                           |       |
| Redemption of perpetual preferred units                                                         |       | —               |       | (25,000                      | )          | —                             |       | —                                              |       | —                                               |       | —    |       | (25,000                     | )          | —                           |       |
| Net proceeds from issuance of Class A units                                                     |       | —               |       | 625,234                      |       | 56,453                             |       | —                                              |       | —                                               |       | —    |       | 681,687                     |       | —                           |       |
| Conversion of Series A Preferred units to Limited  Partners units                               |       | (203,489             | )          | —                       |       | 203,489                            |       | —                                              |       | —                                               |       | —    |       | —                      |       | —                           |       |
| Deferred compensation units                                                                     |       | —               |       | —                       |       | 30,129                             |       | —                                              |       | —                                               |       | (1,722    | )          | 28,407                      |       | —                           |       |
| Distributions paid on Class A units  ($2.97 per unit, including $.31 for 2001)                  |       | —               |       | —                       |       | —                             |       | (364,405                                            | )          | —                                               |       | —    |       | (364,405                    | )          | —                           |       |
| Reversal of distributions payable on Class A units in  2001 ($.31 per unit)                |       | —               |       | —                       |       | —                             |       | 32,506                                              |       | —                                               |       | —    |       | 32,506                      |       | —                           |       |
| Class A units issued under employees’ unit plan                                            |       | —               |       | —                       |       | 24,385                             |       | —                                              |       | —                                               |       | —    |       | 24,385                      |       | —                           |       |
| Conversion of Limited Partners units for General  Partner units                                 |       | —               |       | (30,418                      | )          | 30,418                             |       | —                                              |       | —                                               |       | —    |       | —                      |       | —                           |       |
| Class A units issued in connection with dividend  reinvestment plan                             |       | —               |       | —                       |       | 1,887                              |       | —                                              |       | —                                               |       | —    |       | 1,887                       |       | —                           |       |
| Change in unrealized net loss on securities available  for sale                                 |       | —               |       | —                       |       | —                             |       | —                                              |       | (8,936                                               | )          | —    |       | (8,936                      | )          | (8,936                           | )          |
| Other non-cash changes, primarily pension obligations                                           |       | —               |       | —                       |       | —                             |       | —                                              |       | (1,648                                               | )          | —    |       | (1,648                      | )          | (1,648                           | )          |
| **Balance, December 31, 2002**                                                             |       | 265,488              |       | 2,023,679                    |       | 2,541,023                          |       | (176,458                                            | )          | (3,100                                               | )          | (6,426    | )          | 4,644,206                   |       | $                                | 359,718    |   |
| Net Income                                                                                      |       | —               |       | —                       |       | —                             |       | 638,551                                             |       | —                                               |       | —    |       | 638,551                     |       | $                                | 638,551    |   |
| Distributions paid on Preferred Units:                                                          |       |                 |       |                         |       |                               |       |                                                |       |                                                 |       |      |       |                        |       |                             |       |
| Series A Preferred Units  ($3.25 per unit)                                                      |       | —               |       | —                       |       | —                             |       | (3,473                                              | )          | —                                               |       | —    |       | (3,473                      | )          | —                           |       |
| Series B and C Preferred Units  ($2.125 per units)                                              |       | —               |       | —                       |       | —                             |       | (17,000                                             | )          | —                                               |       | —    |       | (17,000                     | )          | —                           |       |
| Series D-10 Preferred Units  ($1.75 per unit)                                                   |       | —               |       | —                       |       | —                             |       | (342                                                | )          | —                                               |       | —    |       | (342                        | )          | —                           |       |
| Other Preferred Units                                                                           |       | —               |       | —                       |       | —                             |       | (96,289                                             | )          | —                                               |       | —    |       | (96,289                     | )          | —                           |       |
| Proceeds from issuance of Series D-10 Preferred Units                                           |       | 40,000               |       | 80,000                       |       | —                             |       | —                                              |       | —                                               |       | —    |       | 120,000                     |       | —                           |       |
| Class A units issued in connection with acquisitions                                            |       | —               |       | 53,192                       |       | —                             |       | —                                              |       | —                                               |       | —    |       | 53,192                      |       | —                           |       |
| Redemption of perpetual preferred units                                                         |       | —               |       | (87,500                      | )          | —                             |       | —                                              |       | —                                               |       | —    |       | (87,500                     | )          | —                           |       |
| Redemption of Class A units                                                                     |       | —               |       | (16,080                      | )          | —                             |       | —                                              |       | —                                               |       | —    |       | (16,080                     | )          | —                           |       |
| Reclass of Series F-1 units to Other Liabilities in  connection with the adoption of SFAS 150   |       | —               |       | (9,750                       | )          | —                             |       | —                                              |       | —                                               |       | —    |       | (9,750                      | )          | —                           |       |
| Conversion of Series A Preferred units to General  Partner units                                |       | (54,496              | )          | —                       |       | 54,496                             |       | —                                              |       | —                                               |       | —    |       | —                      |       | —                           |       |
| Deferred compensation units                                                                     |       | —               |       | —                       |       | 5,400                              |       | —                                              |       | —                                               |       | —    |       | 5,400                       |       |                             |       |
| Distributions paid on Class A units ($2.91 per unit,  including $.16 special cash distribution) |       | —               |       | —                       |       | —                             |       | (383,486                                            | )          | —                                               |       | —    |       | (383,486                    | )          | —                           |       |
| Class A units issued under employees’ unit option  plan                                    |       | —               |       | —                       |       | 141,219                            |       | —                                              |       | —                                               |       | —    |       | 141,219                     |       | —                           |       |
| Redemption of Limited Partners units for General  Partner units                                 |       | —               |       | (144,431                     | )          | 144,431                            |       | —                                              |       | —                                               |       | —    |       | —                      |       | —                           |       |
| Class A units issued in connection with dividend  reinvestment plan                             |       | —               |       | —                       |       | 1,998                              |       | —                                              |       | —                                               |       | —    |       | 1,998                       |       | —                           |       |
| Change in unrealized net gain on securities available  for sale                                 |       | —               |       | —                       |       | —                             |       | —                                              |       | 5,517                                                |       | —    |       | 5,517                       |       | 5,517                            |       |
| Shelf registration costs                                                                        |       | —               |       | —                       |       | (750                               | )          | —                                              |       | —                                               |       | —    |       | (750                        | )          | —                           |       |
| Other - primarily increase in value of Officers deferred  compensation plan                     |       | —               |       | —                       |       | —                             |       | —                                              |       | 1,107                                                |       | (716      | )          | 391                         |       | 1,107                            |       |
| **Balance, December 31, 2003**                                                             |       | $                    | 250,992    |                         | $          | 1,899,110                          |       | $                                                   | 2,887,817  |                                                 | $          | (38,497   | )          | $                           | 3,524      |                             | $          | (7,142 | ) | $ | 4,995,804 |   | $ | 645,175 |   |
|                                                                                                 |            |                      |            |                              |            |                                    |            |                                                     |            |                                                      |            |           |            |                             |            |                                  |            |  |  |  |  |  |  |  |  |

 

Seenotes to consolidated financial statements.

 

105

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**VORNADO REALTY L.P.**

 

**CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL - CONTINUED**

 
| **(Amounts  in thousands, except per unit amounts)**                                             | ** ** | **Preferred  Units** | ** ** | **Limited  Partners  Units** | ** ** | **General  Partner’s  Units** | ** ** | **Earnings in  Excess  (less than)  Distributions** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Other**  | ** ** | **Partners’  Capital** | ** ** | **Comprehensive  Income (Loss)** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------|------------|------------------------------|------------|------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|------------|------------|-----------------------------|------------|----------------------------------|------------|
| ** **                                                                                       | ** ** | ** **           | ** ** | ** **                   | ** ** | ** **                         | ** ** | ** **                                          | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                       | ** ** |
| **Balance, December 31, 2003**                                                              |       | $                    | 250,992    |                         | $          | 1,899,110                          |       | $                                                   | 2,887,817  |                                                 | $          | (38,497    | )          | $                           | 3,524      |                             | $          | (7,142 | ) | $ | 4,995,804 |   | $ | 645,175 |   |
| Net Income                                                                                       |       | —               |       | —                       |       | —                             |       | 750,115                                             |       | —                                               |       | —     |       | 750,115                     |       | $                                | 750,115    |   |
| Distributions to Preferred Unitholders:                                                          |       |                 |       |                         |       |                               |       |                                                |       |                                                 |       |       |       |                        |       |                             |       |
| Series A Preferred Units  ($3.25 per unit)                                                       |       | —               |       | —                       |       | —                             |       | (1,066                                              | )          | —                                               |       | —     |       | (1,066                      | )          | —                           |       |
| Series B Preferred Units  ($2.125 per unit)                                                      |       | —               |       | —                       |       | —                             |       | (1,525                                              | )          | —                                               |       | —     |       | (1,525                      | )          | —                           |       |
| Series C Preferred Units  ($2.125 per unit)                                                 |       | —               |       | —                       |       | —                             |       | (9,775                                              | )          | —                                               |       | —     |       | (9,775                      | )          | —                           |       |
| Series D-10 preferred units  ($1.75 per unit)                                                    |       | —               |       | —                       |       | —                             |       | (2,800                                              | )          | —                                               |       | —     |       | (2,800                      | )          | —                           |       |
| Series E Preferred Units  ($1.75 per unit)                                                  |       | —               |       | —                       |       | —                             |       | (1,925                                              | )          | —                                               |       | —     |       | (1,925                      | )          | —                           |       |
| Series F Preferred Units  ($1.6875 per unit)                                                |       | —               |       | —                       |       | —                             |       | (1,266                                              | )          | —                                               |       | —     |       | (1,266                      | )          | —                           |       |
| Series G Preferred Units  ($1.65625 per unit)                                               |       | —               |       | —                       |       | —                             |       | (368                                                | )          | —                                               |       | —     |       | (368                        | )          | —                           |       |
| Other preferred units                                                                            |       | —               |       | —                       |       | —                             |       | (71,450                                             | )          | —                                               |       | —     |       | (71,450                     | )          | —                           |       |
| Redemption of perpetual preferred units                                                          |       | (81,805              | )          | (26,766                      | )          | —                             |       | (3,895                                              | )          | —                                               |       | —     |       | (112,466                    | )          | —                           |       |
| Proceeds from issuance of preferred units                                                        |       | 410,272              |       | 53,698                       |       | —                             |       | —                                              |       | —                                               |       | —     |       | 463,970                     |       | —                           |       |
| Class A units issued in connection with acquisitions                                             |       | —               |       | 626                          |       | —                             |       | —                                              |       | —                                               |       | —     |       | 626                         |       | —                           |       |
| Conversion of Series A Preferred units to limited  partnership units                             |       | (2,005               | )          | —                       |       | 2,005                              |       | —                                              |       | —                                               |       | —     |       | —                      |       | —                           |       |
| Deferred compensation units                                                                      |       | —               |       | —                       |       | 6,859                              |       | —                                              |       | —                                               |       | —     |       | 6,859                       |       | —                           |       |
| Distributions to Class A unitholders  ($3.05 per unit, including $.16 special cash distribution) |       | —               |       | —                       |       | —                             |       | (435,345                                            | )          | —                                               |       | —     |       | (435,345                    | )          | —                           |       |
| Common units issued under employees’ unit option plan                                       |       | —               |       | —                       |       | 55,109                             |       | —                                              |       | —                                               |       | —     |       | 55,109                      |       | —                           |       |
| Conversion of limited partnership units to general  partnership units                            |       | —               |       | (308,332                     | )          | 308,332                            |       | —                                              |       | —                                               |       | —     |       | —                      |       | —                           |       |
| Common units issued in connection with dividend  reinvestment plan                               |       | —               |       | —                       |       | 2,111                              |       | —                                              |       | —                                               |       | —     |       | 2,111                       |       | —                           |       |
| Change in unrealized net gain on securities available  for sale                                  |       | —               |       | —                       |       | —                             |       | —                                              |       | 43,643                                               |       | —     |       | 43,643                      |       | 43,643                           |       |
| Shelf registration costs                                                                         |       | —               |       | —                       |       | 626                                |       | —                                              |       | —                                               |       | —     |       | 626                         |       | —                           |       |
| Other – changes in deferred compensation plan                                               |       | —               |       | —                       |       | —                             |       | —                                              |       | 615                                                  |       | (2,111     | )          | (1,496                      | )          | 615                              |       |
| **Balance, December 31, 2004**                                                              |       | $                    | 577,454    |                         | $          | 1,618,336                          |       | $                                                   | 3,262,859  |                                                 | $          | 182,203    |       | $                           | 47,782     |                             | $          | (9,253 | ) | $ | 5,679,381 |   | $ | 794,373 |   |

 

See notes to consolidatedfinancial statements.

 

106

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**VORNADO REALTY L.P.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                           | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(Amounts in thousands)**                                                                           | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Cash  Flows from Operating Activities:**                                                           |       |                             |       |   |   |   |   |
| Net income                                                                                           |       | $                                | 750,115    |   | $ | 638,551 |   | $ | 370,302 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:                   |       |                             |       |   |   |   |   |
| Depreciation  and amortization (including debt issuance costs)                                       |       | 253,822                          |       | 219,911 |   | 205,826 |   |
| Minority  interest                                                                                   |       | 110                              |       | 827 |   | 3,534 |   |
| Net gains on  mark-to-market of derivatives (Sears option shares and GMH Communities L.P.  warrants) |       | (105,920                         | )          | — |   | — |   |
| Net gains on  sale of real estate                                                                    |       | (75,755                          | )          | (161,789 | ) | — |   |
| Straight-lining  of rental income                                                                    |       | (61,473                          | )          | (41,947 | ) | (38,119 | ) |
| Equity in  income of partially-owned entities, including Alexander’s                            |       | (51,961                          | )          | (83,475 | ) | (74,111 | ) |
| Net gain on  exercise of GMH Communities L.P. warrants                                               |       | (29,452                          | )          | — |   | — |   |
| Net (gain)  loss on dispositions of wholly-owned and partially-owned assets other than  real estate  |       | (19,775                          | )          | (2,343 | ) | 17,471 |   |
| Amortization  of below market leases, net                                                            |       | (14,570                          | )          | (9,047 | ) | (12,634 | ) |
| Costs of  acquisitions and development not consummated                                               |       | 1,475                            |       | — |   | 6,874 |   |
| Cumulative  effect of change in accounting principle                                                 |       | —                           |       | — |   | 30,129 |   |
| Amortization  of officer’s deferred compensation                                                |       | —                           |       | — |   | 27,500 |   |
| Changes in  operating assets and liabilities                                                         |       | 14,957                           |       | (31,737 | ) | (36,947 | ) |
| Net cash  provided by operating activities                                                           |       | 661,573                          |       | 528,951 |   | 499,825 |   |
| **Cash  Flows from Investing Activities:**                                                           |       |                             |       |   |   |   |   |
| Investments  in notes and mortgage loans receivable                                                  |       | (330,101                         | )          | (230,375 | ) | (56,935 | ) |
| Distributions  from partially-owned entities                                                         |       | 303,745                          |       | 154,643 |   | 126,077 |   |
| Acquisitions  of real estate and other                                                               |       | (286,310                         | )          | (216,361 | ) | (23,665 | ) |
| Proceeds  from sale of real estate                                                                   |       | 233,005                          |       | 299,852 |   | — |   |
| Repayment of  notes and mortgage loans receivable                                                    |       | 174,276                          |       | 29,421 |   | 124,500 |   |
| Investments  in partially-owned entities                                                             |       | (158,467                         | )          | (15,331 | ) | (73,242 | ) |
| Development  costs and construction in progress                                                      |       | (139,669                         | )          | (123,436 | ) | (91,199 | ) |
| Additions to  real estate                                                                            |       | (117,942                         | )          | (120,593 | ) | (96,018 | ) |
| Purchases of  marketable securities                                                                  |       | (59,714                          | )          | (17,356 | ) | — |   |
| Cash  received upon consolidation of Americold Realty Trust                                          |       | 21,694                           |       | — |   | — |   |
| Cash  restricted, primarily mortgage escrows                                                         |       | 8,754                            |       | 101,292 |   | (21,471 | ) |
| Proceeds  from sale of securities available for sale                                                 |       | —                           |       | 7,952 |   | 87,836 |   |
| Net cash  used in investing activities                                                               |       | (350,729                         | )          | (130,292 | ) | (24,117 | ) |
| **Cash  Flows from Financing Activities:**                                                           |       |                             |       |   |   |   |   |
| Proceeds  from borrowings                                                                            |       | 745,255                          |       | 812,487 |   | 628,335 |   |
| Repayments  of borrowings                                                                            |       | (702,823                         | )          | (752,422 | ) | (731,238 | ) |
| Proceeds  from issuance of preferred units                                                           |       | 510,439                          |       | 119,967 |   | — |   |
| Distributions  to Class A unitholders                                                                |       | (435,345                         | )          | (390,139 | ) | (364,730 | ) |
| Distributions  to preferred unitholders                                                              |       | (94,077                          | )          | (116,619 | ) | (119,214 | ) |
| Redemption  of perpetual preferred units                                                             |       | (112,467                         | )          | (103,243 | ) | (25,000 | ) |
| Exercise of  unit options                                                                            |       | 61,935                           |       | 145,152 |   | 26,272 |   |
| Costs of  refinancing debt                                                                           |       | (5,021                           | )          | (1,500 | ) | (3,970 | ) |
| Proceeds  from issuance of Class A units                                                             |       | —                           |       | — |   | 56,453 |   |
| Net cash  used in financing activities                                                               |       | (32,104                          | )          | (286,317 | ) | (533,092 | ) |
| Net increase  (decrease) in cash and cash equivalents                                                |       | 278,740                          |       | 112,342 |   | (57,384 | ) |
| Cash and  cash equivalents at beginning of year                                                      |       | 320,542                          |       | 208,200 |   | 265,584 |   |
| Cash and  cash equivalents at end of year                                                            |       | $                                | 599,282    |   | $ | 320,542 |   | $ | 208,200 |   |

 

See notes to consolidatedfinancial statements.

 

107

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**VORNADO REALTY L.P.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED**

 
| ** **                                                                                                                                                   | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(Amounts in thousands)**                                                                                                                                   | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Supplemental  Disclosure of Cash Flow Information:**                                                                                                       |       |                             |       |   |   |   |   |
| Cash  payments for interest (including capitalized interest of $8,718, $5,407, and  $6,677)                                                                  |       | $                                | 253,791    |   | $ | 245,668 |   | $ | 247,048 |   |
| ** **                                                                                                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Non-Cash  Transactions:**                                                                                                                                  | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Increases in  assets and liabilities on November 18, 2004 resulting from the  consolidation of the Company’s investment in Americold Realty Trust: |       |                             |       |   |   |   |   |
| Real estate,  net                                                                                                                                            |       | $                                | 1,177,160  |   | $ | — |   | $ | — |   |
| Accounts  receivable, net                                                                                                                                    |       | 74,657                           |       | — |   | — |   |
| Other assets                                                                                                                                                 |       | 68,735                           |       | — |   | — |   |
| Notes and  mortgages payable                                                                                                                                 |       | 733,740                          |       | — |   | — |   |
| Accounts  payable and accrued expenses                                                                                                                       |       | 100,554                          |       | — |   | — |   |
| Other  liabilities                                                                                                                                           |       | 47,362                           |       | — |   | — |   |
| Minority  interest                                                                                                                                           |       | 284,764                          |       | — |   | — |   |
| Financing  assumed in acquisitions                                                                                                                           |       | 34,100                           |       | 29,056 |   | 1,596,903 |   |
| Class A  units issued in connection with acquisitions                                                                                                        |       | —                           |       | 53,589 |   | 625,234 |   |
| Unrealized  gain on securities available for sale                                                                                                            |       | 45,003                           |       | 5,517 |   | 860 |   |

 

See notes to consolidatedfinancial statements.

 

108

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.**                                      Organizationand Business

** **

Vornado Realty L.P. (the “Operating Partnership”and/or the “Company”) is a Delaware limited partnership. Vornado Realty Trust (“Vornado”),a fully-integrated real estate investment trust (“REIT”), is the sole generalpartner of, and owned approximately 87% of the common limited partnershipinterest in, the Operating Partnership at December 31, 2004. Allreferences to “We,” “Us,” and “Company” refer to the Operating Partnership andits consolidated subsidiaries.

 

The Company currently owns directly or indirectly:

 

Office Properties (“Office”):

 

(i)                                allor portions of 86 office properties aggregating approximately 27.6 millionsquare feet in the New York City metropolitan area (primarily Manhattan) and inthe Washington D.C. and Northern Virginia area;

 

Retail Properties (“Retail”):

 

(ii)                             94retail properties in seven states and Puerto Rico aggregating approximately14.2 million square feet, including 2.8 million square feet built by tenants onland leased from the Company;

 

Merchandise Mart Properties:

 

(iii)                          8.6million square feet of showroom and office space, including the3.4 million square foot Merchandise Mart in Chicago;

 

Temperature Controlled Logistics:

 

(iv)                         a 47.6%interest in Americold Realty Trust which owns and operates 88 cold storagewarehouses nationwide;

 

Other Real Estate Investments:

 

(v)                            33% ofthe outstanding common stock of Alexander’s, Inc. (“Alexander’s”) which has sixproperties in the greater New York metropolitan area;

 

(vi)                         the HotelPennsylvania in New York City consisting of a hotel portion containing1.0 million square feet with 1,700 rooms and a commercial portioncontaining 0.4 million square feet of retail and office space;

 

(vii)                      a 22.4%interest in The Newkirk Master Limited Partnership (“Newkirk MLP”) which ownsoffice, retail and industrial properties net leased primarily to credit ratedtenants, and various debt interests in such properties;

 

(viii)                   seven drywarehouse/industrial properties in New Jersey containing approximately 1.7million square feet;

 

(ix)                           mezzanineloans to real estate related companies; and

 

(x)                              interestsin other real estate including a 12.25% interest in GMH Communities L.P. (whichowns and manages student and military housing properties throughout the UnitedStates), other investments and marketable securities.

 

109

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**2.**                                      Summaryof Significant Accounting Policies

** **

**Basis of Presentation: **The accompanyingconsolidated financial statements include the accounts of Vornado Realty L.Pand its consolidated subsidiaries.  Allsignificant intercompany amounts have been eliminated.  The Company accounts for its unconsolidatedpartially-owned entities on the equity method of accounting.  See below for further details of the Company’saccounting policies regarding partially-owned entities.

 

The Company’s consolidated financial statements areprepared in accordance with accounting principles generally accepted in theUnited States which requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting periods.Actual results could differ materially from those estimates.

 

**Reclassifications:**  Certain prior year balances have beenreclassified in order to conform to current year presentation.  The Company has also adjusted certain prioryear balances to separately present Class A units issued to officer’s trust.

 

**Real Estate: **Real estate is carried at cost, net of accumulateddepreciation and amortization.  Betterments,major renewals and certain costs directly related to the acquisition,improvement and leasing of real estate are capitalized.  Maintenance and repairs are charged tooperations as incurred.  Forredevelopment of existing operating properties, the net book value of theexisting property under redevelopment plus the cost for the construction andimprovements incurred in connection with the redevelopment are capitalized tothe extent the capitalized costs of the property do not exceed the estimated fairvalue of the redeveloped property when complete.  If the cost of the redeveloped property,including the undepreciated net book value of the property carried forward,exceeds the estimated fair value of redeveloped property, the excess is chargedto expense.  Depreciation is provided ona straight-line basis over the assets’ estimated useful lives which range from7 to 40 years.  Tenant allowances areamortized on a straight-line basis over the lives of the related leases, whichapproximates the useful lives of the assets. Additions to real estate include interest expense capitalized duringconstruction of $8,718,000 and $5,407,000, for the years ended December 31,2004 and 2003, respectively.

 

Upon acquisitions of real estate, the Company assessesthe fair value of acquired assets (including land, buildings and improvements,and identified intangibles such as above and below market leases and acquiredin-place leases and customer relationships) and acquired liabilities inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 141:Business Combinations and SFAS No. 142: Goodwill and Other Intangible Assets,and allocates purchase price based on these assessments.  The Company assesses fair value based onestimated cash flow projections that utilize appropriate discount andcapitalization rates and available market information.  Estimates of future cash flows are based on anumber of factors including the historical operating results, known trends, andmarket/economic conditions that may affect the property.  The Company’s properties, including anyrelated intangible assets, are reviewed for impairment if events orcircumstances change indicating that the carrying amount of the assets may notbe recoverable.

 

**Partially-Owned Entities:* ***TheCompany considers APB 18: The Equity Method of Accounting for Investments inCommon Stock, SOP 78-9: Accounting for Investments in Real Estate Ventures,Emerging Issues Task Force (“EITF”) 96-16: Investors Accounting for an InvesteeWhen the Investor has the Majority of the Voting Interest but the MinorityPartners have Certain Approval or Veto Rights and FASB Interpretation No. 46(Revised 2003): Consolidation of Variable Interest Entities – An Interpretationof ARB No. 51 (“FIN 46R”), to determine the method of accounting for each ofits partially-owned entities.  Indetermining whether the Company has a controlling interest in a partially-ownedentity and the requirement to consolidate the accounts of that entity, itconsiders factors such as ownership interest, board representation, managementrepresentation, authority to make decisions, and contractual and substantiveparticipating rights of the partners/members as well as whether the entity is avariable interest entity in which it will absorb the majority of the entity’sexpected losses, if they occur, or receive the majority of the expectedresidual returns, if they occur, or both. The Company has concluded that it does not control a partially-ownedentity, despite an ownership interest of 50% or greater, if the entity is notconsidered a variable interest entity and the approval of all of thepartners/members is contractually required with respect to major decisions,such as operating and capital budgets, the sale, exchange or other dispositionof real property, the hiring of a chief executive officer, the commencement,compromise or settlement of any lawsuit, legal proceeding or arbitration or theplacement of new or additional financing secured by assets of the venture.  This is the case with respect to the Company’s80% interest in Starwood Ceruzzi Venture, and 50% interests in Monmouth Mall,MartParc Wells, MartParc Orleans, and 825 Seventh Avenue.

 

110

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**2.**                                      Summaryof Significant Accounting Policies - continued

** **

***Identified Intangible Assets andGoodwill: ***Upon an acquisition of abusiness the Company records intangible assets acquired at their estimated fairvalue separate and apart from goodwill. The Company amortizes identified intangible assets that are determinedto have finite lives which are based on the period over which the assets areexpected to contribute directly or indirectly to the future cash flows of thebusiness acquired.  Intangible assetssubject to amortization are reviewed for impairment whenever events or changesin circumstances indicate that their carrying amount may not be recoverable.  An impairment loss is recognized if thecarrying amount of an intangible asset is not recoverable and its carryingamount exceeds its estimated fair value.

* *

*The excess of the cost of an acquired entity overthe net of the amounts assigned to assets acquired (including identifiedintangible assets) and liabilities assumed is recorded as goodwill.  Goodwill is not amortized but is tested forimpairment at a level of reporting referred to as a reporting unit on an annualbasis, or more frequently if events or changes in circumstances indicate thatthe asset might be impaired.  Animpairment loss for an asset group is allocated to the long-lived assets of thegroup on a pro-rata basis using the relative carrying amounts of those assets,unless the fair value of specific components of the reporting group aredeterminable without undue cost and effort.*

* *

As of December 31, 2004 and 2003, the carryingamounts of the Company’s identified intangible assets are $176,314,000 and$130,875,000 and the carrying amounts of goodwill are $10,425,000 and$4,345,000, respectively.  Such amountsare included in “other assets” on the Company’s consolidated balancesheets.  In addition, the Company has$71,272,000 and $47,359,000 of identified intangible liabilities as of December 31,2004 and 2003, which are included in “deferred credit” on the Company’sconsolidated balance sheets.

 

Upon adoption of SFAS No. 142 on January 1, 2002,the Company tested the goodwill related to the Hotel Pennsylvania acquisitionand the Temperature Controlled Logistics business for impairment.  As the carrying amounts of the respectivegoodwill exceeded the fair values, the Company wrote-off all of the goodwill asan impairment loss totaling $30,129,000 and has reflected the write-off  as a cumulative effect of change in accountingprinciple on the Company’s consolidated statement of income for the year ended December 31,2002.

 

**Cash and Cash Equivalents:**  Cash and cash equivalents consist of highlyliquid investments purchased with original maturities of three months or less.Cash and cash equivalents do not include cash escrowed under loan agreementsand cash restricted in connection with an officer’s deferred compensationpayable.

 

**Allowance for Doubtful Accounts: **The Company periodically evaluates the collectibility of amounts due fromtenants and maintains an allowance for doubtful accounts for estimated lossesresulting from the inability of tenants to make required payments under thelease agreements.  The Company alsomaintains an allowance for receivables arising from the straight-lining ofrents.  This receivable arises fromearnings recognized in excess of amounts currently due under the leaseagreements.  Management exercisesjudgment in establishing these allowances and considers payment history andcurrent credit status in developing these estimates.

 

**Marketable Securities:**  The Company has classified debt and equitysecurities which it intends to hold for an indefinite period of time assecurities available-for-sale; equity securities it intends to buy and sell ona short term basis as trading securities; and mandatory redeemable preferredstock investments as securities held to maturity.  Unrealized gains and losses on tradingsecurities are included in earnings. Unrealized gains and losses on securities available-for-sale areincluded as a component of partners’ capital and other comprehensiveincome.  Realized gains or losses on thesale of securities are recorded based on specific identification.  A portion of the Company’s preferred stockinvestments are accounted for in accordance with EITF 99-20: Recognition ofInterest Income and Impairment on Purchased and Retained Beneficial Interestsin Securitized Financial Assets.  Incomeis recognized by applying the prospective method of adjusting the yield tomaturity based on an estimate of future cash flows.  If the value of the investment based on thepresent value of the future cash flows is less than the Company’s carryingamount, the investments will be written-down to fair value throughearnings.  Investments in securities ofnon-publicly traded companies are reported at cost, as they are not consideredmarketable under SFAS No. 115: Accounting For Certain Investments inDebt and Equity Securities.

 

At December 31, 2004 and 2003, marketablesecurities had an aggregate cost of $135,382,000 and $75,114,000 and anaggregate fair value of $185,394,000 and $81,491,000 (of which $0 representstrading securities; $178,999,000 and $43,527,000 represents securitiesavailable for sale; and $6,395,000 and $37,964,000 represent securities held tomaturity).  Unrealized gains and losseswere $50,012,000 and $0 at December 31, 2004 and $6,377,000 and $0 at December 31,2003.

 

111

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**2.**                                      Summaryof Significant Accounting Policies - continued

** **

**Notes and Mortgage Loans Receivable:**The Company’s policy is to record notes and mortgage loans receivable at thestated principal amount less any discount or premium.  The Company accretes or amortizes any discountsor premiums over the life of the related loan receivable utilizing thestraight-line method which approximates the effective interest method.  The Company evaluates the collectibility ofboth interest and principal of each of its loans, if circumstances warrant, todetermine whether it is impaired. A loan is considered to be impaired when,based on current information and events, it is probable that the Company willbe unable to collect all amounts due according to the existing contractualterms. When a loan is considered to be impaired, the amount of the loss accrualis calculated by comparing the recorded investment to the value determined bydiscounting the expected future cash flows at the loan’s effective interestrate or, as a practical expedient, to the value of the collateral if the loanis collateral dependent.

 

**Deferred Charges:** Directfinancing costs are deferred and amortized over the terms of the relatedagreements as a component of interest expense. Direct costs related to leasingactivities are capitalized and amortized on a straight-line basis over thelives of the related leases. All other deferred charges are amortized on astraight-line basis, which approximates the effective interest rate method, inaccordance with the terms of the agreements to which they relate.

 

**Fair Value of Financial Instruments:**The Company has estimated the fair value of all financial instruments reflectedin the accompanying consolidated balance sheets at amounts which are based uponan interpretation of available market information and valuation methodologies(including discounted cash flow analyses with regard to fixed rate debt).  The fair value of the Company’s debt isapproximately $256,518,000 and $94,953,000 in excess of the aggregate carryingamounts at December 31, 2004 and 2003, respectively.  Such fair value estimates are not necessarilyindicative of the amounts that would be realized upon disposition of theCompany’s financial instruments.

 

**Derivative Instruments And HedgingActivities: **SFAS No.133: Accounting for Derivative Instruments and Hedging Activities (“SFAS No.133”), as amended and interpreted, establishes accounting and reportingstandards for derivative instruments, including certain derivative instrumentsembedded in other contracts, and for hedging activities.  As required by SFAS No. 133, the Companyrecords all derivatives on the balance sheet at fair value.  Theaccounting for changes in the fair value of derivatives depends on the intendeduse of the derivative and the resulting designation. Derivatives used to hedgethe exposure to changes in the fair value of an asset, liability, or firmcommitment attributable to a particular risk, such as interest rate risk, areconsidered fair value hedges. Derivatives used to hedge the exposure tovariability in expected future cash flows, or other types of forecastedtransactions, are considered cash flow hedges.

 

For derivatives designated as fair value hedges,changes in the fair value of the derivative and the hedged item related to thehedged risk are recognized in earnings. For derivatives designated as cash flowhedges, the effective portion of changes in the fair value of the derivative isinitially reported in other comprehensive income (loss) (outside of earnings)and subsequently reclassified to earnings when the hedged transaction affectsearnings, and the ineffective portion of changes in the fair value of thederivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship bycomparing the changes in fair value or cash flows of the derivative hedginginstrument with the changes in fair value or cash flows of the designatedhedged item or transaction. For derivatives not designated as hedges, changesin fair value are recognized in earnings.

 

112

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**2.**                                      Summaryof Significant Accounting Policies - continued

** **

**Revenue Recognition:**  The Company has the following revenue sourcesand revenue recognition policies:

 

Base Rents — income arising from tenant leases.  These rents are recognized over thenon-cancelable term of the related leases on a straight-line basis whichincludes the effects of rent steps and rent abatements under the leases.

 

Percentage Rents — income arising from retail tenant leases which arecontingent upon the sales of the tenant exceeding a defined threshold.  These rents are recognized in accordance withStaff Accounting Bulletin No. 104: Revenue Recognition, which states that thisincome is to be recognized only after the contingency has been removed (i.e.sales thresholds have been achieved).

 

Hotel Revenues — income arising from the operation of the HotelPennsylvania which consists of rooms revenue, food and beverage revenue, andbanquet revenue.  Income is recognizedwhen rooms are occupied.  Food andbeverage and banquet revenue is recognized when the services have been rendered.

 

Trade Show Revenues — income arising from the operation of trade shows,including rentals of booths.  Thisrevenue is recognized in accordance with the booth rental contracts when thetrade shows have occurred.

 

Expense Reimbursements — revenue arising from tenant leases whichprovide for the recovery of all or a portion of the operating expenses and realestate taxes of the respective property. This revenue is accrued in the same periods as the expenses areincurred.  Contingent rents are not recognizeduntil realized.

 

Temperature Controlled Logistics revenue – income arising from theCompany’s investment in Americold. Storage and handling revenue is recognized as services areprovided.  Transportation fees arerecognized upon delivery to customers.

 

Management, Leasing and Other Fees – income arising from contractual agreementswith third parties or with partially-owned entities.  This revenue is recognized as the relatedservices are performed under the respective agreements.

 

**Income Taxes:**  No provision for income taxes has been made inthe accompanying consolidated financial statements since such taxes, if any,are the responsibility of the partners.  TheCompany owns stock in corporations that have elected to be treated as taxableREIT subsidiaries (“TRS”) for Federal income tax purposes.  The value of the combined TRS stock cannotand does not exceed 20% of the value of the Company’s total assets.  A TRS is taxed on its net income at regularcorporate tax rates.  Total income taxespaid for the 2004, 2003 and 2002 tax years was $1,867,000, $2,048,000 and$1,430,000.

 

The net basisof the Company’s assets and liabilities for tax purposes is approximately$3,189,273,000 lower than the amount reported for financial statement purposes.

 

113

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**2.**                                      Summaryof Significant Accounting Policies - continued

** **

**Income Per Class A Unit:**  Basic income per Class A unit is computedbased on weighted average units outstanding. Diluted income per Class A Unit considers the effect of outstandingoptions, restricted units, warrants and convertible or redeemable securities.

 

**Stock-Based Compensation:**  In 2002 and prior years, the Companyaccounted for employee unit options using the intrinsic value method. Under theintrinsic value method compensation cost is measured as the excess, if any, ofthe quoted market price of Vornado’s stock at the date of grant over theexercise price of the option granted. Compensation cost for stock options, ifany, is recognized ratably over the vesting period.  The Company’s policy is to grant options withan exercise price equal to 100% of the market price of Vornado’s stock on thegrant date. Accordingly, no compensation cost has been recognized for theCompany’s unit option grants.  Effective January 1,2003, the Company adopted SFAS No. 123: Accounting for Stock-BasedCompensation, as amended by SFAS No. 148: Accounting for Stock-BasedCompensation - Transition and Disclosure. The Company adopted SFAS No. 123 prospectively by valuing and accountingfor employee unit options granted in 2003 and thereafter.  The Company utilizes a binomial valuationmodel and appropriate market assumptions to determine the value of each grant.  Stock-based compensation expense isrecognized on a straight-line basis over the vesting period for all grantssubsequent to 2002.  See Note 10.Stock-Based Compensation, for pro forma net income and pro forma net income perClass A unit for the years ended December 31, 2004, 2003 and 2002,assuming compensation costs for grants prior to 2003 were recognized ascompensation expense based on the fair value at the grant dates.

 

In addition to employee stock option grants, theCompany has also granted Vornado restricted shares to certain of its employeesthat vest over a three to five year period. The Company records the value of each restricted share award asstock-based compensation expense based on Vornado’s closing stock price on theNYSE on the date of grant on a straight-line basis over the vestingperiod.  As of December 31, 2004,the Company has 290,478 restricted units or rights to receive restricted unitsoutstanding to employees of the Company, excluding 626,566 units issued to theCompany’s President in connection with his employment agreement.  The Company recognized $4,200,000, $3,239,000and $914,000 of stock-based compensation expense in the years ended December 31,2004, 2003 and 2002 for the portion of these shares that vested during eachyear.  Dividends on both vested andunvested shares are charged to retained earnings and amounted to $938,700,$777,700 and $210,100 for the years ended December 31, 2004, 2003 and2002, respectively.  Dividends on sharesthat are canceled or terminated prior to vesting are charged to compensationexpense in the period they are cancelled or terminated.

 

## **Recently IssuedAccounting Literature**

## ** **

On December 16, 2004, the FASB issuedSFAS No. 153:**Exchanges ofNonmonetary Assets - An Amendment of APB Opinion No. 29. The amendments made bySFAS No. 153 are based on the principle that exchanges of nonmonetary assetsshould be measured based on the fair value of the assets exchanged. Further,the amendments eliminate the narrow exception for nonmonetary exchanges ofsimilar productive assets and replace it with a broader exception for exchangesof nonmonetary assets that do not have “commercial substance.” SFAS No. 153 iseffective for nonmonetary asset exchanges occurring in fiscal periods beginningafter June 15, 2005. The Company does not believe the adoption of SFAS No.153 on June 15, 2005 will have a material effect on the Company’sconsolidated financial statements.

 

On December 16, 2004, the FASB issued SFAS No.123: (Revised 2004) - Unit-Based Payment (“SFAS No. 123R”).  SFAS 123R replaces SFAS No. 123, which theCompany adopted on January 1, 2003. SFAS No. 123R requires that thecompensation cost relating to unit-based payment transactions be recognized infinancial statements and be measured based on the fair value of the equity orliability instruments issued. SFAS No. 123R is effective as of the firstinterim or annual reporting period that begins after June 15, 2005.  The Company does not believe that theadoption of SFAS No. 123R will have a material effect on the Company’sconsolidated financial statements.

 

114

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**3.**                                      Acquisitionsand Dispositions

** **

**Acquisitions:**

 

The Company completed approximately $328,600,000 ofreal estate acquisitions and investments in 2004 and $530,400,000 in 2003.  In addition, the Company made $183,400,000 ofmezzanine loans during 2004 (see Note 6. Notes and Mortgage LoansReceivable).  These acquisitions wereconsummated through subsidiaries of the Company.  The related assets, liabilities and resultsof operations are included in the Company’s consolidated financial statementsfrom their respective dates of acquisition. The pro forma effect of the individual acquisitions and in the aggregatewere not material to the Company’s historical results of operations.

 

Acquisitions of individual properties are recorded asacquisitions of real estate assets. Acquisitions of businesses are accounted for under the purchase methodof accounting. The purchase price for property acquisitions and businessesacquired is allocated to acquired assets and assumed liabilities using theirrelative fair values as of the acquisition date based on valuations and otherstudies. Initial valuations are subject to change until such information is finalizedno later than 12 months from the acquisition date.

 

## **Office:**

## ** **

*Building Maintenance Service Company (“BMS”)*

### * *

On January 1, 2003, the Company acquired for$13,000,000 in cash BMS, which provides cleaning, security and engineeringservices principally to the Company’s Manhattan office properties.  This company was previously owned by theestate of Bernard Mendik and certain other individuals including David R.Greenbaum, one of the Company’s executive officers.  This acquisition was recorded as a businesscombination under the purchase method of accounting.  Accordingly, the operations of BMS areconsolidated into the accounts of the Company beginning January 1, 2003.

### * *

### *Kaempfer Company (“Kaempfer”)*

### * *

On April 9, 2003, the Company acquired Kaempferwhich owns partial interests in six Class “A” office properties inWashington D.C. containing 1.8 million square feet, manages and leasesthese properties and four others for which it receives customary fees and hasoptions to acquire certain other real estate interests, including theWaterfront project discussed below. Kaempfer’s equity interest in the properties approximates 5.0%.  The aggregate purchase price for the equityinterests and the management and leasing business was $32,200,000 (consistingof $28,600,000 in cash and approximately 99,300 Operating Partnershipunits valued at $3,600,000) and may be increased by up to $9,000,000 based onthe performance of the management company. This acquisition was recorded as a business combination under thepurchase method of accounting. Accordingly, the operations of Kaempfer are consolidated into theaccounts of the Company beginning April 9, 2003.

 

On October 7, 2003, the Company acquired a 2.5%interest in the planned redevelopment of Waterfront, located at 401 M Street, amixed-use project in Washington D.C. (the “Waterfront interest”) for$2,171,000, of which the Company paid $1,545,000 in cash and issued 12,500Operating Partnership units valued at $626,000. The partnership units were issued to Mitchell N. Schear, one of thepartners in the Waterfront interest, who became the President of the Company’sCESCR division.

 

### *20 Broad Street*

### * *

On May 2, 2003, the Company acquired theremaining 40% of a 78-year leasehold interest in 20 Broad Street it didnot already own.  The purchase price wasapproximately $30,000,000 in cash.  20Broad Street contains 466,000 square feet of office space, of which 348,000square feet is leased to the New York Stock Exchange.  Prior to the acquisition of the remaining40%, the Company consolidated the operations of this property and reflected the40% interest that it did not own as a component of minority interest.  Subsequent to this acquisition, the Companyno longer reflects the 40% minority interest.

 

115

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**3.**                                      Acquisitionsand Dispositions - continued

** **

### *2101 L Street*

### * *

On August 4, 2003, the Company completed theacquisition of 2101 L Street, a 370,000 square foot office building located inWashington D.C.  The consideration forthe acquisition consisted of approximately 1.1 million newly issued OperatingPartnership units (valued at approximately $49,517,000) and the assumption ofexisting mortgage debt and transaction costs totaling approximately$32,000,000.  Robert H. Smith andRobert P. Kogod, trustees of the Company, together with family members ownedapproximately 24 percent of the limited partnership that sold the building andMr. Smith was a general partner.  On August 5,2003, the Company repaid the mortgage of $29,056,000.

 

### *Crystal CityMarriott*

### * *

On July 1, 2004, theCompany acquired the Marriott hotel located in its Crystal City office complexfrom a limited partnership in which Robert H. Smith and Robert P. Kogod,trustees of the Company, together with family members own approximately 67percent.  The purchase price of$21,500,000 was paid in cash as part of a Section 1031 tax-free, “like-kind”exchange with a portion of the proceeds from the Company’s sale of thePalisades Residential Complex (see Dispositions).  The hotel contains 343 roomsand is leased to an affiliate of Marriott International, Inc. until July 31,2015, with one 10-year extension option. The land under the hotel was acquired in 1999.

 

## **Retail:**

## ** **

### *Bergen Mall*

### * *

On December 12, 2003, the Company acquired theBergen Mall for approximately $145,000,000 in cash as part of a Section 1031tax-free “like-kind” exchange with a portion of the proceeds from the sale ofthe Company’s Two Park Avenue property (see Dispositions).  The Bergen Mall is a 903,000 square footshopping center located on Route 4 East in Paramus, New Jersey.  The Company intends to expand, re-tenant andredevelop the center in order to reposition the asset.  On January 27, 2004, the Company enteredinto an agreement to modify the Value City lease to give the Company a one-yearoption to terminate the lease no earlier than one year after notification andupon payment of $12,000,000 to the tenant. The present value of this option is reflected in the acquisition priceand is included in other liabilities in the Company’s consolidated balancesheets.

 

*Forest Plaza Shopping Center*

 

On February 3, 2004, the Company acquired theForest Plaza Shopping Center for approximately $32,500,000, of which$14,000,000 was paid in cash, and $18,500,000 was debt assumed.  The purchase was funded as part of Section 1031tax-free “like kind” exchange with the remaining portion of the proceeds fromthe sale of the Company’s Two Park Avenue property (see Dispositions).  Forest Plaza is a 165,000 square footshopping center located in Staten Island, New York.

 

*25 W. 14th Street*

 

On March 19, 2004, the Company acquired a 62,000square foot free-standing retail building located at 25 W. 14thStreet in Manhattan for $40,000,000 in cash. This acquisition was paid in cash as part of a Section 1031tax-free, “like-kind” exchange with a portion of the proceeds from the Company’ssale of the Palisades Residential Complex (see Dispositions).

 

*SouthernCalifornia Supermarkets*

 

On July 29, 2004, the Company acquired a realestate portfolio containing 25 supermarkets for $65,000,000.  These properties, all of which are alllocated in Southern California and contain an aggregate of approximately 766,000 squarefeet, were purchased from the Newkirk MLP, in which the Company currently ownsa 22.4% interest.  The supermarkets arenet leased to Stater Brothers for an initial term expiring in 2008, withsix 5-year extension options. Stater Brothers is a Southern California regional grocery chain thatoperates 158 supermarkets and has been in business since 1936.  This acquisition was paid in cash as part ofa Section 1031 tax-free, “like-kind” exchange with a portion of theproceeds from the Company’s sale of the Palisades Residential Complex (seeDispositions).  The Company’s share ofgain recognized by Newkirk MLP on this transaction was $7,119,000 and wasreflected as an adjustment to the Company’s basis in its investment in NewkirkMLP and not recognized as income.

 

116

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**3.**                                      Acquisitionsand Dispositions - continued

** **

*Queens Boulevard*

 

On August 30, 2004, the Company acquired 99-01Queens Boulevard, a 68,000 square foot free-standing building in Forest Hills,New York for $26,500,000 in cash as part of a Section 1031 tax-free, “like-kind”exchange with a portion of the proceeds from the Company’s sale of thePalisades Residential Complex (see Dispositions).

 

*Broome Street and Broadway*

 

On November 2, 2004, the Company acquired a 50%joint venture interest in a 92,500 square foot property located at BroomeStreet and Broadway in New York City. The Company contributed $4,462,000 of equity and provided a $24,000,000bridge loan with interest at 10% per annum. Upon the refinancing of the bridge loan, which is expected to close inthe second quarter of 2005, the Company will be repaid $15,106,000 and thebalance of $8,894,000 will remain in the venture as additional equity.

 

*Lodi and Burnside Shopping Centers*

 

On November 12, 2004 and December 1, 2004,the Company acquired two shopping centers aggregating 185,000 square feet, inLodi, New Jersey and Long Island (Inwood), New York, for a total purchase of$36,600,000 in cash plus $10,900,000 of assumed debt as part of a Section 1031tax-free, “like-kind” exchange with a portion of the proceeds from the Company’ssale of the Palisades Residential Complex (see Dispositions).

 

*Other Retail*

 

In December 2004, the Company acquired two retailcondominiums aggregating 12,000 square feet, located at 386 and 387 WestBroadway in New York City for $16,900,000 in cash plus $4,700,000 of assumeddebt.

 

**Other Investments:**

** **

*Investment in GMH Communities L.P.*

 

On July 20, 2004, the Company committed to makeup to a $159,000,000 convertible preferred investment in GMH CommunitiesL.P. (“GMH”), a partnership focused on the student and military housingsectors.  Distributions accrued on thefull committed balance of the investment, whether or not drawn, from July 20,2004, at a rate of 16.27%.  In connectionwith this commitment, the Company received a placement fee of $3,200,000.  The Company also purchased for $1,000,000,warrants to acquire GMH common equity. These warrants entitle the Company to acquire (i) 6,666,667 limitedpartnership units in GMH at an exercise price of $7.50 per unit and (ii)5,496,724 limited partnership units, through May 6, 2006, at an exercise priceof $9.10 per unit.  As of November 3,2004, the Company had funded a total of $113,777,000 of the commitment.

 

On November 3, 2004, GMH Communities Trust (“GCT”)closed its initial public offering (“IPO”) at a price of $12.00 per unit. GCT is a real estate investment trust that conducts its business throughGMH, of which it is the sole general partner. In connection with the IPO, the $113,777,000 previously funded by theCompany under the $159,000,000 commitment was repaid, together with accrueddistributions of $13,381,000.  TheCompany also exercised warrants to purchase 6,666,667 limited partnership unitsat a price of $7.50 per unit, or $50,000,000 in total, which resulted in a gainof $29,500,000.  The Company accounts forits interest in the partnership units on the equity method based on its 12.25%ownership interest and right to appoint one of its executive officers to GCT’sBoard of Trustees.  The Company recordsits pro-rata share of GMH’s net income or loss on a one-quarter lag basis asthe Company files its financial statements on Form 10-K or 10-Q prior to thetime GMH files its financial statements.

 

117

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**3.****                                      Acquisitionsand Dispositions - continued**

 

Under thewarrant agreement, the number of GMH partnership units or GCT common unitsunderlying the warrants is adjusted for dividends declared by GCT.  On December 16, 2004, GCT declared adividend of $.16 per common unit, which increased the number of unitsunderlying the warrants from 5,496,724 to 5,563,417 and the exercise price wasdecreased from $9.10 to $8.99 per unit.  Because these warrants are derivatives and do not qualify for hedgeaccounting treatment, the gains and losses resulting from the mark-to-market ofthe warrants at the end of each reporting period are recognized as an increaseor decrease in “interest and other investment income” on the Company’sconsolidated statement of income.  In thequarter ended December 31, 2004, the Company recognized income of$24,190,000 from the mark-to-market of these warrants, which were valued usinga trinomial option pricing model based on GCT’s closing stock price on the NYSEof $14.10 per unit on December 31, 2004.

 

Further, inconnection with the IPO, the Company contributed its 90% interest inCampus Club Gainesville, which it acquired in 2000, in exchange for anadditional 671,190 GMH limited partnership units.

 

Of the Company’sGMH units, 6,666,667 may be converted into an equivalent number of common unitsof GCT commencing on May 2, 2005 and 671,190 units may be converted commencingon November 2, 2005.  The Companyhas agreed not to sell any common units or units it owns or may acquire untilMay 2, 2005.

 

*Investment in Sears, Roebuck and Co.*

 

In July andAugust 2004, the Company acquired an aggregate of 1,176,600 common shares ofSears, Roebuck and Co. (“Sears”) for $41,945,000, an average price of $35.65per share. Included in the cost is $1,361,000 for a performance-basedparticipation.  These shares are recordedas marketable securities on the Company’s consolidated balance sheet and areclassified as “available for sale.” Appreciation or depreciation in the fair market value of these shares isrecorded as an increase or decrease in “accumulated other comprehensive income”in the partners’ capital section of the Company’s consolidated balance sheetand not recognized in income.  AtDecember 31, 2004, based on Sears’ closing stock price of $51.03 per share,$18,105,000 of appreciation in the value of these shares was included in“accumulated other comprehensive income.”

 

In August andSeptember 2004, the Company acquired an economic interest in an additional7,916,900 Sears common shares through a series of privately negotiatedtransactions with a financial institution pursuant to which the Companypurchased a call option and simultaneously sold a put option at the same strikeprice on Sears common shares.  These calland put options have an initial weighted-average strike price of  $39.82 per share, or an aggregate of$315,250,000, expire in April 2006 and provide for net cash settlement.  Under these agreements, the strike price foreach pair of options increases at an annual rate of LIBOR plus 45 basis pointsand is credited for the dividends received on the shares.  The options provide the Company with the sameeconomic gain or loss as if it had purchased the underlying common shares andborrowed the aggregate strike price at an annual rate of LIBOR plus 45 basispoints.  Because these options arederivatives and do not qualify for hedge accounting treatment, the gains orlosses resulting from the mark-to-market of the options at the end of eachreporting period are recognized as an increase or decrease in “interest andother investment income” on the Company’s consolidated statement ofincome.  During the year ended December31, 2004, the Company recorded net income of $81,730,000, comprised of (i)$88,782,000 from the mark-to-market of the options on December 31, 2004, basedon Sears’ closing stock price of $51.03 per share and (ii) $2,295,000 foraccrued dividends, partially offset by (i) $5,972,000 for a performance-basedparticipation, (ii) $2,371,000 for the increase in strike price resulting fromthe LIBOR charge and (iii) $1,004,000 of professional fees.

 

On November16, 2004, Kmart Holding Corporation (“Kmart”) and Sears entered into anAgreement and Plan of Merger.  Upon theeffective date of the merger, each share of Sears common stock will beconverted into the right to receive, at the election of the holder, (i) $50.00in cash or (ii) 0.50 shares of common stock of the merged company, subject toproration so that 55% of the Sears shares are exchanged for shares of themerged company.

 

Based onSears’ most recent filing with the Securities and Exchange Commission, theCompany’s aggregate investment in Sears represents 4.2% of Sears’ outstandingcommon shares.

 

118

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**3.**                                      Acquisitionsand Dispositions - continued

** **

## **Dispositions:**

## ** **

The following sets forth the details of sales,dispositions, write-offs and other similar transactions for the years ended December 31,2004, 2003 and 2002:

 

*Net Gains on Sales of Real Estate:*

 

On January 9, 2003, the Company sold itsBaltimore, Maryland shopping center for $4,752,000, which resulted in a netgain on the sale after closing costs of $2,644,000.

 

On October 10, 2003, the Company soldTwo Park Avenue, a 965,000 square foot office building, for $292,000,000,which resulted in a net gain on the sale after closing costs of$156,433,000.  Substantially all of theproceeds from the sale have been reinvested in tax-free “like-kind” exchangeinvestments pursuant to Section 1031 of the Internal Revenue Code (“Section 1031”).

 

On November 3, 2003, the Company sold itsHagerstown, Maryland shopping center property for $3,100,000, which resulted ina net gain on sale after closing costs of $1,945,000.

 

On June 29, 2004, the Company sold its PalisadesResidential Complex for $222,500,000, which resulted in a net gain on saleafter closing costs of $65,905,000. Substantially all of the proceeds from the sale were reinvested intax-free “like kind” exchange investments pursuant to Section 1031.  On February 27, 2004, the Company hadacquired the remaining 25% interest in the Palisades venture it did notpreviously own for approximately $17,000,000 in cash.

 

On August 12, 2004, the Company sold its Dundalk,Maryland shopping center for $12,900,000, which resulted in a net gain on saleafter closing costs of $9,850,000. Substantially all of the proceeds from the sale have been reinvested intax-free “like-kind” exchange investments pursuant to Section 1031.

 

*Net gains (losses) on disposition ofwholly-owned and partially-owned assets other than depreciable real estate:*

 
| ** **                                                                                                     | ** ** | **For the Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| **(Amounts in thousands)**                                                                                     | ** ** | **2004**                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| *Wholly-owned:*                                                                                                |       |                                      |       |   |   |   |   |
| Gain on sale  of residential condominium units                                                                 |       | $                                         | 776        |   | $ | 282 |   | $ | 2,156 |   |
| Net (loss)  gain on sale of marketable securities                                                              |       | (159                                      | )          | 2,950 |   | 12,346 |   |
| Primestone  loss on settlement of guarantees (2003) and foreclosure and impairment losses  (2002)              |       | —                                    |       | (1,388 | ) | (35,757 | ) |
| Gains on  sale of land parcels                                                                                 |       | —                                    |       | 499 |   | — |   |
| Gain on  transfer of mortgages                                                                                 |       | —                                    |       | — |   | 2,096 |   |
| Net gain on  sale of air rights                                                                                |       | —                                    |       | — |   | 1,688 |   |
| *Partially-owned:*                                                                                             |       |                                      |       |   |   |   |   |
| Net gain on  sale of a portion of investment in Americold to Yucaipa                                           |       | 18,789                                    |       | — |   | — |   |
| Other                                                                                                          |       | 369                                       |       | — |   | — |   |
| Net gain  (loss) on disposition of wholly-owned and partially-owned assets other than  depreciable real estate |       | $                                         | 19,775     |   | $ | 2,343 |   | $ | (17,471 | ) |

 

119

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**3.**                                      Acquisitionsand Dispositions - continued

** **

*Primestone Settlement ofGuarantees (2003) and Foreclosure and Impairment Losses (2002)*

* *

On September 28, 2000, the Company made a$62,000,000 loan to Primestone Investment Partners, L.P. (“Primestone”).  The loan bore interest at 16% per annum.  Primestone defaulted on the repayment of thisloan on October 25, 2001.  The loanwas subordinate to $37,957,000 of other debt of the borrower that liened theCompany’s collateral.  On October 31,2001, the Company purchased the other debt for its face amount.  The loans were secured by 7,944,893partnership units in Prime Group Realty, L.P., the operating partnership ofPrime Group Realty Trust (NYSE:PGE) and the partnership units were exchangeablefor the same number of common units of PGE. The loans were also guaranteed by affiliates of Primestone.

 

On November 19, 2001, the Company sold, pursuantto a participation agreement with a subsidiary of Cadim inc. (“Cadim”), aCanadian pension fund, a 50% participation in both loans at par for approximately$50,000,000 reducing the Company’s net investment in the loans at December 31,2001 to $56,768,000 including unpaid interest and fees of $6,790,000.  The participation did not meet the criteriafor “sale accounting” under SFAS 140 because Cadim was not free to pledgeor exchange the assets.

 

On April 30, 2002, the Company and Cadim acquiredthe 7,944,893 partnership units at a foreclosure auction.  The price paid for the units by applicationof a portion of Primestone’s indebtedness to the Company and Cadim was $8.35per unit, the April 30, 2002 closing price of units of PGE on the New YorkStock Exchange.  On June 28, 2002,pursuant to the terms of the participation agreement, the Company transferred3,972,447 of the partnership units to Cadim.

 

In the second quarter of 2002, in accordance withforeclosure accounting, the Company recorded a loss on the Primestoneforeclosure of $17,671,000 calculated based on (i) the acquisition priceof the units and (ii) its valuation of the amounts realizable under theguarantees by affiliates of Primestone, as compared with the net carryingamount of the investment at April 30, 2002.  In the third quarter of 2002, the Companyrecorded a $2,229,000 write-down on its investment based on costs expended torealize the value of the guarantees. Further, in the fourth quarter of 2002, the Company recorded a$15,857,000 write-down of its investment in Prime Group consisting of  (i) $14,857,000 to adjust the carrying amount of the Prime Groupunits to $4.61 per unit, the closing price of PGE units on December 31,2002 on the New York Stock Exchange and (ii) $1,000,000 for estimatedcosts to realize the value of the guarantees. The Company considered the decline in the value of the units which areconvertible into stock to be other than temporary as of December 31, 2002,based on the fact that the market value of the units which are convertible intostock had been less than its cost for more than six months, the severity of thedecline, market trends, the financial condition and near-term prospects ofPrime Group and other relevant factors.

 

On June 11, 2003, the Company exercised its rightto exchange the 3,972,447 units it owned in Prime Group Realty L.P. for3,972,447 common units in Prime Group Realty Trust (NYSE:PGE).  Prior to the exchange, the Company accountedfor its investment in the partnership on the equity method.  Subsequent to the exchange, the Company isaccounting for its investment in PGE as a marketable equity security-availablefor sale, as the Company’s units represent less than a 20% ownership interestin PGE (which is not a partnership), the Company does not have significantinfluence and the common units have a readily determinable fair value.  Accordingly, the carrying amount previouslyincluded in Investments and Advances to Partially-Owned Entities wasreclassified to Marketable Securities on the Company’s consolidated balancesheet.  The Company is also required tomark these securities to market based on the closing price of the PGE units onthe NYSE at the end of each reporting period. For the period from June 11, 2003 through December 31, 2003,the Company recorded a $6,623,000 unrealized gain, which is not included in theCompany’s net income, but is reflected as a component of Accumulated OtherComprehensive Income in the Partners’ Capital section of the consolidatedbalance sheet.  From the date ofexchange, income recognition is limited to dividends received on the PGE units.

 

On June 13, 2003, the Company received its$5,000,000 share of a settlement with affiliates of Primestone InvestmentPartners of the amounts due under the guarantees of the Primestone loans.  In connection therewith, the Companyrecognized a $1,388,000 loss on settlement of the guarantees.

 

120

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# **VORNADO REALTY L.P.**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**3.    Acquisitionsand Dispositions - continued**

 

*Gain onTransfer of Mortgages*

 

In the year endedDecember 31, 2002, the Company recorded a net gain of approximately $2.1million resulting from payments to the Company by third parties that assumedcertain of the Company’s mortgages. Under these transactions the Company paid to the third parties thatassumed the Company’s obligations the outstanding amounts due under themortgages and the third parties paid the Company for the benefit of assumingthe mortgages.  The Company has beenreleased by the creditors underlying these loans.

 

*NetGain on Sale of Air Rights*

 

In 2002, the Company constructed a $16.3 million communityfacility and low-income residential housing development (the “30th StreetVenture”), in order to receive 163,728 square feet of transferabledevelopment rights, generally referred to as “air rights”.  The Company donated the building to acharitable organization.  The Companysold 106,796 square feet of these air rights to third parties at anaverage price of $120 per square foot. An additional 28,821 square feet of air rights was sold toAlexander’s at a price of $120 per square foot for use at Alexander’s 731Lexington Avenue project.  In each case,the Company received cash in exchange for air rights.  The Company identified third party buyers forthe remaining 28,111 square feet of air rights of the 30th StreetVenture.  These third party buyers wantedto use the air rights for the development of two projects located in thegeneral area of 86th Street which was not within the required geographicalradius of the construction site nor in the same Community Board as thelow-income housing and community facility project.  The 30th Street Venture asked Alexander’sto sell 28,111 square feet of the air rights it already owned to the thirdparty buyers (who could use them) and the 30th Street Venture wouldreplace them with 28,111 square feet of air rights.  In October 2002, the Company sold28,111 square feet of air rights to Alexander’s for an aggregate salesprice of $3,059,000 (an average of $109 per square foot).   Alexander’s then sold an equal amount of airrights to the third party buyers for an aggregate sales price of $3,339,000 (anaverage of $119 per square foot).

 

*NetGains on Sale of Residential Condominium Units*

* *

*The Company recognized net gains of$776,000, $282,000 and $2,156,000 during 2004, 2003 and 2002, respectively,from the sale of residential condominiums.*

 

121

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# **VORNADO REALTY L.P.**

# ** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

## **4.**                                      DiscontinuedOperations

 

SFAS No. 144 requires discontinued operations presentation fordisposals of a “component” of an entity. In accordance with SFAS No. 144, for all periods presented, the Companyreclassified its consolidated statements of income to reflect income andexpenses for properties which became held for sale subsequent to December 31,2001, as discontinued operations and reclassified its consolidated balancesheets to reflect assets and liabilities related to such properties as assetsrelated to discontinued operations and liabilities related to discontinuedoperations.

 

Assets related to discontinued operations consist primarily of realestate, net of accumulated depreciation. The following table sets forth the balances of the assets related todiscontinued operations as of December 31, 2004 and 2003:

 
| ** **                                     | ** ** | **December  31,** | ** ** |
|------------------------------------------------|------------|-------------------|------------|
| **(Amounts in thousands)**                     | ** ** | **2004**          | ** ** | **2003** | ** ** |
| 400 North  LaSalle                             |       | $                 | 82,624     |   | $ | 80,685 |   |
| Arlington Plaza                                |       | 35,127            |       | 36,109 |   |
| Vineland                                       |       | 908               |       | 908 |   |
| Palisades (sold  on June 29, 2004)             |       | —            |       | 138,629 |   |
| Baltimore  (Dundalk) (sold on August 12, 2004) |       | —            |       | 2,167 |   |
|                                           |       | $                 | 118,659    |   | $ | 258,498 |   |

 

The following table sets forth the balances of the liabilities relatedto discontinued operations (primarily mortgage notes payable) as of December31, 2004 and 2003.

 
| ** **                         | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|------------------|------------|
| **(Amounts in thousands)**         | ** ** | **2004**         | ** ** | **2003** | ** ** |
| Arlington Plaza                    |       | $                | 15,867     |   | $ | 16,487 |   |
| 400 North  LaSalle                 |       | 5,187            |       | 3,038 |   |
| Palisades (sold  on June 29, 2004) |       | —           |       | 120,000 |   |
|                               |       | $                | 21,054     |   | $ | 139,525 |   |

 

The combined results of operations of the assets related todiscontinued operations for the years ended December 31, 2004, 2003 and 2002are as follows:

 
| ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|------------------|------------|
| **(Amounts in thousands)**           | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Total revenues                       |       | $                | 19,799     |   | $ | 47,770 |   | $ | 48,283 |   |
| Total expenses                       |       | 16,957           |       | 33,171 |   | 36,468 |   |
| Net income                           |       | 2,842            |       | 14,599 |   | 11,815 |   |
| Gains on sale of  real estate        |       | 75,755           |       | 161,789 |   | — |   |
| Income from  discontinued operations |       | $                | 78,597     |   | $ | 176,388 |   | $ | 11,815 |   |

 

# **See Note 3. – Acquisitions andDispositions for details of gains on sale of real estate related todiscontinued operations in the years ended December 31, 2004 and 2003.**

 

122

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# **VORNADO REALTY L.P.**

# ** **

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

## **5.**                                      Investmentsin Partially-Owned Entities

 

The Company’s investments in partially-owned entities and incomerecognized from such investments are as follows:

 

## **Balance Sheet Data:**

 
| ** **                               | ** ** | ** **                     | ** ** | ** **        | ** ** | ** **             | ** ** | **100% of  These Entities** | ** ** |
|------------------------------------------|------------|--------------------------------|------------|-------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **Company’s  Investment** | ** ** | **Total  Assets** | ** ** | **Total  Liabilities** | ** ** | **Total  Equity**           | ** ** |
| **(Amounts in thousands)**               | ** ** | **Percentage  Ownership**      | ** ** | **2004**          | ** ** | **2003**               | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Investments:**                         |       |                           |       |              |       |                   |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Temperature  Controlled Logistics (1)    |       | 47.6%                          |       | $                 | —     |                   | $          | 436,225                     |       |   |   | $ | 1,264,390 |   |   |   | $ | 557,017 |   |   |   | $ | 707,373 |   |
| Alexander’s                         |       | 33%                            |       | 204,762           |       | 207,872                |       | $                           | 1,244,801  |   | $ | 920,996 |   | $ | 1,226,433 |   | $ | 870,073 |   | $ | 18,368 |   | $ | 50,923 |   |
| Newkirk MLP                              |       | 22%                            |       | 158,656           |       | 138,762                |       | $                           | 1,240,129  |   | $ | 1,384,094 |   | $ | 1,030,755 |   | $ | 1,276,905 |   | $ | 209,374 |   | $ | 107,189 |   |
| GMH Communities  L.P. (2)                |       | 12.25%                         |       | 84,782            |       | —                 |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Partially – Owned  Office Buildings |       | 0.1% - 50%                     |       | 48,682            |       | 44,645                 |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Monmouth Mall                            |       | 50%                            |       | 29,351            |       | 30,612                 |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| 478-486 Broadway                         |       | 50%                            |       | 29,170            |       | —                 |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Starwood Ceruzzi  Joint Venture     |       | 80%                            |       | 19,106            |       | 23,821                 |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Other                                    |       |                           |       | 30,791            |       | 18,663                 |       |                        |       |   |   |   |   |   |   |   |   |   |   |
|                                     |       |                           |       | $                 | 605,300    |                   | $          | 900,600                     |       |   |   |   |   |   |   |   |   |   |   |   |   |

 

----

(1)          See page 127 fordetails.

 

(2)          As of December 31,2004, the Company owns 7.3 million limited partnership units, or 12.25% of thelimited partnership interest of GMH, a partnership focused on the student andmilitary housing sectors.  Details ofthis investment are provided on page 117. The Company accounts for its interest in the partnership units on theequity-method based on its 12.25% ownership interest and right to appoint oneof its executive officers to GCT’s Board of Trustees.  The Company records its prorata share of GMH’snet income or loss on a one-quarter lag basis as the Company files itsfinancial statements on Form 10-K or 10-Q prior to the time GMH files itsfinancial statements.  GMH’s propertieswere 94.2% occupied as of December 31, 2004. GMH’s outstanding indebtedness was $359,000 as of December 31, 2004, ofwhich the Company’s share was $44,000.

 

In addition, the Companyholds warrants to purchase an additional 5.6 million limited partnership unitsof GMH or common units of GCT at a price of $8.99 per unit or unit through May6, 2006.  Because these warrants arederivatives and do not qualify for hedge accounting treatment, the gains orlosses resulting from the mark-to-market of the warrants at the end of eachreporting period are recognized as an increase or decrease in “interest andother investment income” on the Company’s consolidated statement ofincome.  In the quarter ended December31, 2004, the Company recognized $24,190 from the mark-to-market of thesewarrants, which were valued using trinomial option pricing model based on GCT’sclosing stock price on the NYSE of $14.10 per unit on December 31, 2004.

 

123

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**5.             Investmentsin Partially-Owned Entities - continued**

 

Below is a summary of the debt of partially owned entities as ofDecember 31, 2004 and 2003, none of which is guaranteed by the Company.

 
| ** **                                                                                                                                                                                                                                                               | ** ** | **100% of  Partially-Owned Entities Debt** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(Amounts in thousands)**                                                                                                                                                                                                                                               | ** ** | **December 31,  2004**                     | ** ** | **December 31,  2003** | ** ** |
| Alexander’s (33%  interest):                                                                                                                                                                                                                                        |       |                                       |       |   |   |
| Lexington Avenue  mortgage note payable collateralized by the office space, due in February  2014, with interest at 5.33%                                                                                                                                                |       | $                                          | 400,000    |   | $ | — |   |
| Kings Plaza  Regional Shopping Center mortgage note payable, due in June 2011, with  interest at 7.46% (prepayable with yield maintenance)                                                                                                                               |       | 213,699                                    |       | 216,586 |   |
| Due to Vornado  on January 3, 2006 with interest at 9.0% (one-year treasuries plus 6.0%  with a 3.0% floor for treasuries) (prepayable without penalty)                                                                                                             |       | 124,000                                    |       | 124,000 |   |
| Rego Park  mortgage note payable, due in June 2009, with interest at 7.25%                                                                                                                                                                                          |       | 81,661                                     |       | 82,000 |   |
| Paramus mortgage  note payable, due in October 2011, with interest at 5.92% (prepayable without  penalty)                                                                                                                                                                |       | 68,000                                     |       | 68,000 |   |
| Lexington Avenue  construction loan payable, due in January 2006, plus two one-year extensions,  with interest at 4.92% (LIBOR plus 2.50%)                                                                                                                               |       | 65,168                                     |       | 240,899 |   |
|                                                                                                                                                                                                                                                                     |       |                                       |       |   |   |
| Newkirk MLP  (22.4% interest):                                                                                                                                                                                                                                           |       |                                       |       |   |   |
| Portion of first  mortgages collateralized by the partnership’s real estate, due from 2005 to  2024, with a weighted average interest rate of 7.28% at December 31, 2004  (various prepayment terms)                                                                |       | 859,674                                    |       | 1,069,545 |   |
|                                                                                                                                                                                                                                                                     |       |                                       |       |   |   |
| GMH Communities  L.P. (12.25% interest):                                                                                                                                                                                                                                 |       |                                       |       |   |   |
| Mortgage notes  payable, collateralized by 27 properties, due from 2005 to 2014, with a  weighted average interest rate of 5.28% at December 31, 2004                                                                                                                    |       | 359,276                                    |       | — |   |
|                                                                                                                                                                                                                                                                     |       |                                       |       |   |   |
| Monmouth Mall  (50% interest):                                                                                                                                                                                                                                           |       |                                       |       |   |   |
| Mortgage note  payable, due in November 2005, with interest at LIBOR plus 2.05% and two  one-year extension options (4.53% at December 31, 2004)                                                                                                                    |       | 135,000                                    |       | 135,000 |   |
|                                                                                                                                                                                                                                                                     |       |                                       |       |   |   |
| Partially-Owned  Office Buildings:                                                                                                                                                                                                                                       |       |                                       |       |   |   |
| Kaempfer  Properties (2.1% to 10% interests in five partnerships)  Mortgage notes payable, collateralized by the partnerships’ real estate, due  from 2007 to 2031, with a weighted average interest rate of 6.96% at December  31, 2004 (various prepayment terms) |       | 491,867                                    |       | 361,263 |   |
| Fairfax Square  (20% interest) mortgage note payable, due in August 2009, with interest  at 7.50%                                                                                                                                                                   |       | 67,215                                     |       | 68,051 |   |
| 330 Madison  Avenue (25% interest) mortgage note payable, due in April 2008, with interest  at 6.52% (prepayable with yield maintenance)                                                                                                                                 |       | 60,000                                     |       | 60,000 |   |
| 825 Seventh  Avenue (50% interest) mortgage note payable, due in October 2014, with  interest at 8.07% (prepayable with yield maintenance)                                                                                                                               |       | 23,104                                     |       | 23,060 |   |
|                                                                                                                                                                                                                                                                     |       |                                       |       |   |   |
| Wells/Kinzie  Garage (50% interest) mortgage note payable, due in May 2009, with interest  at 7.03%                                                                                                                                                                      |       | 15,334                                     |       | 15,606 |   |
|                                                                                                                                                                                                                                                                     |       |                                       |       |   |   |
| Orleans Hubbard  (50% interest) mortgage note payable, due in March 2009, with interest  at 7.03%                                                                                                                                                                   |       | 9,626                                      |       | 9,799 |   |
|                                                                                                                                                                                                                                                                     |       |                                       |       |   |   |
| Temperature  Controlled Logistics (47.6% interest) (1):                                                                                                                                                                                                                  |       |                                       |       |   |   |
| Mortgage notes  payable                                                                                                                                                                                                                                                  |       | —                                     |       | 509,456 |   |
| Other notes  payable                                                                                                                                                                                                                                                     |       | —                                     |       | 39,365 |   |
|                                                                                                                                                                                                                                                                          |            |                                            |            |  |  |  |  |

 

----

(1)   Beginningon November 18, 2004, the Company’s investment in Americold is consolidatedinto the accounts of the Company.

 

Based on the Company’s ownership interest in the partially-ownedentities above, the Company’s share of the debt of these partially-ownedentities was $669,942,000 and $930,567,000 as of December 31, 2004 and2003, respectively.

 

124

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**5.**                                      Investmentsin Partially-Owned Entities - continued

 

## **Income Statement Data:**

 
| ** **                                                                           | ** ** | **Company’s  Equity in  Income (Loss) from Partially  Owned Entities** | ** **          | **100% of  These Entities** | ** **             |
|--------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|---------------------|-----------------------------|------------------------|
| ** **                                                                           | ** ** | ** **                                                                  | **Total  Revenues** | ** **                  | **Net  Income (loss)** | ** ** |
| **(Amounts in thousands)**                                                           | ** ** | **2004**                                                                    | ** **          | **2003**                    | ** **             | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Alexander’s:                                                                    |       |                                                                        |                |                        |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 33% share of  equity in income before stock appreciation rights compensation expense |       | $                                                                           | 13,701              |                        | $                      | 8,614 |   | $ | 7,556 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 33% share of  stock appreciation rights compensation expense                         |       | (25,340                                                                     | )                   | (14,868                     | )                      | — |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 33% share of  equity in (loss) income (1)                                            |       | (11,639                                                                     | )                   | (6,254                      | )                      | 7,556 |   | $ | 148,895 |   | $ | 87,162 |   | $ | 76,800 |   | $ | (33,469 | ) | $ | (17,742 | ) | $ | 23,584 |   |
| Interest income  (2)                                                                 |       | 8,642                                                                       |                | 10,554                      |                   | 10,401 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Development and  guarantee fees (2)                                                  |       | 3,777                                                                       |                | 6,935                       |                   | 6,915 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management and  leasing fee income (1)                                               |       | 7,800                                                                       |                | 4,339                       |                   | 4,781 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                 |       | $                                                                           | 8,580               |                        | $                      | 15,574 |   | $ | 29,653 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Temperature  Controlled Logistics (3):                                               |       |                                                                        |                |                        |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in net  income                                                                |       | $                                                                           | 606                 |                        | $                      | 12,869 |   | $ | 4,144 |   |   |   | $ | 119,605 |   | $ | 117,663 |   |   |   | $ | 20,515 |   | $ | 5,586 |   |
| Management fees                                                                      |       | 5,035                                                                       |                | 5,547                       |                   | 5,563 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                 |       | 5,641                                                                       |                | 18,416                      |                   | 9,707 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Newkirk MLP:                                                                         |       |                                                                        |                |                        |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in income                                                                     |       | 24,041                                                                      |                | 33,243                      |                   | 26,500 |   | $ | 239,496 |   | $ | 273,500 |   | $ | 295,369 |   | $ | 136,037 |   | $ | 151,505 |   | $ | 121,860 |   |
| Interest and  other income                                                           |       | 11,396                                                                      |                | 7,002                       |                   | 8,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                 |       | 35,437                                                                      |                | 40,245                      |                   | 34,500 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Partially-Owned  Office Buildings (4)                                                |       | 2,728                                                                       |                | 2,426                       |                   | 1,966 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Monmouth Mall                                                                        |       | 3,741                                                                       |                | 4,433                       |                   | 1,022 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Prime Group  Realty LP (5)                                                           |       | —                                                                      |                | —                      |                   | (1,005 | ) |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                                                                                |       | (4,166                                                                      | )                   | 2,381                       |                   | (1,732 | ) |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                 |       | $                                                                           | 43,381              |                        | $                      | 67,901 |   | $ | 44,458 |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

----

(1)          2002 includes theCompany’s $3,431 share of Alexander’s gain on sale of its Third Avenueproperty.

(2)          Alexander’scapitalizes the fees and interest charged by the Company.  Because the Company owns 33% of Alexander’s,the Company recognizes 67% of such amounts as income and the remainder isreflected as a reduction of the Company’s carrying amount of the investment inAlexander’s.

(3)          Beginning onNovember 18, 2004, the Company’s investment in Americold is consolidated intothe accounts of the Company.

(4)          Represents theCompany’s interests in 330 Madison Avenue (24.8%), 825 Seventh Avenue(50%), Fairfax Square (20%) and Kaempfer equity interests in six officebuildings (.1% to 10%).

(5)          On June 11, 2003,the Company exercised its right to exchange the 3,972,447 units it owned inPrime Group Realty L.P. for 3,972,447 common shares in Prime Group Realty Trust(NYSE:PGE).  Prior to the exchange, theCompany accounted for its investment in the partnership on the equitymethod.  Subsequent to the exchange, theCompany is accounting for its investment in PGE as a marketable equitysecurity-available for sale.

 

125

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**5.    Investmentsin Partially-Owned Entities - continued**

 

## **Alexander’s**

 

The Company owns 33% of the outstanding common stock of Alexander’s atDecember 31, 2004 and 2003.   The Companymanages, leases and develops Alexander’s properties pursuant to agreements (seebelow) which expire in March of eachyear and are automatically renewable, except for the 731 Lexington Avenuedevelopment agreement which provides for a term lasting until substantialcompletion of the development of the property.

 

*Management and Leasing Agreements*

 

The Company receives an annual fee for managing all of Alexander’sproperties equal to the sum of (i) $3,000,000, (ii) 3% of the grossincome from the Kings Plaza Mall, and (iii) 6% of development costs with minimumguaranteed fees of $750,000 per annum.

 

The Company generally receives a fee of (i) 3% of lease rent forthe first ten years of a lease term, 2% of lease rent for the 11ththrough the 20th years of a lease term and 1% of lease rent for the21st through 30th years of a lease term, subject to thepayment of rents by Alexander’s tenants and (ii) 3% of asset salesproceeds.  Such amounts are payable tothe Company annually in an amount not to exceed an aggregate of $2,500,000until the present value of such installments (calculated at a discount rate of9% per annum) equals the amount that would have been paid at the time thetransactions which gave rise to the commissions occurred.

 

The Company recognized $7,800,000, $4,339,000 and $4,781,000 of feeincome under these agreements during the years ended December 31, 2004, 2003and 2002, respectively.  AtDecember 31, 2004, and 2003, $23,744,000 and $14,450,000 was due to theCompany under these agreements.

 

*731 Lexington Avenue and Other Fees*

 

The Company is entitled to a development feefor the construction of Alexander’s 731 Lexington Avenue property ofapproximately $26,300,000, based on 6% of construction costs, as defined,payable on the earlier of January 3, 2006, or the date of payment in full ofthe construction loan encumbering the property. The Company guaranteed to Alexander’s 731 Lexington Avenueconstruction lender, the lien free, timely completion of the construction ofthe project and funding of project costs in excess of a stated budget, if notfunded by Alexander’s for which the Company is entitled to a $6,300,000estimated fee based on 1 % of construction costs, as defined, payable upon thecompletion of construction.  Based uponthe current status of construction, management does not anticipate the need tofund pursuant to this completion guarantee. The Company has recognized$3,777,000, $6,935,000 and $6,915,000 as development and guarantee fee incomeduring the years ended December 31, 2004, 2003 and 2002, respectively.  At December 31, 2004 and 2003, $24,086,000and $19,265,000 was due under the development and guarantee agreements.

 

Building Maintenance Services (“BMS”), awholly-owned subsidiary of the Company, supervises the cleaning, engineeringand security at Alexander’s 731 Lexington Avenue property for an annual fee of6% of costs for such services.  InOctober 2004, Alexander’s also contracted with BMS to provide the same servicesat the Kings Plaza Regional Shopping Center on the same terms.  On May 27, 2004, the Company entered into anagreement with Alexander’s under which it provides property management servicesat 731 Lexington Avenue for an annual fee of $0.50 per square foot of thetenant-occupied office and retail space. These agreements were negotiated and approved by a special committee ofdirectors of Alexander’s that were not affiliated with the Company.  The Company recognized $1,384,000 of feeincome under these agreements during the year ended December 31, 2004.

 

126

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**5.    Investmentsin Partially-Owned Entities - continued**

 

*Debt Agreements*

 

At December 31, 2004 and 2003, the Company has loans receivablefrom Alexander’s of $124,000,000, including $29,000,000 drawn under a$50,000,000 line of credit.  The maturitydate of the loans is the earlier of January 3, 2006 or the date theAlexander’s Lexington Avenue construction loan is finally repaid.  Effective April 1, 2004, based on Alexander’simproved liquidity, the Company modified its term loan and line of credit toAlexander’s to reduce the spread on the interest rate it charges from 9.48% to6%.  Accordingly, the current interestrate was reduced from 12.48% to 9%.

 

On February 13, 2004, Alexander’s completed a $400,000,000 mortgagefinancing on the office space of its Lexington Avenue development project.  The loan bears interest at 5.33%, matures inFebruary 2014 and beginning in the third year, provides for principal paymentsbased on a 25-year amortization schedule such that over the remaining eightyears of the loan, ten years of amortization will be paid.  Of the loan proceeds, $253,529,000 was usedto repay the entire amount outstanding under the construction loan.  The construction loan was modified so thatthe remaining availability is $237,000,000, which was approximately the amountestimated to complete the Lexington Avenue development project.  The interest rate on the construction loan isLIBOR plus 2.5% (4.92% at December 31, 2004) and matures in January 2006, withtwo one-year extensions.  The collateralfor the construction loan is the same, except that the office space has beenremoved from the lien.  Further, theconstruction loan permits the release of the retail space for a payment of$15,000,000 and requires all proceeds from the sale of the residentialcondominium units to be applied to the construction loan balance until it isfinally repaid.

 

**TemperatureControlled Logistics**

 

On February 5, 2004, Americold Realty Trust (“Americold”) completed a$254,400,000 mortgage financing for 21 of its owned and 7 of its leasedtemperature-controlled warehouses.  Theloan bears interest at LIBOR plus 2.95% (with a LIBOR floor of 1.5% withrespect to $54,400,000 of the loan) and requires principal payments of$5,000,000 annually.  The loan matures inApril 2009 and is pre-payable without penalty after February 5, 2006.  The net proceeds were approximately $225,000,000after providing for usual escrows, closing costs and the repayment of $12,900,000of existing mortgages on two of the warehouses, of which $135,000,000 wasdistributed to the Company and the remainder was distributed to its partner.

 

Prior to November 18, 2004, the Company owned a 60%interest in Vornado Crescent Portland Partnership (“VCPP”) which ownedAmericold.  Americold owns 88 temperaturecontrolled warehouses, all of which were leased to AmeriCold Logistics.  On November 4, 2004, Americold purchased itstenant, AmeriCold Logistics, for $47,700,000 in cash.  On November 18, 2004, the Company and its 40%partner, Crescent Real Estate Equities Company (“CEI”) collectively sold 20.7%of Americold’s common units to The Yucaipa Companies (“Yucaipa”) for$145,000,000, which resulted in a gain, of which the Company’s share was $18,789,000.The sale price was based on a $1.450 billion valuation for Americold beforedebt and other obligations.  Yucaipa is aprivate equity firm with significant expertise in the food distribution,logistics and retail industries.  Uponclosing of the sale to Yucaipa on November 18, 2004, Americold is owned 47.6%by the Company, 31.7% by CEI and 20.7% by Yucaipa. Pursuant to the salesagreement: (i) Yucaipa may earn a promote of 20% of the increase in the valueof Americold through December 31, 2007, limited to 10% of the Company’s and CEI’sremaining interest in Americold; (ii) the annual asset management fee payableby CEI to the Company has been reduced from approximately $5,500,000 to$4,548,000, payable quarterly through October 30, 2027.  CEI, at its option, may terminate the paymentof this fee at any time after November 2009, by paying the Company atermination fee equal to the present value of the remaining payments throughOctober 30, 2027, discounted at 10%.  Inaddition, CEI is obligated to pay a pro rata portion of the termination fee tothe extent it sells a portion of its equity interest in Americold; and (iii)VCPP was dissolved.  The Company has theright to appoint three of the five members to Americold’s Board ofTrustees.  Consequently, the Company isdeemed to exercise control over Americold and, on November 18, 2004, theCompany began to consolidate the operations and financial position of Americoldinto its accounts and no longer accounts for its investment on the equitymethod.

 

127

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**VORNADOREALTY L.P.**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**6.    Notes andMortgage Loans Receivable**

### * *

### *General Motors Building Mezzanine Loans*

### * *

### *OnOctober 20, 2003, the Company made a $200,000,000 mezzanine loan secured bypartnership interests in the General Motors Building.  The Company’s loan is subordinate to$900,000,000 of other debt.  The loan isbased on a rate of LIBOR plus 8.685% (with a LIBOR floor of 1.5%) and currentlyyields 10.185%.  On October 30, 2003, theCompany made an additional $25,000,000 loan, as part of a $50,000,000 loan, thebalance of which was funded by an affiliate of Soros Fund Management LLC.  This loan, which is junior to the$1,100,000,000 of loans noted above, is based on a rate of LIBOR plus 12.81%(with a LIBOR floor of 1.5%) and currently yields 14.31%.*

 

On September 1, 2004, the Company acquired a $50,000,000 participationin an existing $200,000,000 loan on the General Motors Building made by anaffiliate of Soros Fund Management LLC. This loan, which is subordinate to $1.15 billion of other debt, issecured by partnership interests in the building and additional guarantees andcollateral.  The $50,000,000participation bears interest at 16%, matures on March 25, 2005 and isprepayable at any time.

 

On January 7, 2005, all of the outstandingGeneral Motors Building loans aggregating $275,000,000 were repaid.  In connection therewith, the Company receiveda $4,500,000 prepayment premium and $1,996,000 of accrued interest and feesthrough January 14, 2005, which will be recognized in the first quarter of2005.

 

### *Loan to Commonwealth Atlantic Properties (“CAPI”)*

 

On March 4, 1999, the Company made an additional $242,000,000investment in CESCR by contributing to CESCR the land under certain CESCRoffice properties in Crystal City, Arlington, Virginia and partnershipinterests in certain CESCR subsidiaries. The Company acquired these assets from CAPI, an affiliate of Lazard FreresReal Estate Investors L.L.C., for $242,000,000, immediately prior to thecontribution to CESCR. In addition, the Company acquired from CAPI for$8,000,000 the land under a Marriott Hotel located in Crystal City.  The Company paid the $250,000,000 purchaseprice to CAPI by issuing 4,998,000 of the Company’s Series E-1 convertiblepreferred units.  In connection withthese transactions, the Company agreed to make a five-year $41,200,000 loan toCAPI with interest at 8%, increasing to 9% ratably over the term.  On March 1, 2004, the balance of the loan of$38,500,000 was repaid.

 

### *Loan to Vornado Operating Company (“Vornado Operating”)*

 

At December 31, 2003, the amount outstandingunder the revolving credit agreement with Vornado Operating was$21,989,000.  Beginning January 1, 2002,the Company had fully reserved for the interest income on the debt under thisfacility.  On November 4, 2004, inconnection with the sale of AmeriCold Logistics to Americold Realty Trust,Vornado Operating repaid the outstanding balance of the loan together with allunpaid interest totaling $4,771,000.  Inconnection with the above, the revolving credit agreement was terminated.

 

### *Dearborn Center Mezzanine Construction Loan*

 

On March 19, 2003, the outstanding amount of $29,401,000 was receivedfrom Dearborn Center representing the full satisfaction of the mezzanineconstruction loan.  The loan boreinterest at 12% per annum plus additional interest of $5,655,000 which wasreceived upon repayment.

 

*Extended Stay America Mezzanine Loan*

 

On May 12, 2004, the Company made an $83,000,000mezzanine loan secured by ownership interests in a subsidiary of Extended StayAmerica, Inc., which was recently acquired for approximately $3.1 billion by anaffiliate of the Blackstone Group. The loan is part of a $166,000,000 facility,the balance of which was funded by Soros Credit LP, and is subordinate to $2.3billion of other debt. The loan bears interest at LIBOR plus 5.50% (7.90% atDecember 31, 2004) and matures in May 2007, with two one-year extensions.  Extended Stay America owns and operates 485hotels in 42 states.

 

*Charles Square Mezzanine Loan*

 

On November 17, 2004, the Company made a $43,500,000mezzanine loan secured by Charles Square in Howard Square in Cambridge,Massachusetts.  The property consists ofa 293–room hotel, 140,000 square feet of office and retail space and a 568-carparking facility.  This loan issubordinate to $82,500,000 of other debt, bears interest 7.56% and matures inSeptember 2009.

 

128

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**VORNADOREALTY L.P.**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**6.       Notes and Mortgage Loans Receivable - continued**

### * *

### *Other*

 

On June 1, 2004 and September 24, 2004, the Companyacquired Verde Group LLC (“Verde”) convertible subordinated debentures for$14,350,000 and $8,150,000, in cash, increasing the Company’s investment inVerde at December 31, 2004 to$25,000,000.  Verde invests, operates anddevelops residential communities, among others, primarily on the Texas-Mexicoborder.  The debentures yield a fixed rateof 4.75% per annum and matures on December 31, 2018.

 

On June 1, 2004, the Company invested $5,000,000 in asenior mezzanine loan, and $3,050,000 in senior preferred equity of 3700Associates, LLC which owns 3700 Las Vegas Boulevard, a development land parcellocated in Las Vegas, Nevada.  The loanbears interest at 12% and matures on March 31, 2007.  The preferred equity yields a 10% per annumcumulative preferred return.

 

On December 10, 2004, the Company acquired a$6,776,000 mezzanine loan which is subordinate to $61,200,000 of other loans,and secured by The Gallery at Military Circle, a 943,000 square foot mall inNorfolk, Virginia.  The loan bearsinterest at 8.4% per annum and matures in August 2014 .

 

**7.       Identified Intangible Assets and Goodwill**

 

The following summarizes the Company’s identified intangible assets,intangible liabilities (deferred credit) and goodwill as of December 31, 2004and December 31, 2003.

 
| **(Amounts in thousands)**                                            | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| **Identified  intangible assets (included in other assets):**         |       |                   |       |                   |       |
| Gross amount                                                          |       | $                      | 238,428    |                   | $          | 171,842 |   |
| Accumulated  amortization                                             |       | (62,114                | )          | (40,967                | )          |
| Net                                                                   |       | $                      | 176,314    |                   | $          | 130,875 |   |
| **Goodwill  (included in other assets):**                             |       |                   |       |                   |       |
| Gross amount                                                          |       | $                      | 10,425     |                   | $          | 4,345 |   |
| **Identified  intangible liabilities (included in deferred credit):** |       |                   |       |                   |       |
| Gross amount                                                          |       | $                      | 123,241    |                   | $          | 79,146 |   |
| Accumulated  amortization                                             |       | (51,969                | )          | (31,787                | )          |
| Net                                                                   |       | $                      | 71,272     |                   | $          | 47,359 |   |

 

Amortization of acquired below market leases net of acquired abovemarket leases resulted in an increase to rental income of $38,616,000 for theyear ended December 31, 2004, and $23,639,000 for the year ended December 31,2003.  The estimated annual amortizationof acquired below market leases net of acquired above market leases for each ofthe five succeeding years is as follows:

 
| **(Amounts in thousands)** | ** ** | ** ** | ** ** |
|----------------------------|------------|------------|------------|
| 2005                       |       | $          | 8,932      |   |
| 2006                       |       | 6,314      |       |
| 2007                       |       | 5,806      |       |
| 2008                       |       | 4,770      |       |
| 2009                       |       | 4,066      |       |
|                            |            |            |            |  |

 

The estimated annual amortization of all other identified intangibleassets (a component of depreciation and amortization expense) includingacquired in-place leases, customer relationships, and third party contracts foreach of the five succeeding years is as follows:

 
| **(Amounts in thousands)** | ** ** | ** ** | ** ** |
|----------------------------|------------|------------|------------|
| 2005                       |       | $          | 15,592     |   |
| 2006                       |       | 13,777     |       |
| 2007                       |       | 12,780     |       |
| 2008                       |       | 12,240     |       |
| 2009                       |       | 11,920     |       |
|                            |            |            |            |  |

 

129

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

**8.    Debt**

 

Following is a summary of the Company’s debt:

 
| ** **                                                          | ** ** | ** **   | ** ** | **Interest Rate  as at****December 31****,  2004** | ** **             | ** ** | ** **                  | ** ** | ** ** |
|---------------------------------------------------------------------|------------|--------------|------------|----------------------------------------------------|------------------------|------------|-----------------------------|------------|------------|
| ** **                                                          | ** ** | ** **   | ** ** | ** **                                         | **Balance as of**      | ** ** |
| **(Amounts in thousands)**                                          | ** ** | **Maturity** | ** ** | ** **                                         | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
| **Notes and Mortgages Payable:**                                    | ** ** | ** **   | ** ** | ** **                                         | ** **             | ** ** | ** **                  | ** ** | ** ** |
| **Fixed  Interest:**                                                |       |         |       |                                               |                   |       |                        |       |       |
| Office:                                                             |       |         |       |                                               |                   |       |                        |       |       |
| NYC Office:                                                         |       |         |       |                                               |                   |       |                        |       |       |
| Two Penn Plaza  (1)                                                 |       | 02/11        |       | 4.97%                                              |                   | $          | 300,000                     |       | $          | 151,420 |   |
| 888 Seventh  Avenue                                                 |       | 02/06        |       | 6.63%                                              |                   | 105,000    |                        | 105,000    |       |
| Eleven Penn  Plaza (1)                                              |       | 12/14        |       | 5.20%                                              |                   | 219,777    |                        | 49,304     |       |
| 866 UN Plaza                                                        |       | 05/07        |       | 8.39%                                              |                   | 48,130     |                        | 33,000     |       |
| CESCR Office:                                                       |       |         |       |                                               |                   |       |                        |       |       |
| Crystal Park 1-5                                                    |       | 07/06-08/13  |       | 6.66%-7.08%                                        |                   | 253,802    |                        | 258,733    |       |
| Crystal Gateway  1-4 Crystal Square 5                               |       | 07/12-01/25  |       | 6.75%-7.09%                                        |                   | 212,643    |                        | 214,323    |       |
| Crystal Square  2, 3 and 4                                          |       | 10/10-11/14  |       | 6.82%-7.08%                                        |                   | 141,502    |                        | 143,854    |       |
| Skyline Place                                                       |       | 08/06-12/09  |       | 6.60%-6.93%                                        |                   | 132,427    |                        | 135,955    |       |
| 1101 17th, 1140  Connecticut, 1730 M and 1150 17th                  |       | 08/10        |       | 6.74%                                              |                   | 94,409     |                        | 95,860     |       |
| Courthouse Plaza  1 and 2                                           |       | 01/08        |       | 7.05%                                              |                   | 77,427     |                        | 78,848     |       |
| Reston Executive  I, II and III                                     |       | 01/06        |       | 6.75%                                              |                   | 71,645     |                        | 72,769     |       |
| Crystal Gateway  N and 1919 S. Eads                            |       | 11/07        |       | 6.77%                                              |                   | 55,524     |                        | 56,623     |       |
| Crystal Plaza  1-6                                                  |       |         | (2)        |                                               | (2)                    | —     |                        | 68,654     |       |
| One Skyline  Tower                                                  |       | 06/08        |       | 7.12%                                              |                   | 63,814     |                        | 64,818     |       |
| Crystal Malls  1-4                                                  |       | 12/11        |       | 6.91%                                              |                   | 55,228     |                        | 60,764     |       |
| 1750  Pennsylvania Avenue                                           |       | 06/12        |       | 7.26%                                              |                   | 48,876     |                        | 49,346     |       |
| One Democracy  Plaza                                                |       | 02/05        |       | 6.75%                                              |                   | 26,121     |                        | 26,900     |       |
| Retail:                                                             |       |         |       |                                               |                   |       |                        |       |       |
| Cross  collateralized mortgages payable on 42 shopping centers |       | 03/10        |       | 7.93%                                              |                   | 476,063    |                        | 481,902    |       |
| Green Acres Mall                                                    |       | 02/08        |       | 6.75%                                              |                   | 145,920    |                        | 148,386    |       |
| Las Catalinas  Mall                                                 |       | 11/13        |       | 6.97%                                              |                   | 65,696     |                        | 66,729     |       |
| Montehiedra Town  Center                                            |       | 05/07        |       | 8.23%                                              |                   | 57,941     |                        | 58,855     |       |
| Forest Plaza                                                        |       | 05/09        |       | 4.00%                                              |                   | 20,924     |                        | —     |       |
| Lodi Shopping  Center                                               |       | 06/14        |       | 5.12%                                              |                   | 12,228     |                        | —     |       |
| 386 West  Broadway                                                  |       | 05/13        |       | 5.09%                                              |                   | 5,083      |                        | —     |       |
| Merchandise  Mart:                                                  |       |         |       |                                               |                   |       |                        |       |       |
| Washington  Design Center                                           |       | 11/11        |       | 6.95%                                              |                   | 47,496     |                        | 48,012     |       |
| Market Square  Complex                                              |       | 07/11        |       | 7.95%                                              |                   | 45,287     |                        | 46,816     |       |
| Furniture Plaza                                                     |       | 02/13        |       | 5.23%                                              |                   | 44,497     |                        | 45,775     |       |
| Washington  Office Center                                           |       |         | (2)        |                                               | (2)                    | —     |                        | 43,166     |       |
| Other                                                               |       | 10/10-06/28  |       | 7.52%-7.71%                                        |                   | 18,156     |                        | 18,434     |       |
| Temperature  Controlled Logistics:                                  |       |         |       |                                               |                   |       |                        |       |       |
| Cross  collateralized mortgages payable on 57 properties (5)        |       | 05/08        |       | 6.89%                                              |                   | 483,533    |                        | —     |       |
| Other:                                                              |       |         |       |                                               |                   |       |                        |       |       |
| Industrial  Warehouses                                              |       | 10/11        |       | 6.95%                                              |                   | 48,385     |                        | 48,917     |       |
| Student Housing  Complex                                            |       |         | (2)        |                                               | (2)                    | —     |                        | 18,777     |       |
| Total Fixed  Interest Notes and Mortgages Payable                   |       |         |       | 6.95%                                              |                   | 3,377,534  |                        | 2,691,940  |       |
|                                                                     |            |              |            |                                                    |                        |            |                             |            |            |  |  |

 

----

# **See notes onpage 132.**

 

130

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**8.    Debt - continued**

 
| ** **                                                                                              | ** ** | ** **   | ** ** | **Spread  over  LIBOR** | ** ** | **Interest  Rate  as at****December 31****,  2004** | ** ** | **Balance  as of**          | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------|------------|-------------------------|------------|-----------------------------------------------------|------------|-----------------------------|------------|
| **(Amounts in thousands)**                                                                              | ** ** | **Maturity** | ** ** | ** **              | ** ** | **December  31, 2004**                              | ** ** | **December 31,  2003** | ** ** |
| **Notes  and Mortgages Payable:**                                                                       | ** ** | ** **   | ** ** | ** **              | ** ** | ** **                                          | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** |
| **Variable  Interest:**                                                                                 |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| Office:                                                                                                 |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| NYC Office:                                                                                             |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| One Penn Plaza  (1)                                                                                     |       |         |       |                    |       |                                                |       |                        | $          | — |   | $ | 275,000 |   |
| 770 Broadway (3)                                                                                        |       | 06/06        |       |                    | L+105      |                                                | 3.55       | %                           | 170,000    |   | 170,000 |   |
| 909 Third Avenue  (4)                                                                                   |       | 08/06        |       |                    | L+70       |                                                | 3.14       | %                           | 125,000    |   | 125,000 |   |
| CESCR Office:                                                                                           |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| Commerce Executive  III, IV and V                                                                       |       | 07/05        |       |                    | L+150      |                                                | 3.78       | %                           | 41,796     |   | 42,582 |   |
| Commerce  Executive III, IV and V B                                                                     |       | 07/05        |       |                    | L+85       |                                                | 3.13       | %                           | 10,000     |   | 10,000 |   |
|                                                                                                    |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| Temperature  Controlled Logistics:                                                                      |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| Cross  collateralized mortgages payable on 28 properties (5)                                            |       | 04/09        |       |                    | L+295      |                                                | 5.35       | %                           | 250,207    |   | — |   |
|                                                                                                    |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| Total Variable  Interest Notes and Mortgages Payable                                                    |       |         |       |                    |       |                                                | 4.23       | %                           | 597,003    |   | 622,582 |   |
| Total Notes and  Mortgages Payable                                                                      |       |         |       |                    |       |                                                | 6.54       | %                           | $          | 3,974,537 |   | $ | 3,314,522 |   |
|                                                                                                    |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| **Senior  Unsecured Notes:**                                                                            |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| Senior unsecured  notes due 2007 at fair value (accreted carrying amount of $499,643 and  $499,499) (6) |       | 06/07        |       |                    | L+77       |                                                | 2.57       | %                           | $          | 512,791 |   | $ | 525,279 |   |
| Senior unsecured  notes due 2009  (7)                                                              |       | 08/09        |       |                    |       |                                                | 4.50       | %                           | 249,526    |   | — |   |
| Senior unsecured  notes due 2010 (8)                                                                    |       | 12/10        |       |                    |       |                                                | 4.75       | %                           | 199,779    |   | 199,741 |   |
| Total senior  unsecured notes                                                                           |       |         |       |                    |       |                                                | 3.52       | %                           | $          | 962,096 |   | $ | 725,020 |   |
|                                                                                                    |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| **Unsecured  revolving credit facility (9)**                                                            |       | 07/06        |       |                    | L+65       |                                                | N/A        |                        | $          | — |   | $ | — |   |
|                                                                                                    |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| **Mortgage  Notes Payable related to discontinued operations:**                                         |       |         |       |                    |       |                                                |       |                        |       |   |   |   |
| Arlington Plaza                                                                                         |       | 11/07        |       |                    |       |                                                | 6.77       | %                           | $          | 14,691 |   | $ | 14,885 |   |
| 400 North  LaSalle                                                                                      |       | 08/05        |       |                    | L+250      |                                                | 4.75       | %                           | 5,187      |   | 3,038 |   |
| Palisades  construction loan                                                                            |       |         |       |                    |       |                                                |       |                        | —     |   | 120,000 |   |
|                                                                                                    |       |         |       |                    |       |                                                |       |                        | $          | 19,878 |   | $ | 137,923 |   |

 

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See notes on thefollowing page.

 

131

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**8.    Debt - continued**

 

(1)         On February 5, 2004, the Company completed a $300,000refinancing of Two Penn Plaza.  The loanbears interest at 4.97% and matures in February 2011.  The Company retained net proceeds of $39,000after repaying the existing $151,000 loan, $75,000 of the $275,000 mortgageloan on its One Penn Plaza property and the $33,000 mortgage loan on 866 U.N.Plaza.  On November 15, 2004, the Companycompleted a $220,000,000 refinancing of Eleven Penn Plaza.  This loan bears interest at 5.20% and matureson December 1, 2014.  Of the loan proceeds,$200,000,000 was used to repay the remainder of the loan on One PennPlaza.

 

(2)          Repaid at maturity or upon sale of the related realestate during 2004.

 

(3)          On June 9, 2003, the Company completed a $170,000financing of its 770 Broadway property.  The loan bears interest at LIBOR plus 1.05% ispre-payable after one year without penalty and matures in June 2006 withtwo-one year extension options.  Theproceeds of the new loan were used primarily to repay (i) a $18,926 mortgageloan on 33 North Dearborn, (ii) a $69,507 mortgage loan on Tysons Dulles Plaza,and (iii) $40,000 of borrowing under the Company’s unsecured revolving creditfacility.  In connection with the closingof the 770 Broadway loan, the Company purchased an interest rate cap, and simultaneouslysold an interest rate cap with the same terms. Since these instruments do not reduce the Company’s net interest raterisk exposure, they do not qualify as hedges and changes in their respectivevalues are charged to earnings.  As thesignificant terms of these arrangements are the same, the effects of arevaluation of these instruments is expected to substantially offset oneanother.  Simultaneously with thecompletion of the 770 Broadway loan, the Company used cash from its mortgageescrow account to repay $133,659 of the $153,659 of debt previouslycross-collateralized by its 770 Broadway and 595 Madison Avenue properties.

 

(4)          On August 4, 2003, the Company completed a refinancingof its 909 Third Avenue mortgage loan. The new $125,000 mortgage loan is for a term of three years and bearsinterest at LIBOR plus .70% and has two one-year extension options.  Simultaneously with the completion of the 909Third Avenue loan, the Company used cash from its mortgage escrow account torepay the balance of $20,000 of debt previously cross-collateralized by its 770Broadway and 595 Madison Avenue properties. In connection with the closing of the 909 Third Avenue loan, the Companypurchased an interest rate cap and simultaneously sold an interest rate capwith the same terms.  Since theseinstruments do not reduce the Company’s net interest rate risk exposure, theydo not qualify as hedges and changes in their respective values are charged toearnings.  As the significant terms ofthese arrangements are the same, the effects of a revaluation of theseinstruments is expected to substantially offset one another.

 

(5)          Beginning on November 18, 2004, the Company’sinvestment in Americold is consolidated into the accounts of the Company.

 

(6)          On June 27, 2002, the Company entered into interestrate swaps that effectively converted the interest rate on the $500,000 seniorunsecured notes due 2007 from a fixed rate of 5.625% to a floating rate ofLIBOR plus .7725%, based upon the trailing 3 month LIBOR rate (2.57% ifset on December 31, 2004).  Theswaps were designated and effective as fair value hedges with a fair value of$13,148 and $25,780 at December 31, 2004 and 2003, respectively, and includedin “Other Assets” on the Company’s consolidated balance sheet.  Accounting for these swaps requires theCompany to recognize the changes in the fair value of the debt during eachperiod.  At December 31, 2004 and 2003,the fair value adjustment to the principal amount of the debt was $13,148 and$25,780, based on the fair value of the swap assets, and is included in thebalance of the Senior Unsecured Notes. Because the hedging relationship qualifies for the “short-cut” method,no hedge ineffectiveness on these fair value hedges was recognized in 2004 and2003.

 

(7)          On August 16, 2004, the Company completed a publicoffering of $250,000, aggregate principal amount of 4.50% senior unsecurednotes due August 15, 2009.  Interest onthe notes is payable semi-annually on February 15 and August 15 commencing,February 15, 2005.  The notes were pricedat 99.797% of their face amount to yield 4.546%. The notes are subject to thesame financial covenants as the Company’s previously issued senior unsecurednotes.  The net proceeds of approximately$247,700 were used for general corporate purposes.

 

(8)          On November 25, 2003, the Company completed anoffering of $200,000, aggregate principal amount of 4.75% senior unsecurednotes due December 1, 2010.  Interest onthe notes is payable semi-annually on June 1st and December 1st, commencing in2004.  The notes were priced at 99.869%of their face amount to yield 4.772%. The notes contain the same financialcovenants that are in the Company’s notes issued in June 2002, except themaximum ratio of secured debt to total assets is now 50% (previously 55%).  The net proceeds of approximately $198,500were used primarily to repay existing mortgage debt.

 

(9)          On July 3, 2003, the Company entered into a new$600,000 unsecured revolving credit facility which has replaced its $1 billionunsecured revolving credit facility which was to mature in July 2003.  The new facility has a three-year term, aone-year extension option and bears interest at LIBOR plus .65%.  The Company also has the ability under thenew facility to seek up to $800,000 of commitments during the facility’sterm.  The new facility containsfinancial covenants similar to the prior facility.

 

132

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**8.    Debt - continued**

 

The net carrying amount of properties collateralizing the notes andmortgages amounted to $4,918,302,000 at December 31, 2004.  As at December 31, 2004, the principalrepayments required for the next five years and thereafter are as follows:

 
| **(Amounts in thousands)**   | ** ** | ** ** | ** ** |
|------------------------------|------------|------------|------------|
| **Year Ending December 31,** | ** ** | **Amount** | ** ** |
| 2005                         |       | $          | 157,393    |   |
| 2006                         |       | 614,141    |       |
| 2007                         |       | 759,806    |       |
| 2008                         |       | 929,190    |       |
| 2009                         |       | 398,054    |       |
| Thereafter                   |       | 2,097,927  |       |
|                              |            |            |            |  |

 

133

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**9.    Partners’Capital**

 
| ** **                                       | ** ** | **Outstanding  Units at**   | ** ** | **Per Unit  Liquidation  Preference** | ** ** | **Preferred  or  Annual  Distribution  Rate** | ** ** | **Conversion  Rate Into Class A Units** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|---------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------|------------|
| **Units  Series**                                | ** ** | **December 31,  2004** | ** ** | **December 31,  2003**           | ** ** | ** **                                    | ** ** | ** **                              |
| Preferred Units:                                 |       |                        |       |                                  |       |                                          |       |                                    |       |   |   |
| Series A                                         |       | 320,604                     |       | 360,705                               |       | $                                             | 50.00      |                                    | $          | 3.25 |   | 1.38504 |   |
| 8.5% Series B  (1)                               |       | —                      |       | 3,400,000                             |       | $                                             | 25.00      |                                    | $          | 2.125 |   | — |   |
| 8.5% Series C  (2)                               |       | 4,600,000                   |       | 4,600,000                             |       | $                                             | 25.00      |                                    | $          | 2.125 |   | — |   |
| 7.0% Series D–10                            |       | 1,600,000                   |       | 1,600,000                             |       | $                                             | 25.00      |                                    | $          | 1.75 |   | — |   |
| 7.0% Series E  (3)                               |       | 3,000,000                   |       | —                                |       | $                                             | 25.00      |                                    | $          | 1.75 |   | — |   |
| 6.75% Series F  (4)                              |       | 6,000,000                   |       | —                                |       | $                                             | 25.00      |                                    | $          | 1.6875 |   | — |   |
| 6.625% Series G  (5)                             |       | 8,000,000                   |       | —                                |       | $                                             | 25.00      |                                    | $          | 1.65625 |   | — |   |
| 5.0% Series B-1                                  |       | 563,263                     |       | 844,894                               |       | $                                             | 50.00      |                                    | $          | 2.50 |   | .914 |   |
| 8.0% Series B-2                                  |       | 304,761                     |       | 445,576                               |       | $                                             | 50.00      |                                    | $          | 4.00 |   | .914 |   |
| 6.5% Series E-1 (6)                              |       | —                      |       | 4,998,000                             |       | $                                             | 50.00      |                                    | $          | 3.25 |   | 1.1364 |   |
| 9.00% Series F-1  (7)                            |       | 400,000                     |       | 400,000                               |       | $                                             | 25.00      |                                    | $          | 2.25 |   | (3 | ) |
| 8.375% D-2  Cumulative Redeemable Preferred (8)  |       | —                      |       | 549,336                               |       | $                                             | 50.00      |                                    | $          | 4.1875 |   | N/A |   |
| 8.25% D-3  Cumulative Redeemable Preferred (9)   |       | 8,000,000                   |       | 8,000,000                             |       | $                                             | 25.00      |                                    | $          | 2.0625 |   | N/A |   |
| 8.25% D-4  Cumulative Redeemable Preferred (9)   |       | 5,000,000                   |       | 5,000,000                             |       | $                                             | 25.00      |                                    | $          | 2.0625 |   | N/A |   |
| 8.25% D-5  Cumulative Redeemable Preferred (9)   |       | 6,480,000                   |       | 6,480,000                             |       | $                                             | 25.00      |                                    | $          | 2.0625 |   | N/A |   |
| 8.25% D-6  Cumulative Redeemable Preferred (9)   |       | 840,000                     |       | 840,000                               |       | $                                             | 25.00      |                                    | $          | 2.0625 |   | N/A |   |
| 8.25% D-7  Cumulative Redeemable Preferred (9)   |       | 7,200,000                   |       | 7,200,000                             |       | $                                             | 25.00      |                                    | $          | 2.0625 |   | N/A |   |
| 8.25% D-8  Cumulative Redeemable Preferred (9)   |       | 360,000                     |       | 360,000                               |       | $                                             | 25.00      |                                    | $          | 2.0625 |   | N/A |   |
| 8.25% D-9  Cumulative Redeemable Preferred (9)   |       | 1,800,000                   |       | 1,800,000                             |       | $                                             | 25.00      |                                    | $          | 2.0625 |   | N/A |   |
| 7.00% D-10  Cumulative Redeemable Preferred (9)  |       | 3,200,000                   |       | 3,200,000                             |       | $                                             | 25.00      |                                    | $          | 1.75 |   | N/A |   |
| 7.20% D-11  Cumulative Redeemable Preferred (9)  |       | 1,400,000                   |       | —                                |       | $                                             | 25.00      |                                    | $          | 1.80 |   | N/A |   |
| 6.55% D-12  Cumulative Redeemable Preferred (9)  |       | 800,000                     |       | —                                |       | $                                             | 25.00      |                                    | $          | 1.637 |   | N/A |   |
| 3.00% D-13  Cumulative Redeemable Preferred (10) |       | 1,867,311                   |       | —                                |       | $                                             | 25.00      |                                    | $          | 0.750 |   | N/A |   |
| General  Partnership Interest (11)               |       |                        |       |                                  |       |                                          |       |                                    |       |   |   |
| Limited  Partnership Interest:                   |       |                        |       |                                  |       |                                          |       |                                    |       |   |   |   |
| Class A (12)                                     |       | 145,406,599                 |       | 137,754,293                           |       | —                                        |       | $                                       | 2.72       |   | N/A |   |

 

----

See Notes on following page.

 

134

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**VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**9.    Partners’Capital - continued**

 

**Notes topreceding tabular information:**

 

(1)          On March 17, 2004, the Company redeemed all of theoutstanding Series B Preferred Units at the redemption price of $25.00 perunit, aggregating $85,000,000 plus accrued distributions.  The redemption amount exceeded the carryingamount by $3,195,000, representing original issuance costs.  These costs were recorded as a reduction toearnings in arriving at net income applicable to Class A units, in accordancewith the July 2003 EITF clarification of Topic D-42.

 

(2)          On January 19, 2005, the Company redeemed all of its8.5% Series C Cumulative Redeemable Preferred Units at the stated redemptionprice of $25.00 per unit plus accrued distributions.

 

(3)          On August 17, 2004, Vornado sold $75,000,000 of SeriesE Cumulative Redeemable Preferred Shares in a public offering pursuant to aneffective registration statement. Simultaneously, the Company issued an equivalent amount of Series Epreferred units to Vornado. Distributions are at an annual rate of 7.0% of theliquidation preference of $25.00 per unit, or $1.75 per unit per annum.  The distributions are cumulative and payablequarterly in arrears.  The Series EPreferred Units are not convertible into or exchangeable for any other propertyor any other securities of the Company at the election of the holders.  On or after August 20, 2009 (or sooner underlimited circumstances), the Company, at its option, may redeem the units at aredemption price of $25.00 per unit, plus any accrued and unpaid distributionsthrough the date of redemption.  Theseunits have no maturity date and will remain outstanding indefinitely unlessredeemed by the Company.

 

(4)          On November 10, 2004, Vornado sold $150,000,000 ofSeries F Cumulative Redeemable Preferred Shares in a public offering pursuantto an effective registration statement. Simultaneously, the Company issued an equivalent amount of Series Fpreferred units to Vornado. Distributions are at an annual rate of 6.75% of theliquidation preference of $25.00 per unit, or $1.6875 per unit per annum.  The distributions are cumulative and payablequarterly in arrears.  The Series FPreferred Units are not convertible into or exchangeable for any other propertyor any other securities of the Company at the election of the holders.  On or after November 17, 2009 (or soonerunder limited circumstances), the Company, at its option, may redeem the unitsat a redemption price of $25.00 per unit, plus any accrued and unpaiddistributions through the date of redemption. These units have no maturity date and will remain outstandingindefinitely unless redeemed by the Company.

 

(5)          On December 16, 2004, Vornado sold $200,000,000 ofSeries G Cumulative Redeemable Preferred Shares in a public offering pursuantto an effective registration statement. Simultaneously, the Company issued an equivalent amount of Series Gpreferred units to Vornado. Distributions are at an annual rate of 6.625% ofthe liquidation preference of $25.00 per unit, or $1.656 per unit perannum.  The distributions are cumulativeand payable quarterly in arrears.  TheSeries G Preferred Units are not convertible into or exchangeable for any otherproperty or any other securities of the Company at the election of theholders.  On or after December 22, 2009(or sooner under limited circumstances), the Company, at its option, may redeemthe units at a redemption price of $25.00 per unit, plus any accrued and unpaiddistributions through the date of redemption. These units have no maturity date and will remain outstandingindefinitely unless redeemed by the Company.

 

(6)          In February 2004, all of the Series E-1 units wereconverted into 5,679,727 Class A units.

 

(7)          The holders of the Series F-1 preferred units have theright to require the Company to redeem the units for cash equal to theliquidation preference or, at the Company’s option, by issuing a variablenumber of Vornado common units with a value equal to the liquidationvalue.  On July 1, 2003, upon theadoption of SFAS No. 150: Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity, the Company was required toinclude the liquidation value of these F-1 preferred units as a liability onthe consolidated balance sheet as opposed to their prior classification asminority interest because of the possible settlement of this obligation byissuing a variable number of the Company’s common units.  In addition, after July 1, 2003,distributions to the holders of the   F-1preferred units are included as a component of interest expense as opposed totheir prior classification as minority interest expense.

 

(8)          The Company redeemed all of its 8.375% Series D-2Cumulative Redeemable Preferred Units on January 6, 2004 at a redemptionprice equal to $50 per unit or an aggregate of $27.5 million.

 

(9)          Convertible at the option of the holder for anequivalent amount of Vornado’s preferred shares and redeemable at the Company’soption after the 5th anniversary of the date of issuance (ranging fromSeptember 2004 to December 2009).

 

(10)    On December 30, 2004, the Company sold$46.7 million of 3.0% Series D-13 Cumulative Redeemable Preferred Units.The Series D-13 units may be called without penalty at the option of theCompany commencing in December 2011 or redeemed at the option of the holdercommencing in December 2006 for cash equal to the liquidation preference of $25per unit, or at the Company’s option by issuing a variable number of Vornado’scommon units.  Under SFAS No. 150, theCompany classifies the Series D-13 units as a liability, and relateddistributions as interest expense, because of the possible settlement of thisobligation by issuing a variable number of the Company’s common units.

 

(11)    Included in Class A units are 127,478,903 and118,247,944 units owned by the General Partner as of December 31, 2004 and2003.

 

(12)    The Class A units are redeemable at the option of theholder for common units of Vornado Realty Trust on a one-for-one basis, or atthe Company’s option for cash.

 

135

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**10.  Stock-basedCompensation**

 

Vornado’s Share Option Plan (the “Plan”) provides for grants ofincentive and non-qualified stock options, restricted stock, stock appreciationrights and performance shares to certain employees and officers of Vornado.  Upon the issuance of these shares by Vornado,the Company issues an equivalent amount of Class A units to Vornado.

 

Restricted stock awards are granted at the market price on the date ofgrant and vest over a three to five year period.  The Company recognizes the value ofrestricted stock as compensation expense based on Vornado’s closing stock priceon the NYSE on the date of grant on a straight-line basis over the vestingperiod.  As of December 31, 2004, thereare 290,478 restricted units outstanding, excluding 626,566 units issued to theCompany’s President in connection with his employment agreement.  The Company recognized $4,200,000, $3,239,000and $914,000 of compensation expense in 2004, 2003 and 2002, respectively, forthe portion of these units that vested during each year.  Distributions paid on both vested andunvested units are charged directly to retained earnings and amounted to$938,700, $777,700 and $210,100 for 2004, 2003 and 2002, respectively.  Distributions on units that are cancelled orterminated prior to vesting are charged to compensation expense in the periodof the cancellation or termination.

 

Stock options are granted at an exercise price equal to 100% of themarket price of Vornado’s stock on the date of grant, generally vest pro-rataover three to five years and expire 10 years from the date of grant.  As of December 31, 2004 there are 12,882,014options outstanding.  On January 1, 2003,the Company adopted SFAS 123: Accounting for Stock-Based Compensation, asamended by SFAS No. 148: Accounting for Stock-Based Compensation – Transitionand Disclosure, on a prospective basis covering all grants subsequent to2002.  Under SFAS No. 123, the Companyrecognizes compensation expense for the fair value of options granted on astraight-line basis over the vesting period. For the year ended December 31, 2004, and 2003, the Company recognized$102,900 and $77,200 of compensation expense related to the options grantedduring 2004 and 2003, respectively. Grants prior to 2003 are accounted for under the intrinsic value methodunder which compensation expense is measured as the excess, if any, of thequoted market price of Vornado’s stock at the date of grant over the exerciseprice of the option granted.  As theCompany’s policy is to grant options with an exercise price equal to 100% ofthe quoted market price on the grant date, no compensation expense has beenrecognized for options granted prior to 2003. If compensation cost for grants prior to 2003 were recognized ascompensation expense based on the fair value at the grant dates, net income andincome per Class A unit would have been reduced to the pro-forma amounts below:

 
| ** **                                                    | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|
| **(Amounts in thousands, except  unit and per unit amounts)** | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net income  applicable to Class A units:                      |       |             |       |   |   |   |   |
| As reported                                                   |       | $                | 656,045    |   | $ | 521,932 |   | $ | 251,088 |   |
| Stock-based compensation cost                                 |       | (4,553           | )          | (5,646 | ) | (10,343 | ) |
| Pro-forma                                                     |       | $                | 651,492    |   | $ | 516,286 |   | $ | 240,745 |   |
| Net income per  Class A unit:                                 |       |             |       |   |   |   |   |
| Basic:                                                        |       |             |       |   |   |   |   |
| As reported                                                   |       | $                | 4.56       |   | $ | 3.97 |   | $ | 1.97 |   |
| Pro-forma                                                     |       | 4.53             |       | 3.92 |   | 1.89 |   |
| Diluted:                                                      |       |             |       |   |   |   |   |
| As reported                                                   |       | $                | 4.36       |   | $ | 3.81 |   | $ | 1.92 |   |
| Pro forma                                                     |       | 4.33             |       | 3.77 |   | 1.84 |   |

 

136

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# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**10.  Stock-basedCompensation - continued**

 

The fair value of each option grant is estimated on the date of grantusing an option-pricing model with the following weighted-averageassumptions used for grants in the periods ending December 31, 2004, 2003and 2002.  There were no stock optiongrants during 2004.  In February 2005, aspart of Vornado’s annual compensation review for 2004, 1,038,800 stock optionsand 73,216 Vornado restricted shares were granted to certain employees.  The options were granted at an exercise priceequal to 100% of the market price of Vornado common shares on the date ofgrant.

 
| ** **               | ** ** | **December 31** | ** ** |
|--------------------------|------------|-----------------|------------|
| ** **               | ** ** | **2003**        | ** ** | **2002** | ** ** |
| Expected  volatility     |       | 17              | %          | 17 | % |
| Expected life            |       | 5 years         |       | 5 years |   |
| Risk-free  interest rate |       | 2.9             | %          | 3.0 | % |
| Expected  dividend yield |       | 6.0             | %          | 6.0 | % |

 

A summary of the Plan’s status and changes during the years then ended,is presented below:

 
| ** **                                                                                           | ** ** | **2004**   | ** ** | **2003**                                | ** ** | **2002**   | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                                                                           | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|                                                                                                 |       |       |       |                                    |       |       |       |   |   |   |   |   |   |
| Outstanding at  January 1                                                                            |       | 14,153,587 |       | $                                       | 35.84      |       | 18,796,366 |   | $ | 34.60 |   | 15,453,100 |   | $ | 32.25 |   |
| Granted                                                                                              |       | —     |       | —                                  |       | 125,000    |       | 36.46 |   | 3,655,500 |   | 42.14 |   |
| Exercised                                                                                            |       | (1,228,641 | )          | 40.43                                   |       | (4,613,579 | )          | 30.53 |   | (114,181 | ) | 28.17 |   |
| Cancelled                                                                                            |       | (42,932    | )          | 41.39                                   |       | (154,200   | )          | 42.57 |   | (198,053 | ) | 39.64 |   |
| Outstanding at  December 31                                                                          |       | 12,882,014 |       | 35.17                                   |       | 14,153,587 |       | 35.85 |   | 18,796,366 |   | 34.60 |   |
| Options  exercisable at December 31                                                                  |       | 11,745,973 |       |                                    |       | 11,821,382 |       |   |   | 13,674,177 |   |   |   |
| Weighted-average  fair value of options granted during the year ended December 31 (per  option) |       | $          | N/A        |                                    |       |       | $          | 2.50 |   |   |   | $ | 3.06 |   |   |   |
|                                                                                                      |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The following table summarizes information about options outstandingunder the Plan at December 31, 2004:

 
| ** **                   | ** ** | **Options Outstanding**                       | ** ** | **Options Exercisable**                           | ** ** |
|------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|
| **Range of  Exercise Price** | ** ** | **Number  Outstanding at  December 31, 2004** | ** ** | **Weighted-Average  Remaining  Contractual Life** | ** ** | **Weighted-Average  Exercise Price** | ** ** | **Number  Exercisable at  December 31, 2004** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
|                         |       |                                          |       |                                              |       |   |   |   |   |   |   |
| $12-  $19               |       | 3,817                                         |       | 1.0                                               |       | $ | 18.18 |   | 3,817 |   | $ | 18.18 |   |
| $19-  $24               |       | 2,146,327                                     |       | 1.9                                               |       | $ | 23.33 |   | 2,146,327 |   | $ | 23.33 |   |
| $24-  $27               |       | 42,163                                        |       | 2.1                                               |       | $ | 26.13 |   | 42,163 |   | $ | 26.13 |   |
| $27-  $32               |       | 3,162,793                                     |       | 5.1                                               |       | $ | 30.60 |   | 3,162,793 |   | $ | 30.60 |   |
| $32-  $36               |       | 2,143,337                                     |       | 4.2                                               |       | $ | 33.39 |   | 2,143,337 |   | $ | 33.39 |   |
| $36-  $40               |       | 101,519                                       |       | 7.6                                               |       | $ | 36.78 |   | 16,496 |   | $ | 38.48 |   |
| $40-  $44               |       | 2,866,774                                     |       | 6.8                                               |       | $ | 42.05 |   | 1,822,378 |   | $ | 42.04 |   |
| $44-  $46               |       | 2,324,473                                     |       | 3.0                                               |       | $ | 45.05 |   | 2,317,851 |   | $ | 45.05 |   |
| $46-  $49               |       | 90,811                                        |       | 3.0                                               |       | $ | 48.13 |   | 90,811 |   | $ | 48.13 |   |
|   $0-  $49         |       | 12,882,014                                    |       | 4.4                                               |       | $ | 35.17 |   | 11,745,973 |   | $ | 34.54 |   |

 

Shares available for future grant under the Plan at December 31,2004 were 9,955,734, of which 2,500,000 are subject to Vornado shareholder approval.

 

137

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS – (CONTINUED)**

 

**11.  RetirementPlans**

 

The Company has two defined benefit pension plans, a Vornado RealtyTrust Retirement Plan (“Vornado Plan”) and a Merchandise Mart PropertiesPension Plan (“Mart Plan”).  In addition,Americold Realty Trust, which is consolidated into the accounts of the Companybeginning November 18, 2004, has two defined benefit pension plans (the “AmeriColdPlans” and together with the Vornado Plan and the Mart Plan “the Plans”).  The benefits under the Vornado Plan and theMart Plan were frozen in December 1997 and June 1999, respectively.  Effective April 2005, Americold will amendits Americold Retirement Income Plan to freeze benefits for non-unionparticipants.  Benefits under the Plansare or were primarily based on years of service and compensation duringemployment or on years of credited service and established monthlybenefits.  Funding policy for the Plansis based on contributions at the minimal amounts required by law.  The financial results of the Plans areconsolidated in the information provided below.

 

The Company uses a December 31 measurement date for the Vornado Plan,the Mart Plan and the Americold plans.

 

*Obligations and Funded Status*

 

The following table sets forth the Plans’ funded status and amountsrecognized in the Company’s balance sheets:

 
| ** **                                                         | ** ** | **Pension Benefits**        | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                         | ** ** | **Year Ended December 31,** | ** ** |
| **(Amounts in thousands)**                                         | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Change in  benefit obligation:                                     |       |                        |       |   |   |   |   |
| Benefit  obligation at beginning of year                           |       | $                           | 20,244     |   | $ | 19,853 |   | $ | 18,585 |   |
| Consolidation of  Americold plans                                  |       | 62,234                      |       | — |   | — |   |
| Service cost                                                       |       | 314                         |       | — |   | — |   |
| Interest cost                                                      |       | 1,708                       |       | 1,244 |   | 1,260 |   |
| Plan amendments  (1)                                               |       | (1,193                      | )          | — |   | — |   |
| Actuarial loss                                                     |       | 1,255                       |       | 229 |   | 1,482 |   |
| Benefits paid                                                      |       | (2,226                      | )          | (1,082 | ) | (1,474 | ) |
| Benefit  obligation at end of year                                 |       | 82,336                      |       | 20,244 |   | 19,853 |   |
| Change in plan  assets:                                            |       |                        |       |   |   |   |   |
| Fair value of  plan assets at beginning of year                    |       | 18,527                      |       | 16,909 |   | 17,667 |   |
| Consolidation of  Americold plans                                  |       | 48,014                      |       | — |   | — |   |
| Employer  contribution                                             |       | 1,787                       |       | 1,361 |   | 667 |   |
| Benefit payments                                                   |       | (2,225                      | )          | (1,082 | ) | (1,474 | ) |
| Actual return on  assets                                           |       | 1,411                       |       | 1,339 |   | 49 |   |
| Fair value of  plan assets at end of year                          |       | 67,514                      |       | 18,527 |   | 16,909 |   |
| Funded status                                                      |       | (14,822                     | )          | (1,717 | ) | (2,944 | ) |
| Unrecognized net  actuarial loss                                   |       | 2,184                       |       | 3,455 |   | 3,653 |   |
| Unrecognized  prior service cost (benefit)                         |       | —                      |       | — |   | — |   |
| Net Amount  Recognized                                             |       | $                           | (12,638    | ) | $ | 1,738 |   | $ | 709 |   |
|                                                               |       |                        |       |   |   |   |   |
| Amounts recognized  in the consolidated balance sheets consist of: |       |                        |       |   |   |   |   |
| Pre-paid benefit  cost                                             |       | $                           | 305        |   | $ | 633 |   | $ | 86 |   |
| Accrued benefit  liability                                         |       | (17,111                     | )          | (2,350 | ) | (3,030 | ) |
| Intangible  assets                                                 |       | —                      |       | — |   | — |   |
| Accumulated  other comprehensive loss                              |       | 4,138                       |       | 3,861 |   | 3,517 |   |
| Net amount  recognized                                             |       | $                           | (12,668    | ) | $ | 2,144 |   | $ | 573 |   |

 

----

(1)                Reflects anamendment to freeze benefits for non-union participants of Americold RetirementIncome Plan effective April 2005.

 

138

----

 

# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**11.  RetirementPlans - continued**

 
| ** **                                                                                                         | ** ** | **Pension Benefits**        | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                         | ** ** | **Year Ended December 31,** | ** ** |
| **(Amounts in thousands)**                                                                                         | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ***Information  for the Company’s plans with an accumulated benefit obligation in excess of  plans assets:*** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Projected  benefit obligation                                                                                      |       | $                           | 70,943     |   | $ | 9,186 |   | $ | 9,018 |   |
| Accumulated  benefit obligation                                                                                    |       | 70,040                      |       | 9,186 |   | 9,018 |   |
| Fair value of  plan assets                                                                                         |       | 55,562                      |       | 6,836 |   | 5,988 |   |
|                                                                                                               |       |                        |       |   |   |   |   |
| ***Components  of Net Periodic Benefit Cost:***                                                                    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service cost                                                                                                       |       | $                           | 314        |   | $ | — |   | $ | — |   |
| Interest cost                                                                                                      |       | 1,708                       |       | 1,244 |   | 1,260 |   |
| Expected return  on plan assets                                                                                    |       | (1,515                      | )          | (1,115 | ) | (1,142 | ) |
| Amortization of  prior service cost                                                                                |       | 11                          |       | — |   | — |   |
| Amortization of  net (gain) loss                                                                                   |       | 402                         |       | 203 |   | 114 |   |
| Net periodic  benefit cost                                                                                         |       | $                           | 920        |   | $ | 332 |   | $ | 232 |   |
|                                                                                                               |       |                        |       |   |   |   |   |
| ***Assumptions:***                                                                                                 | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Weighted-average  assumptions used to determine benefit obligations:**                                           |       |                        |       |   |   |   |   |
| Discount rate                                                                                                      |       | 5.75%-6.50%                 |       | 6.00-6.50% |   | 6.25%-6.50% |   |
| Rate of  compensation increase Americold Plan                                                                      |       | 3.50%                       |       | N/A% |   | N/A |   |
|                                                                                                               |       |                        |       |   |   |   |   |
| **Weighted-average  assumptions used to determine net periodic benefit cost:**                                     |       |                        |       |   |   |   |   |
| Discount rate                                                                                                      |       | 5.75%-6.50%                 |       | 6.25%-6.50% |   | 6.50%-7.25% |   |
| Expected  long-term return on plan assets                                                                          |       | 5.00%-8.50%                 |       | 6.50%-7.00% |   | 6.50%-7.00% |   |
| Rate of  compensation increase Americold Plan                                                                      |       | 3.50%                       |       | N/A |   | N/A |   |

 

The Company periodically reviews its assumptions for the rate of returnon each Plan’s assets.  The assumptionsare based primarily on the long-term historical performance of the assets ofthe Plans, future expectations for returns for each asset class as well astarget asset allocation of Plan assets. Differences in the rates of return in the near term are recognized asgains or losses in the periods that they occur.

 

**Plan Assets**

 

The Company has consistently applied what it believes to be aconservative investment strategy for the Vornado Plan, investing primarily incash and cash equivalents and fixed income funds, including money market funds,United States treasury bills, government bonds and mortgage backsecurities.  Vornado Plan’sweighted-average asset allocations by asset category are as follows:

 
| ** **                               | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| U.S. Treasury  Bills                     |       | 84                               | %          | 81 | % | — | % |
| US Government  Securities                |       | 13                               |       | 14 |   | 17 |   |
| Money Market  Funds                      |       | 3                                |       | 4 |   | 81 |   |
| Mortgage  backed-pass through securities |       | —                           |       | 1 |   | 2 |   |
| Total                                    |       | 100                              | %          | 100 | % | 100 | % |

 

139

----

 

# **VORNADO REALTY L.P.**

 

# **NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (CONTINUED)**

 

**11.  RetirementPlans - continued**

 

The Company has consistently applied what it believes to be anappropriate investment strategy for the Mart Plan, by investing in mutual fundsand funds held by insurance companies. Mart Plan’s weighted average asset allocations by asset category are asfollows:

 
| ** **                         | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------|------------|----------------------------------|------------|
| ** **                         | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Asset  Category**                |       |                             |       |   |   |   |   |
| Mutual Funds                       |       | 50                               | %          | 57 | % | 56 | % |
| Funds Held By  Insurance Companies |       | 50                               |       | 42 |   | 43 |   |
| Other                              |       | —                           |       | 1 |   | 1 |   |
| Total                              |       | 100                              | %          | 100 | % | 100 | % |

 

The Americold Plans are invested to maximize return on the Plans’assets while minimizing risk by diversifying across a broad range of assetclasses.  In accordance with the Plans’investment strategies, assets are invested domestic equities, hedge funds, andfixed income securities.

 

The allocations of Americold Plan investments by fair value for theyear ended December 31, 2004, are as follows:

 
| Domestic equities        |   | 54  | %      |
|--------------------------|--------|-----|--------|
| International  equities  |   | 5   |   |
| Fixed income  securities |   | 14  |   |
| Real Estate              |   | 8   |   |
| Hedge Funds              |   | 19  |   |
|                     |   | 100 | %      |

 

**Cash Flows**

 

The Company expects to contribute $8,448,000 to the Plans in 2005.

 

**Estimated Future Benefit Payments**

 

The following benefit payments, which reflect expected future service,as appropriate, are expected to be paid:

 
| ** ** | ** ** | **Pension Benefits** | ** ** |
|------------|------------|----------------------|------------|
| 2005       |       | $                    | 4,802,000  |   |
| 2006       |       | 5,440,000            |       |
| 2007       |       | 5,469,000            |       |
| 2008       |       | 6,490,000            |       |
| 2009       |       | 6,784,000            |       |
| 2010-2014  |       | 37,421,000           |       |
|            |            |                      |            |  |

 

140

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**12. Leases**

** **

### *As lessor:*

### * *

The Company leases space to tenants under operatingleases. Most of the leases provide for the payment of fixed base rentalspayable monthly in advance. Shopping center leases provide for the pass-throughto tenants of real estate taxes, insurance and maintenance. Office buildingleases generally require the tenants to reimburse the Company for operatingcosts and real estate taxes above their base year costs. Shopping center leasesalso provide for the payment by the lessee of additional rent based on apercentage of the tenants’ sales. As of December 31, 2004, future baserental revenue under non-cancelable operating leases, excluding rents forleases with an original term of less than one year and rents resulting from theexercise of renewal options, is as follows:

 
| **(Amounts  in thousands)**       | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|
| **Year Ending December 31:** | ** ** | ** ** | ** ** |
| 2005                              |       | $          | 1,107,865  |   |
| 2006                              |       | 993,780    |       |
| 2007                              |       | 923,145    |       |
| 2008                              |       | 833,848    |       |
| 2009                              |       | 723,702    |       |
| Thereafter                        |       | 3,631,818  |       |
|                                   |            |            |            |  |

 

These amounts do not include rentals based on tenants’sales.  These percentage rentsapproximated $5,563,000, $3,662,000, and $1,832,000, for the years ended December 31,2004, 2003, and 2002.

 

Except for the U.S. Government, which accounted for12.5% of the Company’s revenue, none of the Company’s tenants represented morethan 10% of total revenues for the year ended December 31, 2004.

 

*Former Bradlees Locations*

* *

Pursuant to the Master Agreement and Guaranty, datedMay 1, 1992, the Company is due $5,000,000 per annum of additional rent fromStop & Shop which was allocated to certain of Bradlees formerlocations.  In December 31, 2002,prior to the expiration of the leases to which the additional rent wasallocated, the Company reallocated this rent to other former Bradlees leasesalso guaranteed by Stop & Shop.  Stop& Shop is contesting the Company’s right to reallocate and claims theCompany is no longer entitled to the additional rent.  At December 31, 2004, the Company is duean aggregate of $10,497,000.  The Companybelieves the additional rent provision of the guaranty expires at the earliestin 2012 and is vigorously contesting Stop & Shop’s position.

 

141

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**12.          Leases - continued**

** **

### *As lessee:*

### * *

The Company is a tenant under operating leases forcertain properties. These leases have terms that expire during the next thirtyyears.  Future minimum lease paymentsunder operating leases at December 31, 2004, are as follows:

 

 
| **(Amounts in thousands)** | ** ** | ** ** | ** ** |
|----------------------------|------------|------------|------------|
| 2005                       |       | $          | 20,427     |   |
| 2006                       |       | 20,474     |       |
| 2007                       |       | 20,429     |       |
| 2008                       |       | 20,447     |       |
| 2009                       |       | 20,454     |       |
| Thereafter                 |       | 928,219    |       |
|                            |            |            |            |  |

 

Rent expensewas $21,334,000, $15,593,000, and $17,157,000 for the years ended December 31,2004, 2003, and 2002.

 

The Company isalso a lessee under capital leases for equipment and real estate (primarilyAmericold).  Lease terms generally rangefrom 5-20 years with renewal or purchase options.  Capitalized leases are recorded at thepresent value of future minimum lease payments or the fair market value of theproperty.  Capitalized leases aredepreciated on a straight-line basis over the estimated life of the asset orlife of the related lease, whichever is shorter.  Amortization expense on capital leases isincluded in “depreciation and amortization” on the Company’s consolidatedstatements of income.  As of December 31,2004, future minimum lease payments under capital leases are as follows:

 
| **(Amounts in thousands)**             | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------|------------|
| 2005                                   |       | $          | 11,517     |   |
| 2006                                   |       | 10,738     |       |
| 2007                                   |       | 8,951      |       |
| 2008                                   |       | 7,786      |       |
| 2009                                   |       | 7,368      |       |
| Thereafter                             |       | 53,114     |       |
| Total  minimum obligations             |       | 99,474     |       |
| Interest  portion                      |       | (45,213    | )          |
| Present  value of net minimum payments |       | $          | 54,261     |   |

 

At December 31,2004 and 2003, $54,261,000 and $6,920,000 representing the present value of netminimum payments is included in “Other Liabilities” on the Company’sconsolidated balance sheets.  At December31, 2004 and 2003, property leased under capital leases had a total cost of$64,974,000 and $6,184,000 and related accumulated depreciation of $11,495,000and $940,000, respectively.

 

142

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**13. Commitments andContingencies**

** **

At December 31, 2004, the Company has$567,851,000 available under its $600,000,000 revolving credit facility ($32,149,000 was utilized for letters ofcredit), which matures in July 2006.

 

In conjunction with the closing of Alexander’sLexington Avenue construction loan on July 3, 2002, the Company agreed toguarantee to the construction lender, the lien free, timely completion of theconstruction of the project and funding of all project costs in excess of astated budget, as defined in the loan agreement, if not funded by Alexander’s(see Note 5 — Investments in Partially-Owned Entities).

 

Each of the Company’s properties has been subjected tovarying degrees of environmental assessment at various times. The environmentalassessments did not reveal any material environmental contamination. However,there can be no assurance that the identification of new areas ofcontamination, changes in the extent or known scope of contamination, thediscovery of additional sites, or changes in cleanup requirements would notresult in significant costs to the Company.

 

The Company carries comprehensive liability and allrisk property insurance ((i) fire, (ii) flood, (iii) extended coverage, (iv) “actsof terrorism” as defined in the Terrorism Risk Insurance Act of 2002 whichexpires in 2005 and (v) rental loss insurance) with respect to its assets.  In April 2004, the Company renewed itsall risk policies and increased its coverage for Acts of Terrorism for each ofits New York Office, CESCR Office, Retail and Merchandise Mart divisions.  Below is a summary of the current all riskproperty insurance and terrorism risk insurance for each of the Company’sbusiness segments:

 
| ** **                        | ** ** | **Coverage Per Occurrence** | ** **    |
|-----------------------------------|------------|-----------------------------|---------------|
| ** **                        | ** ** | **All Risk (1)**            | ** **    | **Sub-Limits for  Acts of Terrorism** | ** ** |
| New York  Office                  |       | $                           | 1,400,000,000 |   | $ | 750,000,000 |   |
| CESCR Office                      |       | 1,400,000,000               |          | 750,000,000 |   |
| Retail                            |       | 500,000,000                 |          | 500,000,000 |   |
| Merchandise  Mart                 |       | 1,400,000,000               |          | 750,000,000 |   |
| Temperature  Controlled Logistics |       | 225,000,000                 |          | 225,000,000 |   |
|                                   |            |                             |               |  |  |  |  |

 

----

(1)                                  Limited as to terrorism insurance by thesub-limit shown in the adjacent column.

 

In addition to the coverage above, the Company carrieslesser amounts of coverage for terrorist acts not covered by the Terrorism RiskInsurance Act of 2002.

 

The Company’s debt instruments, consisting of mortgageloans secured by its properties (which are generally non-recourse to theCompany), its senior unsecured notes due 2007, 2009 and 2010 and its revolvingcredit agreement, contain customary covenants requiring the Company to maintaininsurance.  Although the Company believesthat it has adequate insurance coverage under these agreements, the Company maynot be able to obtain an equivalent amount of coverage at reasonable costs inthe future.  Further, if lenders insiston greater coverage than the Company is able to obtain, or if the TerrorismRisk Insurance Act of 2002 is not extended, it could adversely affect theCompany’s ability to finance and/or refinance its properties and expand itsportfolio.

 

From time to time, the Company has disposed ofsubstantial amounts of real estate to third parties for which, as to certainproperties, it remains contingently liable for rent payments or mortgageindebtedness that cannot be quantified by the Company.

 

There are various legal actions against the Company inthe ordinary course of business. In the opinion of management, afterconsultation with legal counsel, the outcome of such matters will not have amaterial effect on the Company’s financial condition, results of operations orcash flow.

 

The Company enters into agreements for the purchaseand resale of U.S. government obligations for periods of up to one week. Theobligations purchased under these agreements are held in safekeeping in thename of the Company by various money center banks. The Company has the right todemand additional collateral or return of these invested funds at any time thecollateral value is less than 102% of the invested funds plus any accruedearnings thereon.  The Company had$23,110,000 and $30,310,000 of cash invested in these agreements at December 31,2004 and 2003.

 

143

----

 

**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**14. Related PartyTransactions**

** **

### *Loan and CompensationAgreements*

### * *

In accordance with the terms of the employmentarrangement with Steven Roth, Vornado’s Chief Executive Officer, and subject toa letter agreement dated November 1999, Mr. Roth may draw up to$15,000,000 of loans on a revolving basis. Each loan bears interest, payable quarterly, at the applicable Federalrate on the date the loan is made and matures on the sixth anniversary of suchloan.  Loans are collateralized by assetswith a value of not less than two times the amount outstanding.  At December 31, 2004, the outstandingbalance under this arrangement was $13,122,500 (of which $4,704,500 is shown asa reduction in partners’ capital).  Theamount outstanding matures in January 2006 and bears interest at aweighted average rate of 4.49% per annum.

 

At December 31, 2004, the balance of the loan duefrom Michael Fascitelli, Vornado’s President, in accordance with his employmentagreement was $8,600,000.  The loanmatures in December 2006 and bears interest, payable quarterly, at aweighted average rate of 3.97% (based on the applicable Federal rate).

 

Effective January 1, 2002, the Company extendedits employment agreement with Mr. Fascitelli for a five-year period through December 31,2006.  Pursuant to the extendedemployment agreement, Mr. Fascitelli is entitled to receive a deferred paymenton December 31, 2006 of 626,566 Vornado common shares which are valued forcompensation purposes at $27,500,000 (the value of the shares on March 8,2002, the date the extended employment agreement was executed).  The shares are held in a rabbi trust for thebenefit of Mr. Fascitelli and vested 100% on December 31, 2002.  The extended employment agreement does notpermit diversification, allows settlement of the deferred compensationobligation by delivery of these shares only, and permits the deferred deliveryof these shares.  The value of these shareswas amortized ratably over the one-year vesting period as compensationexpense.  The assets of the rabbi trustare consolidated with those of the Company and the Company’s common units heldin the trust are classified in partners’ capital and accounted for in a mannersimilar to treasury stock.

 

Pursuant to the Company’s annual compensation reviewin February 2002 with Joseph Macnow, Vornado’s Chief FinancialOfficer, the Compensation Committee approved a $2,000,000 loan toMr. Macnow, bearing interest at the applicable federal rate of 4.65% perannum and due in June 2007.  Theloan was funded on July 23, 2002 and is collateralized by assets with avalue of not less than two times the loan amount.

 

On March 11, 2004, theCompany loaned $2,000,000 to Melvyn Blum, an executive officer of Vornado, pursuant to the revolving credit facilitycontained in his January 2000 employment agreement.  The loan bears interest at 1.57% per annum(the Federal rate) and is due in March 2007.

 

On February 22, 2005, Vornado and SandeepMathrani, Executive Vice President — Retail Division, entered into a newemployment agreement.  Pursuant to theagreement, the Company granted Mr. Mathrani (i) 16,836 restricted shares ofVornado’s stock, (ii) stock options to acquire 300,000 of Vornado’s commonshares at an exercise price of $71.275 per share and (iii) the right to receive200,000 stock options over the next two years at the then prevailing marketprice.  In addition, Mr. Mathrani repaidthe $500,000 loan the Company provided him under his prior employmentagreement.

 

144

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**14.**                               RelatedParty Transactions -continued

** **

***Transactions with Affiliates andOfficers and Trustees of the Company***

** **

*Alexander’s*

* *

The Company owns 33% of Alexander’s.  Mr. Roth and Mr. Fascitelli areOfficers and Directors of Alexander’s.  TheCompany provides various services to Alexander’s in accordance with management,development and leasing agreements and the Company has made loans to Alexander’saggregating $124,000,000 at December 31, 2004.  See Note 5 — Investments inPartially-Owned Entities for details of these agreements.  In addition, in 2002, the Company sold airrights to Alexander’s, details of which are provided in Note 3 – Acquisitionsand Dispositions.

 

Interstate Properties

 

As of December 31, 2004, Interstate Properties andits partners owned approximately 10.8% of the common units of beneficialinterest of the Company and 27.4% of Alexander’s common stock.  Interstate Properties is a generalpartnership in which Steven Roth, David Mandelbaum and Russell B.Wight, Jr. are the partners. Mr. Roth is the Chairman of the Board and Chief Executive Officerof the Company, the managing general partner of Interstate Properties, and theChief Executive Officer and a director of Alexander’s.  Messrs. Mandelbaum and Wight are trustees of Vornadoand also directors of Alexander’s.

 

The Company manages and leases the real estate assetsof Interstate Properties pursuant to a management agreement for which theCompany receives an annual fee equal to 4% of base rent and percentagerent.  The management agreement has aterm of one year and is automatically renewable unless terminated by either ofthe parties on sixty days’ notice at the end of the term. Although themanagement agreement was not negotiated at arm’s length, the Company believesbased upon comparable fees charged by other real estate companies that itsterms are fair to the Company. The Company earned $726,000, $703,000 and$747,000 of management fees under the management agreement for the years ended December 31,2004, 2003, and 2002.  In addition,during fiscal years 2003 and 2002, as a result of a previously existing leasingarrangement with Alexander’s, Alexander’s paid to Interstate $587,000 and$703,000, respectively, for the leasing an other services actually rendered bythe Company.  Upon receipt of thesepayments, Interstate promptly paid them over to the Company without retainingany interest therein.  This arrangementwas terminated at the end of 2003 and all payments by Alexander’s thereafterfor these leasing and other services are made directly to the Company.

 

Vornado Operating Company (“ Vornado Operating”)

 

In October 1998, Vornado Operating was spun offfrom the Company in order to own assets that the Company could not itself ownand conduct activities that the Company could not itself conduct.  Vornado Operating’s primary asset was its 60%investment in AmeriCold Logistics, which leased 88 refrigerated warehouses fromAmericold, owned 60% by the Company.  TheCompany granted Vornado Operating a $75,000,000 unsecured revolving creditfacility that was to expire on December 31, 2004.  Borrowings under the revolving creditfacility bore interest at LIBOR plus 3%. The Company received a commitment fee equal to 1% per annum on theaverage daily unused portion of the facility. At the time of its dissolution referred to below, Vornado Operating hadoutstanding 4,068,924 shares and its operating partnership had outstanding447,017 units.  At such time, trusteesand officers of the Company held approximately 24.3% of the common shares andunits of Vornado Operating.  In addition,Messrs. Roth, Fascitelli, Macnow, Wight and West each served as an officerand/or director of Vornado Operating.

 

On December 31, 2002, the Company and CrescentReal Estate Equities formed a joint venture to acquire the Carthage, Missouriand Kansas City, Kansas quarries from AmeriCold Logistics for $20,000,000 incash (appraised value).  The Companycontributed cash of $8,800,000 to the joint venture representing its 44%interest.  AmeriCold Logistics used theproceeds from the sale to repay a portion of a loan to Vornado Operating.  Vornado Operating then repaid $9,500,000 ofthe amount outstanding under the Company’s revolving credit facility.   In addition, during 2004 and 2003, thisjoint venture acquired $21,930,000 and $5,720,000 of trade receivables fromAmeriCold Logistics for $21,500,000 and $5,606,000, respectively.  These receivables were subsequently collectedin full.

 

On November 4, 2004, Americold purchased itstenant, AmeriCold Logistics, for $47,700,000 in cash.  As part of this transaction, VornadoOperating repaid the $21,989,000 balance of the loan to the Company as well as$4,771,000 of unpaid interest.  Becausethe Company fully reserved for the interest income on this loan beginning in January 2002,it recognized $4,771,000 of income upon collection in the fourth quarter 2004.

 

145

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**14. Related Party Transactions-continued**

** **

In November 2004, a class actionshareholder derivative lawsuit was brought in the Delaware Court of Chanceryagainst Vornado Operating Company (“Vornado Operating”), its directors and theCompany.  The lawsuit sought to enjointhe dissolution of Vornado Operating, rescind the previously completed sale ofAmeriCold Logistics (owned 60% by Vornado Operating) to Americold Realty Trust(owned 60% by the Company) and damages. In addition, the plaintiffs claimed that the Vornado Operating directorsbreached their fiduciary duties.  On November 24,2004, a stipulation of settlement was entered into under which the Companyagreed to settle the lawsuit with a payment of approximately $4.5 million orabout $1 per Vornado Operating share or partnership unit before litigationexpenses. The proposed settlement payment would be in addition to theliquidation distribution of $2 per Vornado Operating share or unit that VornadoOperating made to its equity-holders when it dissolved on December 29,2004.  On January 20, 2005, theDelaware Court of Chancery postponed deciding upon the proposed settlement andrequested furtherbut limited information before holding an additional hearing regarding thesettlement, which has been scheduled for March 2005.  The Company has accrued the proposedsettlement payment and related legal costs as part of “general andadministrative expense” in the fourth quarter of 2004.  TheCompany believes that the ultimate outcome of this matter will not have amaterial effect on the Company’s consolidated financial statements.

 

Other

 

On January 1, 2003, the Company acquired BMS, acompany which provides cleaning and related services principally to the Company’sManhattan office properties, for $13,000,000 in cash from the estate of Bernard Mendikand certain other individuals including David R. Greenbaum, an executiveofficer of the Company.  The Company paidBMS $53,024,000, for the year ended December 31, 2002 for servicesrendered to the Company’s Manhattan office properties.  Although the terms and conditions of thecontracts pursuant to which these services were provided were not negotiated atarms length, the Company believes based upon comparable amounts charged toother real estate companies that the terms and conditions of the contracts werefair to the Company.

 

On August 4, 2003, the Company completed theacquisition of 2101 L Street, a 370,000 square foot office building located inWashington D.C.  The consideration forthe acquisition consisted of approximately 1.1 million newly issued OperatingPartnership units (valued at approximately $49,517,000) and the assumption ofexisting mortgage debt and transaction costs totaling approximately$32,000,000.  Robert H. Smith andRobert P. Kogod, trustees of Vornado, together with family members ownedapproximately 24 percent of the limited partnership that sold the building andMr. Smith was a general partner.  On August 5,2003, the Company repaid the mortgage of $29,056,000.

 

On October 7, 2003, the Company acquired a 2.5%interest in the planned redevelopment of Waterfront (described in Note 3) for$2,171,000, of which the Company paid $1,545,000 in cash and issued 12,500Operating Partnership units valued at $626,000. The partnership units were issued to Mitchell N. Schear, one of thepartners in the Waterfront interest, and the President of the Company’s CESCRdivision.

 

On July 1, 2004, the Company acquired theMarriott hotel located in its Crystal City office complex from a limitedpartnership in which Robert H. Smith and Robert P. Kogod, trustees of theCompany, together with family members own approximately 67 percent.  The purchase price was $21,500,000.

 

On October 1, 2004, theCompany increased its ownership interest in the Investment Building inWashington, D.C. to 5% by acquiring an additional 2.8% interest for $2,240,000in cash.  The Company’s original interestin the property was acquired in connection with the acquisition of the KaempferCompany in April 2003.  Mitchell N.Schear, President of the Company’s CESCR division and other former members ofKaempfer management were also partners in the Investment Building partnership.

 

During 2002, the Company paid $147,000 for legalservices to a firm in which one of Vornado’s trustees is a member.

 

146

----

 

**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**15. Income Per Class AUnit**

** **

The following table provides a reconciliation of bothnet income and the number of Class A units used in the computation of (i) basicincome per Class A unit - which utilizes the weighted average number of Class Aunits outstanding without regard to dilutive potential Class A units, and (ii)diluted income per Class A unit - which includes the weighted average Class Aunits and dilutive unit equivalents. Potential dilutive unit equivalents include the Company’s Series AConvertible Preferred units as well as Vornado Realty L.P.’s convertiblepreferred units.

 
| ** **                                                                                               | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(Amounts in thousands, except per unit amounts)**                                                      | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                                     |       |                             |       |   |   |   |   |
| **Numerator:**                                                                                           |       |                             |       |   |   |   |   |
| Income from  continuing operations                                                                       |       | $                                | 671,518    |   | $ | 462,163 |   | $ | 388,616 |   |
| Income from  discontinued operations                                                                     |       | 78,597                           |       | 176,388 |   | 11,815 |   |
| Cumulative  effect of change in accounting principle                                                     |       | —                           |       | — |   | (30,129 | ) |
| Net income                                                                                               |       | 750,115                          |       | 638,551 |   | 370,302 |   |
| Preferred  unit distributions                                                                            |       | (94,070                          | )          | (116,619 | ) | (119,214 | ) |
|                                                                                                     |       |                             |       |   |   |   |   |
| Numerator  for basic income per Class A unit – net income applicable to Class A units               |       | 656,045                          |       | 521,932 |   | 251,088 |   |
| Impact of  assumed conversions:                                                                          |       |                             |       |   |   |   |   |
| Convertible  preferred unit distributions                                                                |       | 4,232                            |       | 26,064 |   | — |   |
| Numerator  for diluted income per Class A unit – net income applicable to Class A units             |       | $                                | 660,277    |   | $ | 547,996 |   | $ | 251,088 |   |
| **Denominator:**                                                                                         |       |                             |       |   |   |   |   |
| Denominator  for basic income per Class A unit – weighted average units                             |       | 143,719                          |       | 131,553 |   | 127,158 |   |
| Effect of  dilutive securities:                                                                          |       |                             |       |   |   |   |   |
| Employee  stock options and restricted unit awards                                                       |       | 5,515                            |       | 2,786 |   | 3,780 |   |
| Convertible  preferred units                                                                             |       | 2,197                            |       | 9,551 |   | — |   |
|                                                                                                     |       |                             |       |   |   |   |   |
| Denominator  for diluted income per unit – adjusted weighted average units and assumed  conversions |       | 151,431                          |       | 143,890 |   | 130,938 |   |
|                                                                                                     |       |                             |       |   |   |   |   |
| **INCOME  PER CLASS A UNIT – BASIC:**                                                               |       |                             |       |   |   |   |   |
| Income from  continuing operations                                                                       |       | $                                | 4.01       |   | $ | 2.63 |   | $ | 2.12 |   |
| Income from  discontinued operations                                                                     |       | .55                              |       | 1.34 |   | .09 |   |
| Cumulative  effect of change in accounting principle                                                     |       | —                           |       | — |   | (.24 | ) |
| Net income  per Class A unit                                                                             |       | $                                | 4.56       |   | $ | 3.97 |   | $ | 1.97 |   |
|                                                                                                     |       |                             |       |   |   |   |   |
| **INCOME  PER CLASS A UNIT – DILUTED:**                                                             |       |                             |       |   |   |   |   |
| Income from  continuing operations                                                                       |       | $                                | 3.84       |   | $ | 2.58 |   | $ | 2.06 |   |
| Income from  discontinued operations                                                                     |       | .52                              |       | 1.23 |   | .09 |   |
| Cumulative  effect of change in accounting principle                                                     |       | —                           |       | — |   | (.23 | ) |
| Net income  per Class A unit                                                                             |       | $                                | 4.36       |   | $ | 3.81 |   | $ | 1.92 |   |

 

147

----

 

**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**16.**                               Summaryof Quarterly Results (Unaudited)

** **

The following summary represents the results ofoperations for each quarter in 2004, 2003 and 2002:

 
| ** **                                      | ** ** | ** **  | ** ** | **Net Income  Applicable to  Class A  Units** | ** ** | **Income Per  Class A unit(1)** | ** **  |
|-------------------------------------------------|------------|-------------|------------|-----------------------------------------------|------------|---------------------------------|-------------|
| **(Amounts in thousands, except unit amounts)** | ** ** | **Revenue** | ** ** | ** **                                    | **Basic**  | ** **                      | **Diluted** | ** ** |
|                                            |       |        |       |                                          |       |                            |        |   |   |
| **2004**                                        |       |        |       |                                          |       |                            |        |   |   |
| March 31                                   |       | $           | 391,368    |                                          | $          | 81,268                          |        | $ | 0.58 |   | $ | 0.55 |   |
| June 30                                    |       | 397,756     |       | 182,866                                       | (3)        | 1.27                            |        | 1.23 |   |
| September 30                               |       | 413,424     |       | 120,639                                       |       | 0.83                            |        | 0.80 |   |
| December 31                                |       | 504,714     |       | 265,647                                       | (2)        | 1.83                            |        | 1.75 |   |
|                                            |       |        |       |                                          |       |                            |        |   |   |
| **2003**                                        |       |        |       |                                          |       |                            |        |   |   |
| March 31                                   |       | $           | 363,776    |                                          | $          | 100,525                         |        | $ | 0.78 |   | $ | 0.75 |   |
| June 30                                    |       | 369,916     |       | 95,833                                        |       | 0.74                            |        | 0.72 |   |
| September 30                               |       | 378,942     |       | 82,916                                        |       | 0.63                            |        | 0.61 |   |
| December 31                                |       | 385,349     |       | 242,658                                       | (3)        | 1.80                            |        | 1.69 |   |
|                                            |       |        |       |                                          |       |                            |        |   |   |
| **2002**                                        |       |        |       |                                          |       |                            |        |   |   |
| March 31                                   |       | $           | 347,974    |                                          | $          | 54,704                          |        | $ | 0.44 |   | $ | 0.42 |   |
| June 30                                    |       | 343,480     |       | 77,894                                        |       | 0.61                            |        | 0.59 |   |
| September 30                               |       | 351,422     |       | 70,833                                        |       | 0.55                            |        | 0.54 |   |
| December 31                                |       | 343,918     |       | 47,657                                        |       | 0.37                            |        | 0.36 |   |

 

----

(1)                                  The total for the year may differ fromthe sum of the quarters as a result of weighting.

(2)                                  Includes (i) a net gain on mark-to-marketof Sears option shares of $81,730, (ii) net gains on exercise andmark-to-market of GMH warrants of $53,642 and (iii) a net gain on sale of aportion of its investment in Americold to Yucaipa of $18,789.

(3)                                  Includes net gains on sale of real estateof $75,755 in 2004 and $161,789 in 2003.

 

**17.**                               Costsof Acquisitions and Development Not Consummated

** **

In the third quarter of 2004, the Company wrote-off$1,475,000 of costs associated with the Mervyn’s Department Stores acquisitionnot consummated.

 

In 2002, the Company had a 70% interest in a jointventure to develop an office tower over the Port Authority Bus Terminal inNew York City.  Market conditionsexisting in 2002 resulted in the joint venture writing off $9,700,000,representing all pre-development costs capitalized to date, of which theCompany’s share is $6,874,000.

 

148

----

 

**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**18. Segment Information**

** **

The Company hasfour business segments: Office, Retail, Merchandise MartProperties and Temperature Controlled Logistics.  In 2004, the Company revised how it presentsEBITDA, a measure of performance of its segments, and has revised thedisclosure for all periods presented. EBITDA as disclosed represents “Earnings before Interest, Taxes,Depreciation and Amortization.”  Thischange is consistent with the Securities and Exchange Commission’sRegulation G.

 
| ** **                                                                                             | ** ** | **December 31, 2004** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **(Amounts in thousands)**                                                                             | ** ** | **Total**                  | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics (3)** | ** ** | **Other (4)** | ** ** |
| Property  rentals                                                                                      |       | $                          | 1,268,764  |   | $ | 838,665 |   | $ | 160,620 |   | $ | 206,668 |   | $ | — |   | $ | 62,811 |   |
| Straight-line  rents:                                                                                  |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Contractual  rent increases                                                                            |       | 35,214                     |       | 27,165 |   | 4,882 |   | 3,002 |   | — |   | 165 |   |
| Amortization  of free rent                                                                             |       | 26,264                     |       | 10,118 |   | 10,998 |   | 5,154 |   | — |   | (6 | ) |
| Amortization  of acquired below market leases, net                                                     |       | 14,570                     |       | 9,697 |   | 4,873 |   | — |   | — |   | — |   |
| Total  rentals                                                                                         |       | 1,344,812                  |       | 885,645 |   | 181,373 |   | 214,824 |   | — |   | 62,970 |   |
| Expense  reimbursements                                                                                |       | 191,059                    |       | 109,255 |   | 64,474 |   | 14,045 |   | — |   | 3,285 |   |
| Temperature  Controlled Logistics                                                                      |       | 87,428                     |       | — |   | — |   | — |   | 87,428 |   | — |   |
| Fee and  other income:                                                                                 |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Tenant  cleaning fees                                                                                  |       | 31,293                     |       | 31,293 |   | — |   | — |   | — |   | — |   |
| Management  and leasing fees                                                                           |       | 16,754                     |       | 15,501 |   | 1,084 |   | 155 |   | — |   | 14 |   |
| Other                                                                                                  |       | 35,916                     |       | 25,573 |   | 1,617 |   | 8,662 |   | — |   | 64 |   |
| Total  revenues                                                                                        |       | 1,707,262                  |       | 1,067,267 |   | 248,548 |   | 237,686 |   | 87,428 |   | 66,333 |   |
| Operating  expenses                                                                                    |       | 679,790                    |       | 396,698 |   | 77,277 |   | 92,636 |   | 67,989 |   | 45,190 |   |
| Depreciation  and amortization                                                                         |       | 242,914                    |       | 161,381 |   | 26,327 |   | 34,025 |   | 7,968 |   | 13,213 |   |
| General and  administrative                                                                            |       | 145,218                    |       | 38,446 |   | 13,187 |   | 22,487 |   | 4,264 |   | 66,834 |   |
| Costs of  acquisitions not consummated                                                                 |       | 1,475                      |       | — |   | — |   | — |   | — |   | 1,475 |   |
| Total  expenses                                                                                        |       | 1,069,397                  |       | 596,525 |   | 116,791 |   | 149,148 |   | 80,221 |   | 126,712 |   |
| Operating  income (loss)                                                                               |       | 637,865                    |       | 470,742 |   | 131,757 |   | 88,538 |   | 7,207 |   | (60,379 | ) |
| Income  applicable to Alexander’s                                                                 |       | 8,580                      |       | 433 |   | 668 |   | — |   | — |   | 7,479 |   |
| Income  (loss) from partially-owned entities                                                           |       | 43,381                     |       | 2,728 |   | (1,678 | ) | 545 |   | 5,641 |   | 36,145 |   |
| Interest and  other investment income                                                                  |       | 203,995                    |       | 994 |   | 397 |   | 105 |   | 220 |   | 202,279 |   |
| Interest and  debt expense                                                                             |       | (241,968                   | )          | (128,729 | ) | (58,625 | ) | (11,255 | ) | (6,379 | ) | (36,980 | ) |
| Net gain on  disposition of wholly-owned and partially-owned assets other than  depreciablereal estate |       | 19,775                     |       | 369 |   | — |   | — |   | — |   | 19,406 |   |
| Minority  interest                                                                                     |       | (110                       | )          | — |   | — |   | — |   | (158 | ) | 48 |   |
| Income from  continuing operations                                                                     |       | 671,518                    |       | 346,537 |   | 72,519 |   | 77,933 |   | 6,531 |   | 167,998 |   |
| Income from  discontinued operations                                                                   |       | 78,597                     |       | 1,584 |   | 10,054 |   | — |   | — |   | 66,959 |   |
| Net income                                                                                             |       | 750,115                    |       | 348,121 |   | 82,573 |   | 77,933 |   | 6,531 |   | 234,957 |   |
| Interest and  debt expense(2)                                                                          |       | 313,289                    |       | 133,602 |   | 61,820 |   | 12,166 |   | 30,337 |   | 75,364 |   |
| Depreciation  and amortization(2)                                                                      |       | 296,980                    |       | 165,492 |   | 30,121 |   | 34,559 |   | 34,567 |   | 32,241 |   |
| Income taxes                                                                                           |       | 1,664                      |       | 406 |   | — |   | 852 |   | 79 |   | 327 |   |
| EBITDA(1)                                                                                              |       | $                          | 1,362,048  |   | $ | 647,621 |   | $ | 174,514 |   | $ | 125,510 |   | $ | 71,514 |   | $ | 342,889 |   |
| Balance  sheet data:                                                                                   |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Real estate,  net                                                                                      |       | $                          | 8,314,404  |   | $ | 4,899,944 |   | $ | 1,109,049 |   | $ | 963,053 |   | $ | 1,177,190 |   | $ | 165,168 |   |
| Investments  and advances to partially-owned entities                                                  |       | 605,300                    |       | 48,682 |   | 82,294 |   | 6,207 |   | 12,933 |   | 455,184 |   |
| Capital  expenditures:                                                                                 |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Acquisitions                                                                                           |       | 288,379                    |       | 55,191 |   | 233,188 |   | — |   | — |   | — |   |
| Other                                                                                                  |       | 290,000                    |       | 160,086 |   | 67,508 |   | 60,365 |   | — |   | 2,041 |   |

 

----

See notes on page 152.

 

149

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

                                

**18. Segment Information -continued**

 
| ** **                                                                                                   | ** ** | **December 31, 2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **(Amounts in thousands)**                                                                                   | ** ** | **Total**                  | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics (3)** | ** ** | **Other (4)** | ** ** |
| Property  rentals                                                                                            |       | $                          | 1,205,822  |   | $ | 819,277 |   | $ | 136,490 |   | $ | 197,554 |   | $ | — |   | $ | 52,501 |   |
| Straight-line  rents:                                                                                        |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Contractual  rent increases                                                                                  |       | 34,288                     |       | 27,296 |   | 3,108 |   | 3,875 |   | — |   | 9 |   |
| Amortization  of free rent                                                                                   |       | 7,071                      |       | (561 | ) | 5,390 |   | 2,251 |   | — |   | (9 | ) |
| Amortization  of acquired below market leases, net                                                           |       | 8,892                      |       | 7,852 |   | 1,040 |   | — |   | — |   | — |   |
| Total  rentals                                                                                               |       | 1,256,073                  |       | 853,864 |   | 146,028 |   | 203,680 |   | — |   | 52,501 |   |
| Expense  reimbursements                                                                                      |       | 179,115                    |       | 102,727 |   | 56,900 |   | 16,402 |   | — |   | 3,086 |   |
| Fee and  other income:                                                                                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Tenant  cleaning fees                                                                                        |       | 29,062                     |       | 29,062 |   | — |   | — |   | — |   | — |   |
| Management  and leasing fees                                                                                 |       | 12,812                     |       | 11,427 |   | 1,290 |   | — |   | — |   | 95 |   |
| Other                                                                                                        |       | 20,921                     |       | 8,852 |   | 4,694 |   | 7,344 |   | — |   | 31 |   |
| Total  revenues                                                                                              |       | 1,497,983                  |       | 1,005,932 |   | 208,912 |   | 227,426 |   | — |   | 55,713 |   |
| Operating  expenses                                                                                          |       | 581,550                    |       | 376,012 |   | 70,462 |   | 91,033 |   | — |   | 44,043 |   |
| Depreciation  and amortization                                                                               |       | 213,679                    |       | 151,050 |   | 18,835 |   | 30,125 |   | — |   | 13,669 |   |
| General and  administrative                                                                                  |       | 121,857                    |       | 37,229 |   | 9,783 |   | 20,215 |   | — |   | 54,630 |   |
| Total  expenses                                                                                              |       | 917,086                    |       | 564,291 |   | 99,080 |   | 141,373 |   | — |   | 112,342 |   |
| Operating  income (loss)                                                                                     |       | 580,897                    |       | 441,641 |   | 109,832 |   | 86,053 |   | — |   | (56,629 | ) |
| Income  applicable to Alexander’s                                                                       |       | 15,574                     |       | — |   | 640 |   | — |   | — |   | 14,934 |   |
| Income  (loss) from partially-owned entities                                                                 |       | 67,901                     |       | 2,426 |   | 3,752 |   | (108 | ) | 18,416 |   | 43,415 |   |
| Interest and  other investment income                                                                        |       | 25,397                     |       | 2,956 |   | 359 |   | 93 |   | — |   | 21,989 |   |
| Interest and  debt expense                                                                                   |       | (228,860                   | )          | (133,511 | ) | (59,674 | ) | (14,788 | ) | — |   | (20,887 | ) |
| Net gain on  disposition of wholly-owned and partially-owned assets other than depreciable  real estate |       | 2,343                      |       | 180 |   | — |   | 188 |   | — |   | 1,975 |   |
| Minority  interest                                                                                           |       | (1,089                     | )          | (1,119 | ) | — |   | — |   | — |   | 30 |   |
| Income  (loss) from continuing operations                                                                    |       | 462,163                    |       | 312,573 |   | 54,909 |   | 71,438 |   | 18,416 |   | 4,827 |   |
| Income  (loss) from discontinued operations                                                                  |       | 176,388                    |       | 173,949 |   | 4,850 |   | — |   | — |   | (2,411 | ) |
| Net income  (loss)                                                                                           |       | 638,551                    |       | 486,522 |   | 59,759 |   | 71,438 |   | 18,416 |   | 2,416 |   |
| Interest and  debt expense (2)                                                                               |       | 296,059                    |       | 138,379 |   | 62,718 |   | 15,700 |   | 24,670 |   | 54,592 |   |
| Depreciation  and amortization (2)                                                                           |       | 279,507                    |       | 155,743 |   | 21,642 |   | 30,749 |   | 34,879 |   | 36,494 |   |
| Income taxes  (2)                                                                                            |       | 1,627                      |       | 45 |   | — |   | — |   | — |   | 1,582 |   |
| EBITDA (1)                                                                                                   |       | $                          | 1,215,744  |   | $ | 780,689 |   | $ | 144,119 |   | $ | 117,887 |   | $ | 77,965 |   | $ | 95,084 |   |
|                                                                                                         |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Balance  sheet data:                                                                                         |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Real estate,  net                                                                                            |       | $                          | 6,762,559  |   | $ | 4,930,715 |   | $ | 730,443 |   | $ | 904,546 |   | $ | — |   | $ | 196,855 |   |
| Investments  and advances to partially-owned entities                                                        |       | 900,600                    |       | 44,645 |   | 57,317 |   | 6,063 |   | 426,773 |   | 365,802 |   |
| Capital  expenditures:                                                                                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Acquisitions                                                                                                 |       | 249,954                    |       | 95,420 |   | 154,534 |   | — |   | — |   | — |   |
| Other                                                                                                        |       | 239,222                    |       | 108,230 |   | 45,707 |   | 36,341 |   | 5,700 |   | 43,244 |   |

 

----

See notes on page 152.

 

150

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**18. Segment Information -continued**

 
| ** **                                                                                                  | ** ** | **December 31, 2002** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **(Amounts in thousands)**                                                                                  | ** ** | **Total**                  | ** ** | **Office** | ** ** | **Retail** | ** ** | **Merchandise  Mart** | ** ** | **Temperature  Controlled  Logistics (3)** | ** ** | **Other (4)** | ** ** |
| Property  rentals                                                                                           |       | $                          | 1,154,206  |   | $ | 789,194 |   | $ | 120,451 |   | $ | 191,197 |   | $ | — |   | $ | 53,364 |   |
| Straight-line  rents:                                                                                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Contractual  rent increases                                                                                 |       | 30,994                     |       | 27,269 |   | 1,777 |   | 1,772 |   | — |   | 176 |   |
| Amortization  of free rent                                                                                  |       | 6,796                      |       | 2,374 |   | 3,317 |   | 1,105 |   | — |   | — |   |
| Amortization  of acquired below market leases, net                                                          |       | 12,353                     |       | 12,188 |   | 165 |   | — |   | — |   | — |   |
| Total  rentals                                                                                              |       | 1,204,349                  |       | 831,025 |   | 125,710 |   | 194,074 |   | — |   | 53,540 |   |
| Expense  reimbursements                                                                                     |       | 154,727                    |       | 85,381 |   | 51,008 |   | 14,754 |   | — |   | 3,584 |   |
| Fee and  other income:                                                                                      |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Tenant  cleaning fees                                                                                       |       | —                     |       | — |   | — |   | — |   | — |   | — |   |
| Management  and leasing fees                                                                                |       | 14,800                     |       | 13,317 |   | 1,450 |   | 33 |   | — |   | — |   |
| Other                                                                                                       |       | 12,918                     |       | 7,783 |   | 172 |   | 4,743 |   | — |   | 220 |   |
| Total  revenues                                                                                             |       | 1,386,794                  |       | 937,506 |   | 178,340 |   | 213,604 |   | — |   | 57,344 |   |
| Operating  expenses                                                                                         |       | 517,958                    |       | 329,198 |   | 61,500 |   | 86,022 |   | — |   | 41,238 |   |
| Depreciation  and amortization                                                                              |       | 197,704                    |       | 142,124 |   | 14,957 |   | 26,716 |   | — |   | 13,907 |   |
| General and  administrative                                                                                 |       | 100,035                    |       | 33,319 |   | 7,640 |   | 20,382 |   | — |   | 38,694 |   |
| Amortization  of officer’s deferred compensation expense                                               |       | 27,500                     |       | — |   | — |   | — |   | — |   | 27,500 |   |
| Costs of  acquisitions and development not consummated                                                      |       | 6,874                      |       | — |   | — |   | — |   | — |   | 6,874 |   |
| Total  expenses                                                                                             |       | 850,071                    |       | 504,641 |   | 84,097 |   | 133,120 |   | — |   | 128,213 |   |
| Operating  income (loss)                                                                                    |       | 536,723                    |       | 432,865 |   | 94,243 |   | 80,484 |   | — |   | (70,869 | ) |
| Income  applicable to Alexander’s                                                                      |       | 29,653                     |       | — |   | 598 |   | — |   | — |   | 29,055 |   |
| Income  (loss) from partially-owned entities                                                                |       | 44,458                     |       | 1,966 |   | (687 | ) | (339 | ) | 9,707 |   | 33,811 |   |
| Interest and  other investment income                                                                       |       | 31,678                     |       | 6,465 |   | 323 |   | 507 |   | — |   | 24,383 |   |
| Interest and  debt expense                                                                                  |       | (232,891                   | )          | (137,509 | ) | (56,643 | ) | (22,948 | ) | — |   | (15,791 | ) |
| Net (loss)  gain disposition of wholly-owned and partially-owned assets other than  depreciable real estate |       | (17,471                    | )          | — |   | — |   | 2,156 |   | — |   | (19,627 | ) |
| Minority  interest                                                                                          |       | (3,534                     | )          | (3,526 | ) | — |   | — |   | — |   | (8 | ) |
| Income  (loss) from continuing operations                                                                   |       | 388,616                    |       | 300,261 |   | 37,834 |   | 59,860 |   | 9,707 |   | (19,046 | ) |
| Income  (loss) from discontinued operations                                                                 |       | 11,815                     |       | 17,841 |   | 723 |   | — |   | — |   | (6,749 | ) |
| Cumulative  effect of change in accounting principle                                                        |       | (30,129                    | )          | — |   | — |   | — |   | (15,490 | ) | (14,639 | ) |
| Net income                                                                                                  |       | 370,302                    |       | 318,102 |   | 38,557 |   | 59,860 |   | (5,783 | ) | (40,434 | ) |
| Cumulative  effect of change in accounting principle                                                        |       | 30,129                     |       | — |   | — |   | — |   | 15,490 |   | 14,639 |   |
| Interest and  debt expense (2)                                                                              |       | 305,920                    |       | 143,068 |   | 58,409 |   | 23,461 |   | 25,617 |   | 55,365 |   |
| Depreciation  and amortization (2)                                                                          |       | 257,707                    |       | 149,361 |   | 17,532 |   | 27,006 |   | 34,474 |   | 29,334 |   |
| EBITDA(1)                                                                                                   |       | $                          | 964,058    |   | $ | 610,531 |   | $ | 114,498 |   | $ | 110,327 |   | $ | 69,798 |   | $ | 58,904 |   |
|                                                                                                        |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Balance  sheet data:                                                                                        |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Real estate,  net                                                                                           |       | $                          | 6,579,965  |   | $ | 4,880,885 |   | $ | 569,015 |   | $ | 891,701 |   | $ | — |   | $ | 238,364 |   |
| Investments  and advances to partially-owned entities                                                       |       | 961,126                    |       | 29,421 |   | 56,375 |   | 5,912 |   | 448,295 |   | 421,123 |   |
| Capital  expenditures:                                                                                      |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Acquisitions                                                                                                |       | 2,739,746                  |       | 2,650,298 |   | 89,448 |   | — |   | — |   | — |   |
| Other                                                                                                       |       | 164,162                    |       | 114,375 |   | 3,019 |   | 20,852 |   | 5,588 |   | 20,328 |   |

 

----

See notes on following page.

 

151

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**18. Segment Information -continued**

** **

## ***Notes to preceding tabular information:***

## ** **

(1)                                  Managementconsiders EBITDA a supplemental measure for making decisions and assessing theperformance of its segments.  EBITDAshould not be considered a substitute for net income.  EBITDA may not be comparable to similarlytitled measures employed by other companies.

 

(2)                                  Interest and debtexpense and depreciation and amortization included in the reconciliation of netincome to EBITDA reflects amounts which are netted in income frompartially-owned entities.

 

(3)                                  Operating resultsfor the year ended December 31, 2004, reflect the consolidation of theCompany’s investment in Americold beginning on November 18, 2004.  Previously, this investment was accounted foron the equity method.

 

(4)                                  Other EBITDA iscomprised of: 

 
| ** **                                                    | ** ** | **For the Year  Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------------|------------|
| **(Amounts in thousands)**                                    | ** ** | **2004**                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
| Newkirk:                                                      |       |                                      |       |   |   |   |   |
| Equity in  income of MLP                                      |       | $                                         | 52,331     |   | $ | 68,341 |   | $ | 60,756 |   |
| Interest and  other income                                    |       | 18,186                                    |       | 8,532 |   | 8,795 |   |
| Alexander’s                                              |       | 25,909                                    |       | 22,361 |   | 38,838 |   |
| Industrial  warehouses                                        |       | 5,309                                     |       | 6,208 |   | 6,223 |   |
| Hotel  Pennsylvania                                           |       | 15,643                                    |       | 4,573 |   | 7,636 |   |
| Student  housing                                              |       | 1,440                                     |       | 2,000 |   | 2,340 |   |
|                                                          |       | 118,818                                   |       | 112,015 |   | 124,588 |   |
| Minority  interest expense                                    |       | 48                                        |       | 30 |   | (8 | ) |
| Corporate  general and administrative expenses                |       | (62,854                                   | )          | (51,461 | ) | (34,743 | ) |
| Investment  income and other                                  |       | 215,639                                   |       | 28,350 |   | 22,907 |   |
| Discontinued  operations:                                     |       |                                      |       |   |   |   |   |
| Palisades                                                     |       | 3,792                                     |       | 5,006 |   | 161 |   |
| 400 North  LaSalle                                            |       | 1,541                                     |       | (418 | ) | — |   |
| Gain on sale  of Palisades                                    |       | 65,905                                    |       | — |   | — |   |
| Net gain on  sale of marketable securities                    |       | —                                    |       | 2,950 |   | 12,346 |   |
| Primestone  foreclosure and impairment loss.                  |       | —                                    |       | (1,388 | ) | (35,757 | ) |
| Amortization  of Officer’s deferred compensation expense |       | —                                    |       | — |   | (27,500 | ) |
| Write-off of  20 Times Square pre-development costs      |       | —                                    |       | — |   | (6,874 | ) |
| Gain on  transfer of mortgages                                |       | —                                    |       | — |   | 2,096 |   |
| Net gain on  sale of air rights.                              |       | —                                    |       | — |   | 1,688 |   |
|                                                          |       | $                                         | 342,889    |   | $ | 95,084 |   | $ | 58,904 |   |

 

152

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**VORNADO REALTY L.P.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)**

 

**19. Subsequent Events**

** **

On February 3, 2005, the Company supplied$135,000,000 of financing to Riley Holdco Corp, an entity formed to completethe acquisition of LNR Property Corporation (NYSE:LNR).  Riley Holdco Corp. is a wholly ownedsubsidiary of LNR Property Holdings, Ltd., which is 75% owned by funds andaccounts managed by Cerberus Capital Management, L.P. and its real estateaffiliate Blackacre Institutional Capital Management, LLC.  The terms of the financings are asfollows:  (i) $60,000,000 of a $325,000,000mezzanine tranche of a $2.4 billion credit facility which is secured by certainequity interests.  This tranche is juniorto $1.9 billion of the credit facility, bears interest at LIBOR plus5.25%, and matures in February 2008 with two one-year extensions; and (ii)$75,000,000 of $400,000,000 of unsecured notes which are subordinate to the$2.4 billion credit facility and senior to over $700,000,000 of equitycontributed to finance the acquisition. These notes mature in February 2015, provide for a 1.5% placementfee, and bear interest at 10% for the first five years and 11% for years sixthrough ten.

 

On February 4, 2005, the Company acquired fromJER Investors Trust a $17,000,000 participation in a $34,000,000 mezzanine loansecured by Roney Palace Phase II, in Miami Beach, Florida, a 593-room hotel tobe converted to residential condominiums. The loan, which is subordinate to $141,000,000 of other debt, bearsinterest at LIBOR plus 9.53%, until 25% of the loan is repaid and LIBOR plus7.48% thereafter until maturity in October 2006.  The loan has a one-year extension option.

 

153

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**Item 9.**                                   *Changes inand Disagreements with Accountants on Accounting and Financial Disclosure*

** **

Not applicable.

 

**Item 9A.**                          *Controlsand Procedures*

** **

Disclosure Controls and Procedures:  The Company’s management, with theparticipation of Vornado’s Chief Executive Officer and Chief Financial Officer,has evaluated the effectiveness of the Company’s disclosure controls and procedures(as such term is defined in Rule 13a-15(e) under the Securities ExchangeAct of 1934, as amended) as of the end of the period covered by this annualreport on Form 10-K.  Based on suchevaluation, Vornado’s Chief Executive Officer and Chief Financial Officer haveconcluded that, as of the end of such period, the Company’s disclosure controlsand procedures are effective.

 

Internal Control Over Financial Reporting:  There have not been any changes in theCompany’s internal control over financial reporting (as defined inRule 13a-15(f) under the Securities and Exchange Act of 1934, as amended)during the fourth quarter of the fiscal year to which this report relates thathave materially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

**MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

 

Management of Vornado Realty Trust, sole generalpartner of Vornado Realty L.P., together with its consolidated subsidiaries(the “Company”), is responsible for establishing and maintaining adequateinternal control over financial reporting. The Company’s internal control over financial reporting is a processdesigned under the supervision of the Company’s principal executive andprincipal financial officers to provide reasonable assurance regarding thereliability of financial reporting and the preparation of the Company’sfinancial statements for external reporting purposes in accordance with U.S.generally accepted accounting principles.

 

As of December 31, 2004, management conducted anassessment of the effectiveness of the Company’s internal control overfinancial reporting based on the framework established in *InternalControl — Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).  Our assessment excluded the internal controlover financial reporting at Americold Realty Trust, which acquired AmeriColdLogistics on November 4, 2004 and which the Company began to consolidateon November 18, 2004 and whose financial statements reflect total assetsand revenues constituting 10.2 and 5.1 percent, respectively, of the relatedconsolidated financial statement amounts as of and for the year ended December 31,2004.  Based on this assessment, managementhas determined that the Company’s internal control over financial reporting asof December 31, 2004 is effective.

 

Our internal control over financial reporting includespolicies and procedures that pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect transactions and dispositionsof assets; provide reasonable assurances that transactions are recorded asnecessary to permit preparation of financial statements in accordance with U.S.generally accepted accounting principles, and that receipts and expendituresare being made only in accordance with authorizations of management and the boardof trustees of the general partner of the Company; and provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition,use or disposition of the Company’s assets that could have a material effect onour financial statements.

 

Management’s assessment of the effectiveness of theCompany’s internal control over financial reporting as of December 31,2004 has been audited by Deloitte & Touche LLP, an independent registeredpublic accounting firm, as stated in their report appearing on page 155 whichexpresses unqualified opinions on management’s assessment and on theeffectiveness of the Company’s internal control over financial reporting as of December 31,2004.

 

154

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Partners

Vornado Realty L.P.

New York, New York

 

We have audited management’s assessment, included within this December 31,2004 Form 10-K of Vornado Realty L.P. at Item 9A under the heading “Management’sReport on Internal Control Over Financial Reporting,” that Vornado Realty L.P.,together with its consolidated subsidiaries (the “Company”) maintainedeffective internal control over financial reporting as of  December 31, 2004, based on criteriaestablished in “*Internal Control—Integrated Framework*”issued by the Committee of Sponsoring Organizations of the TreadwayCommission.  As described in “Management’sReport on Internal Control Over Financial Reporting,” management excluded fromtheir assessment the internal control over financial reporting at AmericoldRealty Trust, which acquired AmeriCold Logistics on November 4, 2004 and whichthe Company began to consolidate on November 18, 2004 and whose financialstatements reflect total assets and revenues constituting 10.2 and 5.1 percent,respectively, of the related consolidated financial statement amounts as of andfor the year ended December 31, 2004. Accordingly, our audit did not include the internal control overfinancial reporting at Americold Realty Trust. The Company’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting.  Our responsibility is to express an opinionon management’s assessment and an opinion on the effectiveness of the Company’sinternal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all materialrespects.  Our audit included obtainingan understanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operating effectivenessof internal control, and performing such other procedures as we considerednecessary in the circumstances.  Webelieve that our audit provides a reasonable basis for our opinions.

 

A company’s internal control over financial reporting is a processdesigned by, or under the supervision of, the company’s principal executive andprincipal financial officers, or persons performing similar functions, andeffected by the board of trustees of the general partner of the Company,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company’s internal controlover financial reporting includes those policies and procedures that (1)pertain to the maintenance of records that, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of managementand board of trustees of the general partner of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

Because of the inherent limitations of internal control over financialreporting, including the possibility of collusion or improper managementoverride of controls, material misstatements due to error or fraud may not beprevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internalcontrol over financial reporting to future periods are subject to the risk thatthe controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, management’s assessment that the Company maintainedeffective internal control over financial reporting as of December 31,2004, is fairly stated, in all material respects, based on the criteriaestablished in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the TreadwayCommission.  Also in our opinion, theCompany maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2004, based on the criteriaestablished in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We have also audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the consolidated balancesheet as of December 31, 2004 and the related consolidated statements ofincome, partners’ capital and cash flows for the year ended December 31,2004 and the related financial statement schedules as of and for the year endedDecember 31, 2004 of the Company and our report dated March 7, 2005expressed an unqualified opinion on those financial statements and financialstatement schedules.

 

DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

March 7, 2005

 

155

----

 

**Item 9B.**                          *OtherInformation*

** **

As of February 8, 2005, Vornado’s CompensationCommittee approved a grant, pursuant to Vornado’s 2002 Omnibus Share Plan, of1,038,800 stock options and 73,216 units of restricted stock to executiveofficers and certain employees of the Company. The stock options have an exercise price of $71.275 per unit and vestover three to five years.  The units ofrestricted stock vest over five years. Included with this annual report on Form 10-K as exhibits 10.77 and10.78, respectively, are the form of stock option and restricted stockagreements and such forms are incorporated in this Item 9B.

 

**PART III**

 

**Item 10.**                            *Directorsand Executive Officers of the Registrant*

*** ***

Information relating to trustees of Vornado, includingits audit committee and audit committee financial expert, will be contained ina definitive Proxy Statement involving the election of trustees under thecaption “Election of Trustees” which Vornado will file with the Securities andExchange Commission pursuant to Regulation 14A under the SecuritiesExchange Act of 1934 not later than 120 days after December 31, 2004, andsuch information is incorporated herein by reference. Information relating toExecutive Officers of Vornado, appears at page 46 of this Annual Report onForm 10-K.  Also incorporated herein byreference is the information under the caption “Other Matters — 16(a)Beneficial Ownership Reporting Compliance” of the Proxy Statement.

 

Vornado has adopted a Code of Business Conduct andEthics that applies to, among others, Steven Roth, its principal executiveofficer, and Joseph Macnow, its principal financial and accountingofficer.  This Code is available on Vornado’swebsite at www.vno.com.

 

**Item 11.**                            *Executive Compensation*

*** ***

Information relating to executive compensation will becontained in the Proxy Statement referred to above in Item 10, “Directorsand Executive Officers of the Registrant,” under the caption “ExecutiveCompensation” and such information is incorporated herein by reference.

 

**Item 12.**                            *SecurityOwnership of Certain Beneficial Owners and Management*

*** ***

Information relating to security ownership of certainbeneficial owners and management will be contained in the Proxy Statementreferred to in Item 10, “Directors and Executive Officers of the Registrant,” under thecaption “Principal Security Holders” and such information is incorporatedherein by reference.

 

***Equity compensation planinformation***

*** ***

The following table provides information as of December 31,2004, regarding the Company’s equity compensation plans.

 
| **Plan Category**                                                | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average exercise  price of outstanding  options, warrants and rights** | ** ** | **Number of securities remaining  available for future issuance under   equity compensation plans  (excluding securities reflected in  the second column)** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders          |       | 13,172,492                                                                                         | (1)        | $                                                                                 | 34.39      |                                                                                                                                                        | 6,920,465  | (2) |
| Equity  compensation awards not approved by security holders (3) |       | —                                                                                             |       | —                                                                            |       | —                                                                                                                                                      |       |
| Total                                                            |       | 13,172,492                                                                                         |       | $                                                                                 | 34.39      |                                                                                                                                                        | 6,920,465  |   |

 

----

(1)                                  Includes290,478 restricted shares which do not have an option exercise price.

(2)                                  Allof the units available for future issuance under plans approved by the securityholders may be issued as restricted stock shares or performance shares.

(3)                                  Doesnot include Class A units issuable in exchange for deferred stock sharespursuant to the compensation agreements described below under the heading “MaterialFeatures of Equity Compensation Arrangements Not Approved by Shareholders.”

 

156

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*Material Features of Equity CompensationArrangements Not Approved by Unitholders*

 

We haveawarded deferred stock share of Vornado under individual arrangements with twoof our employees.  Unitholder approvalwas not required for these awards under the current or then-existing rules ofthe New York Stock Exchange because the awards were made as an inducement tothese employees to enter into employment contracts with us.

 

We awardedMelvyn Blum 148,148 deferred stock shares of Vornado pursuant to an agreementdated as of December 29, 2000.  Inaddition, Mr. Blum’s agreement requires the Company to provide an effectiveregistration statement covering any common shares distributed to Mr. Blum.  Pursuant to an amendment to this agreementdated as of February 13, 2003, we agreed to pay Mr. Blum an amount in cashequal to the market value of 88,889 common shares in respect of the deferredshares that had vested under his agreement as of such date.  On January 2, 2005, all of Mr. Blum’sremaining unvested deferred stock shares vested and he received the remainingshares.  Pursuant to a requirement underhis employment agreement, all of Mr. Blum’s shares received with respect todeferred stock shares were registered for sale pursuant to a registrationstatement filed with the Securities and Exchange Commission for which theprospectus was filed April 12, 2004.

 

**Item 13.**                            *CertainRelationships and Related Transactions*

*** ***

Information relating to certain relationships andrelated transactions will be contained in the Proxy Statement referred to inItem 10, “Directors and Executive Officers of the Registrant,” under thecaption “Certain Relationships and Related Transactions” and such informationis incorporated herein by reference.

 

**Item 14.**                            *PrincipalAccountant Fees and Services*

*** ***

Information relating to Principal Accountant fees andservices will be contained in the Proxy Statement referred to in Item 10, “Directorsand Executive Officers of the Registrant” under the caption “PrincipalAccountant Fees and Services” and such information is incorporated herein byreference.

 

**PART IV**

 

**Item 15.**                            *Exhibits andFinancial Statement Schedules*

*** ***

(a)                                  The following documents are filed as part of thisreport:

 

1.               The consolidated financial statements are set forthin Item 8 of this Annual Report on Form 10-K.

 

The following financial statement schedules should beread in conjunction with the financial statements included in Item 8 of thisAnnual Report on Form 10-K.

 
| ** **                                                                                        | ** ** | **Pages in this  Annual Report  on Form 10-K** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
|                                                                                              |       |                                           |       |
| II—Valuation  and Qualifying Accounts–years ended December 31, 2004, 2003 and 2002 |       | 159                                            |       |
| III—Real  Estate and Accumulated Depreciation as of December 31, 2004                   |       | 160                                            |       |

 

Schedules other than those listed above are omittedbecause they are not applicable or the information required is included in theconsolidated financial statements or the notes thereto.

 

The following exhibits listed on the Exhibit Index arefiled with this Annual Report on Form 10-K.

 
| **Exhibit   No.** | ** ** | ** **                                                     | ** ** |
|-------------------|------------|----------------------------------------------------------------|------------|
| 21                |       | Subsidiaries of Registrant                                     |       |
| 23                |       | Consent of Independent Registered Public Accounting Firm       |       |
| 31.1              |       | Rule 13a-14 (a) Certification of the Chief Executive Officer   |       |
| 31.2              |       | Rule 13a-14 (a) Certification of the Chief Financial Officer   |       |
| 32.1              |       | Section 1350 Certification of the Chief Executive Officer |       |
| 32.2              |       | Section 1350 Certification of the Chief Financial Officer |       |

 

157

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15 (d) of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|   |                            | VORNADO REALTY L.P.                        |
|--------|---------------------------------|--------------------------------------------|
|   | By:                             | VORNADO REALTY TRUST, sole general partner |
|   |                            |                                       |
|   | By:                             | /s/  Joseph Macnow                    |
|   |                            |                                       | Joseph Macnow, Executive Vice President- |
|   |                            |                                       | Finance and Administration and |
|   |                            |                                       | Chief Financial Officer of |
|   |                            |                                       | Vornado Realty Trust, sole general partner |
|   | Date:   March 7, 2005 |
|        |                                 |                                            |  |  |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the datesindicated:

 
| **Signature** | ** **                                  | **Title** | ** **                                                                                | **Date** |
|---------------|---------------------------------------------|-----------|-------------------------------------------------------------------------------------------|----------|
|          |                                        |      |                                                                                      |     |
| By:           | /s/   Steven  Roth           |      | Chairman of the Board of                                                                  |     | March 7, 2005 |
|          | (Steven Roth)                               |      | Trustees (Principal Executive  Officer)                                                   |     |   |
|          |                                        |      |                                                                                      |     |
| By:           | /s/   Michael  D. Fascitelli |      | President and Trustee                                                                     |     | March 7, 2005 |
|          | (Michael D. Fascitelli)                     |      |                                                                                      |     |   |
|          |                                        |      |                                                                                      |     |
|          |                                        |      |                                                                                      |     |
| By:           | /s/   Robert  P. Kogod       |      | Trustee                                                                                   |     | March 7, 2005 |
|          | (Robert P. Kogod)                           |      |                                                                                      |     |   |
|          |                                        |      |                                                                                      |     |
|          |                                        |      |                                                                                      |     |
| By:           | /s/   David  Mandelbaum      |      | Trustee                                                                                   |     | March 7, 2005 |
|          | (David Mandelbaum)                          |      |                                                                                      |     |   |
|          |                                        |      |                                                                                      |     |
|          |                                        |      |                                                                                      |     |
| By:           | /s/   Stanley  Simon         |      | Trustee                                                                                   |     | March 7, 2005 |
|          | (Stanley Simon)                             |      |                                                                                      |     |   |
|          |                                        |      |                                                                                      |     |
|          |                                        |      |                                                                                      |     |
| By:           | /s/   Robert  H. Smith       |      | Trustee                                                                                   |     | March 7, 2005 |
|          | (Robert H. Smith)                           |      |                                                                                      |     |   |
|          |                                        |      |                                                                                      |     |
|          |                                        |      |                                                                                      |     |
| By:           | /s/   Ronald  G. Targan      |      | Trustee                                                                                   |     | March 7, 2005 |
|          | (Ronald G. Targan)                          |      |                                                                                      |     |   |
|          |                                        |      |                                                                                      |     |
|          |                                        |      |                                                                                      |     |
| By:           | /s/   Richard  R. West       |      | Trustee                                                                                   |     | March 7, 2005 |
|          | (Richard R. West)                           |      |                                                                                      |     |   |
|          |                                        |      |                                                                                      |     |
|          |                                        |      |                                                                                      |     |
| By:           | /s/   Russell  B. Wight      |      | Trustee                                                                                   |     | March 7, 2005 |
|          | (Russell B. Wight, Jr.)                     |      |                                                                                      |     |   |
|          |                                        |      |                                                                                      |     |
|          |                                        |      |                                                                                      |     |
| By:           | /s/   Joseph  Macnow         |      | Executive Vice President - Finance and                                                    |     | March 7, 2005 |
|          | (Joseph Macnow)                             |      | Administration and Chief Financial  Officer (Principal Financial and  Accounting Officer) |     |   |
|               |                                             |           |                                                                                           |          |  |  |

 

158

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**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

** **

**SCHEDULE II**

**VALUATION AND QUALIFYING ACCOUNTSDecember 31, 2004**

** **
| ** **                                                             | ** ** | **Column A**                       | ** ** | **Column B**                                | ** ** | **Column C**                             | ** ** | **Column E**                 | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------------|------------|------------------------------------------|------------|------------------------------|------------|
| **Description**                                                        | ** ** | **Balance at  Beginning  of Year** | ** ** | **Additions  Charged  Against  Operations** | ** ** | **Uncollectible  Accounts  Written-off** | ** ** | **Balance  at End  of Year** | ** ** |
| ** **                                                             | ** ** | ** **                         | ** ** | ** **                                  | ** ** | ** **                               | ** ** | ** **                   | ** ** |
| **Year  Ended December 31, 2004:**Allowance for doubtful accounts |       | $                                  | 18,076     |                                        | $          | 16,771                                   | (1)        | $                            | (10,350    | ) | $ | 24,125 |   |
|                                                                   |       |                               |       |                                        |       |                                     |       |                         |       |
| **Year  Ended December 31, 2003**Allowance for doubtful accounts  |       | $                                  | 17,958     |                                        | $          | 12,248                                   |       | $                            | (12,130    | ) | $ | 18,076 |   |
|                                                                   |       |                               |       |                                        |       |                                     |       |                         |       |
| **Year  Ended December 31, 2002:**Allowance for doubtful accounts |       | $                                  | 9,922      |                                        | $          | 11,634                                   |       | $                            | (3,514     | ) | $ | 17,958 |   |

 

----

(1)          Beginning on November18, 2004, the Company consolidates its investment in Americold RealtyTrust.  Accordingly, additions chargedagainst operations includes $3,106, which represents Americold’s allowance fordoubtful accounts on such date.  

 

159

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**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

** **

**(Amounts in thousands)**

 
| **COLUMN A**                    | ** ** | **COLUMN B**     |   | **COLUMN C**                    | ** ** | **COLUMN D**           | ** ** | **COLUMN E**                                           |    | **COLUMN F**    | ** ** | **COLUMN G**     | ** ** | **COLUMN H**     | ** ** | **COLUMN I**                                 | ** ** |
|---------------------------------|------------|------------------|--------|---------------------------------|------------|------------------------|------------|--------------------------------------------------------|---------|-----------------|------------|------------------|------------|------------------|------------|----------------------------------------------|------------|
|                            |       |             |   |                            |       | **Costs  Capitalized** |       | **Gross  amount at which  carried at close of period** |    | **Accumulated** |       |             |       |             |       | **Life on  which  depreciation   in latest** |       |
|                            |       |             |   | **Initial cost to company (1)** |       | **subsequent**         |       |                                                   |    | **Buildings**   |       |             |       | **Depreciation** |       |                                         |       |   |   | **income** |   |
|                            |       |             |   | ** **                      |       | **Buildings and**      |       | **to**                                                 |    |            |       | **and**          |       |             |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**                 |       | **Encumbrances** |   | **Land**                        |       | **improvements**       |       | **acquisition**                                        |    | **Land**        |       | **improvements** |       | **Total  (2)**   |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| Office Buildings                |       |             |   |                            |       |                   |       |                                                   |    |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **New York**                    |       |             |   |                            |       |                   |       |                                                   |    |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Manhattan                       |       |             |   |                            |       |                   |       |                                                   |    |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| One Penn Plaza                  |       | $                | — |                            | $          | —                 |       | $                                                      | 412,169 |            | $          | 96,063           |       | $                | —     |                                         | $          | 508,232 |   | $ | 508,232 |   | $ | 87,751 |   | 1972 |   | 1998 |   | 7 - 39 Years |   |
| Two Penn Plaza                  |       | 300,000          |   | 53,615                          |       | 164,903                |       | 61,513                                                 |    | 52,689          |       | 227,342          |       | 280,031          |       | 49,610                                       |       | 1968 |   | 1997 |   | 7 - 39 Years |   |
| 909 Third Avenue                |       | 125,000          |   | —                          |       | 120,723                |       | 22,341                                                 |    | —          |       | 143,064          |       | 143,064          |       | 21,604                                       |       | 1969 |   | 1999 |   | 7 - 39 Years |   |
| 770 Broadway                    |       | 170,000          |   | 52,898                          |       | 95,686                 |       | 76,022                                                 |    | 52,898          |       | 171,708          |       | 224,606          |       | 30,820                                       |       | 1907 |   | 1998 |   | 7 - 39 Years |   |
| Eleven Penn Plaza               |       | 219,777          |   | 40,333                          |       | 85,259                 |       | 27,155                                                 |    | 40,333          |       | 112,414          |       | 152,747          |       | 26,514                                       |       | 1923 |   | 1997 |   | 7 - 39 Years |   |
| 90 Park Avenue                  |       | —           |   | 8,000                           |       | 175,890                |       | 25,960                                                 |    | 8,000           |       | 201,850          |       | 209,850          |       | 37,879                                       |       | 1964 |   | 1997 |   | 7 - 39 Years |   |
| 888 Seventh  Avenue             |       | 105,000          |   | —                          |       | 117,269                |       | 45,007                                                 |    | —          |       | 162,276          |       | 162,276          |       | 25,723                                       |       | 1980 |   | 1998 |   | 7 - 39 Years |   |
| 330 West 34th  Street           |       | —           |   | —                          |       | 8,599                  |       | 8,648                                                  |    | —          |       | 17,247           |       | 17,247           |       | 2,660                                        |       | 1925 |   | 1998 |   | 7 - 39 Years |   |
| 1740 Broadway                   |       | —           |   | 26,971                          |       | 102,890                |       | 9,338                                                  |    | 26,971          |       | 112,228          |       | 139,199          |       | 23,537                                       |       | 1950 |   | 1997 |   | 7 - 39 Years |   |
| 150 East 58th  Street           |       | —           |   | 39,303                          |       | 80,216                 |       | 17,699                                                 |    | 39,303          |       | 97,915           |       | 137,218          |       | 16,551                                       |       | 1969 |   | 1998 |   | 7 - 39 Years |   |
| 866 United  Nations Plaza       |       | 48,130           |   | 32,196                          |       | 37,534                 |       | 8,266                                                  |    | 32,196          |       | 45,800           |       | 77,996           |       | 11,058                                       |       | 1966 |   | 1997 |   | 7 - 39 Years |   |
| 595 Madison  (Fuller Building)  |       | —           |   | 62,731                          |       | 62,888                 |       | 11,092                                                 |    | 62,731          |       | 73,980           |       | 136,711          |       | 9,421                                        |       | 1968 |   | 1999 |   | 7 - 39 Years |   |
| 640 Fifth Avenue                |       | —           |   | 38,224                          |       | 25,992                 |       | 94,987                                                 |    | 38,224          |       | 120,979          |       | 159,203          |       | 14,771                                       |       | 1950 |   | 1997 |   | 7 - 39 Years |   |
| 40 Fulton Street                |       | —           |   | 15,732                          |       | 26,388                 |       | 3,807                                                  |    | 15,732          |       | 30,195           |       | 45,927           |       | 6,125                                        |       | 1987 |   | 1998 |   | 7 - 39 Years |   |
| 689 Fifth Avenue                |       | —           |   | 19,721                          |       | 13,446                 |       | 8,166                                                  |    | 19,721          |       | 21,612           |       | 41,333           |       | 2,631                                        |       | 1925 |   | 1998 |   | 39 Years |   |
| 20 Broad Street                 |       | —           |   | —                          |       | 28,760                 |       | 18,743                                                 |    | —          |       | 47,503           |       | 47,503           |       | 6,334                                        |       | 1956 |   | 1998 |   | 7 - 39 Years |   |
| 7 West 34th  Street             |       | —           |   | 34,595                          |       | 93,703                 |       | 1,012                                                  |    | 34,614          |       | 94,696           |       | 129,310          |       | 9,968                                        |       | 1901 |   | 2000 |   | 7 - 40 Years |   |
| Other                           |       | —           |   | —                          |       | 5,548                  |       | 10,560                                                 |    | —          |       | 16,108           |       | 16,108           |       | 381                                          |       |   |   |   |   |   |   |
|                            |       |             |   |                            |       |                   |       |                                                   |    |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Total New York                  |       | 967,907          |   | 424,319                         |       | 1,657,863              |       | 546,379                                                |    | 423,412         |       | 2,205,149        |       | 2,628,561        |       | 383,338                                      |       |   |   |   |   |   |   |
|                            |       |             |   |                            |       |                   |       |                                                   |    |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Washington,  DC**             |       |             |   |                            |       |                   |       |                                                   |    |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Crystal Mall (4  buildings)     |       | $                | 48,618 |                            | $          | 49,664                 |       | $                                                      | 156,654 |            | $          | 9,656            |       | $                | 49,545     |                                         | $          | 166,429 |   | $ | 215,974 |   | $ | 15,556 |   | 1968 |   | 2002 |   | 10 - 40 Years |   |
| Crystal Plaza (6  buildings)    |       | —           |   | 57,213                          |       | 131,206                |       | 22,348                                                 |    | 57,070          |       | 153,697          |       | 210,767          |       | 9,625                                        |       | 1964-1969 |   | 2002 |   | 10 - 40 Years |   |
| Crystal Square (4  buildings)   |       | 185,276          |   | 64,817                          |       | 218,330                |       | 26,200                                                 |    | 64,652          |       | 244,695          |       | 309,347          |       | 22,708                                       |       | 1974 - 1980 |   | 2002 |   | 10 - 40 Years |   |
| Crystal City  Hotel             |       | —           |   | 8,000                           |       | 47,191                 |       | —                                                 |    | 8,000           |       | 47,191           |       | 55,191           |       | 578                                          |       | 1968 |   | 2004 |   | 10 - 40 Years |   |
| Crystal City  Shops             |       | —           |   | —                          |       | 20,465                 |       | —                                                 |    | —          |       | 20,465           |       | 20,465           |       | 470                                          |       | 2004 |   | 2004 |   | 10 - 40 Years |   |
| Crystal Gateway  (4 buildings)  |       | 146,825          |   | 47,594                          |       | 177,373                |       | (58,759                                                | )       | 32,736          |       | 133,472          |       | 166,208          |       | 13,322                                       |       | 1983 - 1987 |   | 2002 |   | 10 - 40 Years |   |
| Crystal Park (5  buildings)     |       | 253,238          |   | 100,935                         |       | 409,920                |       | 19,708                                                 |    | 100,228         |       | 430,335          |       | 530,563          |       | 45,470                                       |       | 1984 - 1989 |   | 2002 |   | 10 - 40 Years |   |
| 1919 S. Eads  Street            |       | 11,932           |   | 3,979                           |       | 18,610                 |       | 69,322                                                 |    | 18,696          |       | 73,215           |       | 91,911           |       | 7,454                                        |       | 1990 |   | 2002 |   | 10 - 40 Years |   |
| Skyline Place (6  buildings)    |       | 131,106          |   | 41,986                          |       | 221,869                |       | 8,487                                                  |    | 41,862          |       | 230,480          |       | 272,342          |       | 23,593                                       |       | 1973 - 1984 |   | 2002 |   | 10 - 40 Years |   |
| Seven Skyline  Place            |       | —           |   | 10,292                          |       | 58,351                 |       | (4,294                                                 | )       | 10,262          |       | 54,087           |       | 64,349           |       | 5,284                                        |       | 2001 |   | 2002 |   | 10 - 40 Years |   |
| One Skyline Tower               |       | 63,791           |   | 12,266                          |       | 75,343                 |       | 8,176                                                  |    | 12,231          |       | 83,554           |       | 95,785           |       | 8,116                                        |       | 1988 |   | 2002 |   | 10 - 40 Years |   |
| Courthouse Plaza  (2 buildings) |       | 77,153           |   | —                          |       | 105,475                |       | 7,918                                                  |    | —          |       | 113,393          |       | 113,393          |       | 11,303                                       |       | 1988 - 1989 |   | 2002 |   | 10 - 40 Years |   |
| 1101 17th Street                |       | 25,537           |   | 20,666                          |       | 20,112                 |       | 2,500                                                  |    | 20,609          |       | 22,669           |       | 43,278           |       | 3,046                                        |       | 1963 |   | 2002 |   | 10 - 40 Years |   |
| 1730 M. Street                  |       | 15,944           |   | 10,095                          |       | 17,541                 |       | 3,264                                                  |    | 10,066          |       | 20,834           |       | 30,900           |       | 2,842                                        |       | 1963 |   | 2002 |   | 10 - 40 Years |   |
| 1140 Connecticut  Avenue        |       | 18,888           |   | 19,017                          |       | 13,184                 |       | 3,857                                                  |    | 18,968          |       | 17,090           |       | 36,058           |       | 2,481                                        |       | 1966 |   | 2002 |   | 10 -40 Years |   |
| 1150 17th Street                |       | 30,838           |   | 23,359                          |       | 24,876                 |       | 5,237                                                  |    | 23,296          |       | 30,176           |       | 53,472           |       | 3,464                                        |       | 1970 |   | 2002 |   | 10 - 40 Years |   |
| 1750 Penn Avenue                |       | 48,876           |   | 20,020                          |       | 30,032                 |       | (622                                                   | )       | 19,948          |       | 29,482           |       | 49,430           |       | 2,932                                        |       | 1964 |   | 2002 |   | 10 - 40 Years |   |

 

160

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**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

 
| **COLUMN A**                           | ** ** | **COLUMN B**     |   | **COLUMN C**                     | ** ** | **COLUMN D**                       | ** ** | **COLUMN E**                                           |          | **COLUMN F**                      | ** ** | **COLUMN G**     | ** ** | **COLUMN H**   | ** ** | **COLUMN I**                                 | ** ** |
|----------------------------------------|------------|------------------|--------|----------------------------------|------------|------------------------------------|------------|--------------------------------------------------------|---------------|-----------------------------------|------------|------------------|------------|----------------|------------|----------------------------------------------|------------|
|                                   |       |             |   |                             |       | **Costs  Capitalized  subsequent** |       | **Gross  amount at which  carried at close of period** |          | **Accumulated**

**Depreciation** |       |             |       |           |       | **Life on  which  depreciation   in latest** |       |
|                                   |       |             |   | **Initial  cost to company (1)** |       |                               |       |                                                   | **Buildings** |                              |       |             |       |           |       |                                         |       | **income** |   |
|                                   |       |             |   | ** **                       |       | **Buildings  and**                 |       | **to**                                                 |          |                              |       | **and**          |       |           |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**                        |       | **Encumbrances** |   | **Land**                         |       | **improvements**                   |       | **acquisition**                                        |          | **Land**                          |       | **improvements** |       | **Total  (2)** |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| 2101 L Street                          |       | —           |   | 32,815                           |       | 51,642                             |       | (164                                                   | )             | 32,815                            |       | 51,478           |       | 84,293         |       | 1,820                                        |       | 1975 |   | 2003 |   | 10 - 40 Years |   |
| Democracy Plaza I                      |       | 26,095           |   | —                           |       | 33,628                             |       | (1,465                                                 | )             | —                            |       | 32,163           |       | 32,163         |       | 4,535                                        |       | 1987 |   | 2002 |   | 10 - 40 Years |   |
| Tysons Dulles (3  buildings)           |       | —           |   | 19,146                           |       | 79,095                             |       | 1,427                                                  |          | 19,096                            |       | 80,572           |       | 99,668         |       | 7,710                                        |       | 1986 - 1990 |   | 2002 |   | 10 - 40 Years |   |
| Commerce  Executive (3 buildings) |       | 51,796           |   | 13,401                           |       | 58,705                             |       | 5,795                                                  |          | 13,363                            |       | 64,538           |       | 77,901         |       | 6,162                                        |       | 1985 - 1989 |   | 2002 |   | 10 - 40 Years |   |
| Reston Executive  (3 buildings)        |       | 71,197           |   | 15,424                           |       | 85,722                             |       | 367                                                    |          | 15,380                            |       | 86,133           |       | 101,513        |       | 7,971                                        |       | 1987 - 1989 |   | 2002 |   | 10 - 40 Years |   |
| Crystal Gateway 1                      |       | 57,083           |   | 15,826                           |       | 53,894                             |       | 4,058                                                  |          | 15,826                            |       | 57,952           |       | 73,778         |       | 3,617                                        |       | 1981 |   | 2002 |   | 10 - 40 Years |   |
| Other                                  |       | 21,021           |   | —                           |       | 51,768                             |       | (42,279                                                | )             | —                            |       | 9,489            |       | 9,489          |       | —                                       |       |   |   |   |   |   |   |
| Total Washington,  DC Office Buildings |       | 1,285,214        |   | 586,515                          |       | 2,160,986                          |       | 90,737                                                 |          | 584,649                           |       | 2,253,589        |       | 2,838,238      |       | 210,059                                      |       |   |   |   |   |   |   |
|                                   |       |             |   |                             |       |                               |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| **New  Jersey**                        |       |             |   |                             |       |                               |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| Bergen                                 |       | —           |   | —                           |       | 8,345                              |       | 12,189                                                 |          | 1,092                             |       | 19,442           |       | 20,534         |       | 7,712                                        |       | 1967 |   | 1987 |   | 26 - 40 Years |   |
| Total New Jersey                       |       | —           |   | —                           |       | 8,345                              |       | 12,189                                                 |          | 1,092                             |       | 19,442           |       | 20,534         |       | 7,712                                        |       |   |   |   |   |   |   |
|                                   |       |             |   |                             |       |                               |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| Total Office  Buildings                |       | 2,253,121        |   | 1,010,834                        |       | 3,827,194                          |       | 649,305                                                |          | 1,009,153                         |       | 4,478,180        |       | 5,487,333      |       | 601,109                                      |       |   |   |   |   |   |   |
|                                   |       |             |   |                             |       |                               |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| Shopping Centers                       |       |             |   |                             |       |                               |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| **New  Jersey**                        |       |             |   |                             |       |                               |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| Bordentown                             |       | 7,893            | *      | 498                              |       | 3,176                              |       | 1,011                                                  |          | 713                               |       | 3,972            |       | 4,685          |       | 3,972                                        |       | 1958 |   | 1958 |   | 7 - 40 Years |   |
| Bricktown                              |       | 15,951           | *      | 929                              |       | 2,175                              |       | 9,463                                                  |          | 952                               |       | 11,615           |       | 12,567         |       | 6,848                                        |       | 1968 |   | 1968 |   | 22 -40 Years |   |
| Cherry Hill (4)                        |       | 14,670           | *      | 915                              |       | 3,926                              |       | 4,924                                                  |          | 915                               |       | 8,850            |       | 9,765          |       | 3,071                                        |       | 1964 |   | 1964 |   | 12 - 40 Years |   |
| Delran                                 |       | 6,288            | *      | 756                              |       | 3,184                              |       | 2,116                                                  |          | 756                               |       | 5,300            |       | 6,056          |       | 3,883                                        |       | 1972 |   | 1972 |   | 16 - 40 Years |   |
| Dover                                  |       | 7,190            | *      | 224                              |       | 2,330                              |       | 2,947                                                  |          | 559                               |       | 4,942            |       | 5,501          |       | 3,794                                        |       | 1964 |   | 1964 |   | 16 - 40 Years |   |
| East Brunswick                         |       | 22,273           | *      | 319                              |       | 3,236                              |       | 8,428                                                  |          | 319                               |       | 11,664           |       | 11,983         |       | 7,585                                        |       | 1957 |   | 1957 |   | 8 - 33 Years |   |
| East Brunswick  (former Whse)          |       | 8,129            |   | —                           |       | 4,772                              |       | 4,180                                                  |          | —                            |       | 8,952            |       | 8,952          |       | 5,472                                        |       | 1972 |   | 1972 |   | 18 -40 Years |   |
| East Hanover I                         |       | 26,703           | *      | 376                              |       | 3,063                              |       | 9,950                                                  |          | 476                               |       | 12,913           |       | 13,389         |       | 6,500                                        |       | 1962 |   | 1962 |   | 9 -40 Years |   |
| East Hanover II  (4)                   |       | —           |   | 1,756                            |       | 8,706                              |       | 465                                                    |          | 2,195                             |       | 8,732            |       | 10,927         |       | 1,298                                        |       | 1979 |   | 1998 |   | 40 Years |   |
| Hackensack                             |       | 24,470           | *      | 536                              |       | 3,293                              |       | 7,317                                                  |          | 536                               |       | 10,610           |       | 11,146         |       | 6,769                                        |       | 1963 |   | 1963 |   | 15 - 40 Years |   |
| Jersey City (4)                        |       | 18,733           | *      | 652                              |       | 2,962                              |       | 4,275                                                  |          | 652                               |       | 7,237            |       | 7,889          |       | 1,302                                        |       | 1965 |   | 1965 |   | 11 - 40 Years |   |
| Kearny (4)                             |       | 3,657            | *      | 279                              |       | 4,429                              |       | (208                                                   | )             | 309                               |       | 4,191            |       | 4,500          |       | 1,819                                        |       | 1938 |   | 1959 |   | 23 - 29 Years |   |
| Lawnside                               |       | 10,366           | *      | 851                              |       | 2,222                              |       | 1,419                                                  |          | 851                               |       | 3,641            |       | 4,492          |       | 2,835                                        |       | 1969 |   | 1969 |   | 17 - 40 Years |   |
| Lodi I                                 |       | 9,186            | *      | 245                              |       | 9,339                              |       | 107                                                    |          | 245                               |       | 9,446            |       | 9,691          |       | 1,238                                        |       | 1999 |   | 1975 |   | 40 Years |   |
| Lodi II                                |       | 12,228           |   | 7,606                            |       | 13,124                             |       | —                                                 |          | 7,606                             |       | 13,124           |       | 20,730         |       | 41                                           |       |   |   | 2004 |   | 40 Years |   |
| Manalapan                              |       | 12,260           | *      | 725                              |       | 2,447                              |       | 8,523                                                  |          | 725                               |       | 10,970           |       | 11,695         |       | 5,618                                        |       | 1971 |   | 1971 |   | 14 - 40 Years |   |
| Marlton                                |       | 11,921           | *      | 1,514                            |       | 4,671                              |       | 985                                                    |          | 1,611                             |       | 5,559            |       | 7,170          |       | 4,301                                        |       | 1973 |   | 1973 |   | 16 - 40 Years |   |
| Middletown                             |       | 16,092           | *      | 283                              |       | 1,508                              |       | 4,420                                                  |          | 283                               |       | 5,928            |       | 6,211          |       | 3,702                                        |       | 1963 |   | 1963 |   | 19 - 40 Years |   |
| Montclair                              |       | 1,881            | *      | 66                               |       | 470                                |       | 330                                                    |          | 66                                |       | 800              |       | 866            |       | 594                                          |       | 1972 |   | 1972 |   | 4 - 15 Years |   |
| Morris Plains                          |       | 11,780           | *      | 1,254                            |       | 3,140                              |       | 3,490                                                  |          | 1,104                             |       | 6,780            |       | 7,884          |       | 6,411                                        |       | 1961 |   | 1985 |   | 7 - 19 Years |   |
| North Bergen (4)                       |       | 3,878            | *      | 510                              |       | 3,390                              |       | (922                                                   | )             | 2,308                             |       | 670              |       | 2,978          |       | 230                                          |       | 1993 |   | 1959 |   | 30 Years |   |
| North Plainfield                       |       | 10,649           | *      | 500                              |       | 13,340                             |       | 679                                                    |          | 500                               |       | 14,019           |       | 14,519         |       | 7,167                                        |       | 1955 |   | 1989 |   | 21 - 30 Years |   |
| Paramus (Bergen  Mall)                 |       | —           |   | 28,312                           |       | 125,130                            |       | 3,229                                                  |          | 28,692                            |       | 127,979          |       | 156,671        |       | 3,157                                        |       | 1957 |   | 2003 |   | 5 - 40 Years |   |
| Totowa                                 |       | 28,898           | *      | 1,097                            |       | 5,359                              |       | 11,132                                                 |          | 1,099                             |       | 16,489           |       | 17,588         |       | 8,357                                        |       | 1957/1999 |   | 1957 |   | 19 - 40 Years |   |
| Turnersville                           |       | 3,998            | *      | 900                              |       | 2,132                              |       | 66                                                     |          | 900                               |       | 2,198            |       | 3,098          |       | 1,881                                        |       | 1974 |   | 1974 |   | 23 - 40 Years |   |

 

161

----

 

**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

 
| **COLUMN A**                             | ** ** | **COLUMN B**     |   | **COLUMN C**                     | ** ** | **COLUMN D**                           | ** ** | **COLUMN E**                                           |          | **COLUMN F**                      | ** ** | **COLUMN G**     | ** ** | **COLUMN H**   | ** ** | **COLUMN I**                                 | ** ** |
|------------------------------------------|------------|------------------|--------|----------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------|---------------|-----------------------------------|------------|------------------|------------|----------------|------------|----------------------------------------------|------------|
|                                     |       |             |   |                             |       | **Costs  Capitalized**

**subsequent** |       | **Gross  amount at which  carried at close of period** |          | **Accumulated**

**Depreciation** |       |             |       |           |       | **Life on  which  depreciation   in latest** |       |
|                                     |       |             |   | **Initial  cost to company (1)** |       |                                   |       |                                                   | **Buildings** |                              |       |             |       |           |       |                                         |       | **income** |   |
|                                     |       |             |   | ** **                       |       | **Buildings  and**                     |       | **to**                                                 |          |                              |       | **and**          |       |           |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**                          |       | **Encumbrances** |   | **Land**                         |       | **improvements**                       |       | **acquisition**                                        |          | **Land**                          |       | **improvements** |       | **Total  (2)** |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| Union (4)                                |       | 32,818           | *      | 1,014                            |       | 4,527                                  |       | 4,793                                                  |          | 1,329                             |       | 9,005            |       | 10,334         |       | 3,103                                        |       | 1962 |   | 1962 |   | 6 - 40 Years |   |
| Watchung (4)                             |       | 13,241           | *      | 451                              |       | 2,347                                  |       | 6,866                                                  |          | 4,178                             |       | 5,486            |       | 9,664          |       | 1,852                                        |       | 1994 |   | 1959 |   | 27 - 30 Years |   |
| Woodbridge (4)                           |       | 21,631           | *      | 190                              |       | 3,047                                  |       | 5,405                                                  |          | 220                               |       | 8,422            |       | 8,642          |       | 1,607                                        |       | 1959 |   | 1959 |   | 11 - 40 Years |   |
| Total New Jersey                         |       | 356,784          |   | 52,758                           |       | 241,445                                |       | 105,390                                                |          | 60,099                            |       | 339,494          |       | 399,593        |       | 104,407                                      |       |   |   |   |   |   |   |
|                                     |       |             |   |                             |       |                                   |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| **New York**                             |       |             |   |                             |       |                                   |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| Albany (Menands)                         |       | 6,083            | *      | 460                              |       | 1,677                                  |       | 2,536                                                  |          | 461                               |       | 4,212            |       | 4,673          |       | 2,699                                        |       | 1965 |   | 1965 |   | 22 - 40 Years |   |
| Buffalo (Amherst)                        |       | 6,855            | *      | 402                              |       | 2,019                                  |       | 2,227                                                  |          | 636                               |       | 4,012            |       | 4,648          |       | 3,367                                        |       | 1968 |   | 1968 |   | 13 - 40 Years |   |
| Freeport                                 |       | 14,480           | *      | 1,231                            |       | 3,273                                  |       | 2,846                                                  |          | 1,231                             |       | 6,119            |       | 7,350          |       | 3,787                                        |       | 1981 |   | 1981 |   | 15 - 40 Years |   |
| Inwood                                   |       | —           |   | 12,415                           |       | 19,096                                 |       | —                                                 |          | 12,415                            |       | 19,096           |       | 31,511         |       | 40                                           |       | N/A |   | 2004 |   | 40 Years |   |
| New Hyde Park                            |       | 7,309            | *      | —                           |       | —                                 |       | 4                                                      |          | —                            |       | 4                |       | 4              |       | 3                                            |       | 1970 |   | 1976 |   | 6 - 10 Years |   |
| North Syracuse                           |       | —           |   | —                           |       | —                                 |       | —                                                 |          | —                            |       | —           |       | —         |       | —                                       |       | 1967 |   | 1976 |   | 11 - 12 Years |   |
| Rochester  (Henrietta)                   |       | —           |   | —                           |       | 2,124                                  |       | 1,194                                                  |          | —                            |       | 3,318            |       | 3,318          |       | 2,599                                        |       | 1971 |   | 1971 |   | 15 - 40 Years |   |
| Rochester (4)                            |       | —           |   | 443                              |       | 2,870                                  |       | (928                                                   | )             | 2,172                             |       | 213              |       | 2,385          |       | 213                                          |       | 1966 |   | 1966 |   | 10 - 40 Years |   |
| Valley Stream  (Green Acres)             |       | 152,819          |   | 140,069                          |       | 99,586                                 |       | 8,516                                                  |          | 139,910                           |       | 108,261          |       | 248,171        |       | 19,635                                       |       | 1956 |   | 1997 |   | 39 - 40 Years |   |
| 715 Lexington  Avenue                    |       | —           |   | —                           |       | 11,574                                 |       | 6,580                                                  |          | —                            |       | 18,154           |       | 18,154         |       | 534                                          |       | 1923 |   | 2001 |   | 40 Years |   |
| 14th Street and  Union Square, Manhattan |       | —           |   | 12,566                           |       | 4,044                                  |       | 62,006                                                 |          | 24,080                            |       | 54,536           |       | 78,616         |       | 628                                          |       | 1965 |   | 1993 |   | 40 Years |   |
| 424 6th Avenue                           |       | —           |   | 5,900                            |       | 5,675                                  |       | 239                                                    |          | 5,900                             |       | 5,914            |       | 11,814         |       | 387                                          |       | 1983 |   | 2002 |   | 40 Years |   |
| Riese                                    |       | —           |   | 19,135                           |       | 7,294                                  |       | 19,338                                                 |          | 25,232                            |       | 20,535           |       | 45,767         |       | 1,418                                        |       | 1923-1987 |   | 1997 |   | 39 Years |   |
| Staten Island                            |       | 20,923           |   | 11,446                           |       | 21,261                                 |       | —                                                 |          | 11,446                            |       | 21,261           |       | 32,707         |       | 489                                          |       | N/A |   | 2004 |   | 40 Years |   |
| 25W. 14th  Street                        |       | —           |   | 29,169                           |       | 17,878                                 |       | —                                                 |          | 29,169                            |       | 17,878           |       | 47,047         |       | 335                                          |       | N/A |   | 2004 |   | 40 Years |   |
| 99-01 Queens Blvd                        |       | —           |   | 7,839                            |       | 20,047                                 |       | 9                                                      |          | 7,839                             |       | 20,056           |       | 27,895         |       | 167                                          |       | N/A |   | 2004 |   | 40 Years |   |
| 386 West Broadway                        |       | 5,084            |   | 2,331                            |       | 5,471                                  |       | —                                                 |          | 2,331                             |       | 5,471            |       | 7,802          |       | 3                                            |       | N/A |   | 2004 |   | 40 Years |   |
| 387 West Broadway                        |       | —           |   | 5,843                            |       | 7,642                                  |       | —                                                 |          | 5,843                             |       | 7,642            |       | 13,485         |       | 16                                           |       | N/A |   | 2004 |   | 40 Years |   |
| 1135 Third Avenue                        |       | —           |   | 7,844                            |       | 7,844                                  |       | —                                                 |          | 7,844                             |       | 7,844            |       | 15,688         |       | 1,373                                        |       | N/A |   | 1997 |   | 39 Years |   |
| Total New York                           |       | 213,553          |   | 257,093                          |       | 239,375                                |       | 104,567                                                |          | 276,509                           |       | 324,526          |       | 601,035        |       | 37,693                                       |       |   |   |   |   |   |   |
|                                     |       |             |   |                             |       |                                   |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| **Pennsylvania**                         |       |             |   |                             |       |                                   |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| Allentown                                |       | 22,741           | *      | 70                               |       | 3,446                                  |       | 11,758                                                 |          | 334                               |       | 14,940           |       | 15,274         |       | 7,733                                        |       | 1957 |   | 1957 |   | 20 - 42 Years |   |
| Bensalem (4)                             |       | 6,284            | *      | 1,198                            |       | 3,717                                  |       | 3,217                                                  |          | 2,727                             |       | 5,405            |       | 8,132          |       | 1,465                                        |       | 1972/1999 |   | 1972 |   | 40 Years |   |
| Bethlehem                                |       | 3,977            | *      | 278                              |       | 1,806                                  |       | 3,873                                                  |          | 278                               |       | 5,679            |       | 5,957          |       | 5,070                                        |       | 1966 |   | 1966 |   | 9 - 40 Years |   |
| Broomall                                 |       | 9,563            | *      | 734                              |       | 1,675                                  |       | 1,332                                                  |          | 850                               |       | 2,891            |       | 3,741          |       | 2,582                                        |       | 1966 |   | 1966 |   | 9 - 40 Years |   |
| Glenolden                                |       | 7,172            | *      | 850                              |       | 1,295                                  |       | 997                                                    |          | 850                               |       | 2,292            |       | 3,142          |       | 1,390                                        |       | 1975 |   | 1975 |   | 18 - 40 Years |   |
| Lancaster (4)                            |       | —           |   | 606                              |       | 2,312                                  |       | 1,113                                                  |          | 3,043                             |       | 988              |       | 4,031          |       | 370                                          |       | 1966 |   | 1966 |   | 12 - 40 Years |   |
| Levittown                                |       | 3,213            | *      | 193                              |       | 1,231                                  |       | 131                                                    |          | 183                               |       | 1,372            |       | 1,555          |       | 1,363                                        |       | 1964 |   | 1964 |   | 7 - 40 Years |   |
| 10th and Market  Streets, Philadelphia   |       | 8,760            | *      | 933                              |       | 3,230                                  |       | 12,920                                                 |          | 933                               |       | 16,150           |       | 17,083         |       | 2,733                                        |       | 1977 |   | 1994 |   | 27 - 30 Years |   |
| Upper Moreland                           |       | 6,799            | *      | 683                              |       | 2,497                                  |       | 271                                                    |          | 683                               |       | 2,768            |       | 3,451          |       | 2,272                                        |       | 1974 |   | 1974 |   | 15 - 40 Years |   |
| York                                     |       | 4,021            | *      | 421                              |       | 1,700                                  |       | 1,718                                                  |          | 409                               |       | 3,430            |       | 3,839          |       | 2,231                                        |       | 1970 |   | 1970 |   | 15 - 40 Years |   |
| Total  Pennsylvania                      |       | 72,530           |   | 5,966                            |       | 22,909                                 |       | 37,330                                                 |          | 10,290                            |       | 55,915           |       | 66,205         |       | 27,209                                       |       |   |   |   |   |   |   |
|                                     |       |             |   |                             |       |                                   |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |
| **Maryland**                             |       |             |   |                             |       |                                   |       |                                                   |          |                              |       |             |       |           |       |                                         |       |   |   |   |   |   |   |

 

162

----

 

**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

 
| **COLUMN A**                | ** ** | **COLUMN B**     |   | **COLUMN C**                     | ** ** | **COLUMN D**           | ** ** | **COLUMN E**                                           |   | **COLUMN F**    | ** ** | **COLUMN G**     | ** ** | **COLUMN H**     | ** ** | **COLUMN I**                                 | ** ** |
|-----------------------------|------------|------------------|--------|----------------------------------|------------|------------------------|------------|--------------------------------------------------------|--------|-----------------|------------|------------------|------------|------------------|------------|----------------------------------------------|------------|
|                        |       |             |   |                             |       | **Costs  Capitalized** |       | **Gross  amount at which  carried at close of period** |   | **Accumulated** |       |             |       |             |       | **Life on  which  depreciation   in latest** |       |
|                        |       |             |   | **Initial  cost to company (1)** |       | **subsequent**         |       |                                                   |   | **Buildings**   |       |             |       | **Depreciation** |       |                                         |       |   |   | **income** |   |
|                        |       |             |   | ** **                       |       | **Buildings  and**     |       | **to**                                                 |   |            |       | **and**          |       |             |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**             |       | **Encumbrances** |   | **Land**                         |       | **improvements**       |       | **acquisition**                                        |   | **Land**        |       | **improvements** |       | **Total  (2)**   |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| Baltimore  (Towson)         |       | 11,144           | *      | 581                              |       | 2,756                  |       | 666                                                    |   | 581             |       | 3,422            |       | 4,003            |       | 2,800                                        |       | 1968 |   | 1968 |   | 13 - 40 Years |   |
| Glen Burnie                 |       | 5,735            | *      | 462                              |       | 1,741                  |       | 1,422                                                  |   | 462             |       | 3,163            |       | 3,625            |       | 2,199                                        |       | 1958 |   | 1958 |   | 16 - 33 Years |   |
| Total Maryland              |       | 16,879           |   | 1,043                            |       | 4,497                  |       | 2,088                                                  |   | 1,043           |       | 6,585            |       | 7,628            |       | 4,999                                        |       |   |   |   |   |   |   |
|                        |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **California**              |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Anaheim                     |       | —           |   | 1,093                            |       | 1,093                  |       | —                                                 |   | 1,093           |       | 1,093            |       | 2,186            |       | 11                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Barstow                     |       | —           |   | 849                              |       | 1,356                  |       | —                                                 |   | 849             |       | 1,356            |       | 2,205            |       | 14                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Beaumont                    |       | —           |   | 206                              |       | 1,321                  |       | —                                                 |   | 206             |       | 1,321            |       | 1,527            |       | 14                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Calimesa                    |       | —           |   | 504                              |       | 1,463                  |       | —                                                 |   | 504             |       | 1,463            |       | 1,967            |       | 15                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Colton                      |       | —           |   | 1,239                            |       | 954                    |       | —                                                 |   | 1,239           |       | 954              |       | 2,193            |       | 10                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Colton                      |       | —           |   | 1,158                            |       | 332                    |       | —                                                 |   | 1,158           |       | 332              |       | 1,490            |       | 3                                            |       | N/A |   | 2004 |   | 40 Years |   |
| Corona                      |       | —           |   | —                           |       | 3,073                  |       | —                                                 |   | —          |       | 3,073            |       | 3,073            |       | 32                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Costa Mesa                  |       | —           |   | 1,399                            |       | 635                    |       | —                                                 |   | 1,399           |       | 635              |       | 2,034            |       | 7                                            |       | N/A |   | 2004 |   | 40 Years |   |
| Costa Mesa                  |       | —           |   | 2,239                            |       | 308                    |       | —                                                 |   | 2,239           |       | 308              |       | 2,547            |       | 3                                            |       | N/A |   | 2004 |   | 40 Years |   |
| Desert Hot  Springs         |       | —           |   | 197                              |       | 1,355                  |       | —                                                 |   | 197             |       | 1,355            |       | 1,552            |       | 14                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Fontana                     |       | —           |   | 518                              |       | 1,100                  |       | —                                                 |   | 518             |       | 1,100            |       | 1,618            |       | 11                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Garden Grove                |       | —           |   | 795                              |       | 1,254                  |       | —                                                 |   | 795             |       | 1,254            |       | 2,049            |       | 13                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Mojave                      |       | —           |   | —                           |       | 2,250                  |       | —                                                 |   | —          |       | 2,250            |       | 2,250            |       | 23                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Moreno Valley               |       | —           |   | 639                              |       | 1,156                  |       | —                                                 |   | 639             |       | 1,156            |       | 1,795            |       | 12                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Ontario                     |       | —           |   | 713                              |       | 1,522                  |       | —                                                 |   | 713             |       | 1,522            |       | 2,235            |       | 16                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Orange                      |       | —           |   | 1,487                            |       | 1,746                  |       | —                                                 |   | 1,487           |       | 1,746            |       | 3,233            |       | 18                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Rancho Cucamonga            |       | —           |   | 1,052                            |       | 1,051                  |       | —                                                 |   | 1,052           |       | 1,051            |       | 2,103            |       | 11                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Rialto                      |       | —           |   | 434                              |       | 1,173                  |       | —                                                 |   | 434             |       | 1,173            |       | 1,607            |       | 12                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Riverside                   |       | —           |   | 209                              |       | 704                    |       | —                                                 |   | 209             |       | 704              |       | 913              |       | 7                                            |       | N/A |   | 2004 |   | 40 Years |   |
| Riverside                   |       | —           |   | 251                              |       | 783                    |       | —                                                 |   | 251             |       | 783              |       | 1,034            |       | 8                                            |       | N/A |   | 2004 |   | 40 Years |   |
| San Bernadino               |       | —           |   | 1,598                            |       | 1,119                  |       | —                                                 |   | 1,598           |       | 1,119            |       | 2,717            |       | 12                                           |       | N/A |   | 2004 |   | 40 Years |   |
| San Bernadino               |       | —           |   | 1,651                            |       | 1,810                  |       | —                                                 |   | 1,651           |       | 1,810            |       | 3,461            |       | 19                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Santa Ana                   |       | —           |   | 1,565                            |       | 377                    |       | —                                                 |   | 1,565           |       | 377              |       | 1,942            |       | 4                                            |       | N/A |   | 2004 |   | 40 Years |   |
| Westminister                |       | —           |   | 1,673                            |       | 1,192                  |       | —                                                 |   | 1,673           |       | 1,192            |       | 2,865            |       | 12                                           |       | N/A |   | 2004 |   | 40 Years |   |
| Yucaipa                     |       | —           |   | 663                              |       | 426                    |       | —                                                 |   | 663             |       | 426              |       | 1,089            |       | 4                                            |       | N/A |   | 2004 |   | 40 Years |   |
| Total California            |       | —           |   | 22,132                           |       | 29,553                 |       | —                                                 |   | 22,132          |       | 29,553           |       | 51,685           |       | 305                                          |       |   |   |   |   |   |   |
|                        |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Connecticut**             |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Newington (4)               |       | 6,405            | *      | 502                              |       | 1,581                  |       | 1,925                                                  |   | 2,421           |       | 1,587            |       | 4,008            |       | 320                                          |       | 1965 |   | 1965 |   | 9 - 40 Years |   |
| Waterbury                   |       | 6,038            | *      | —                           |       | 2,103                  |       | 8,188                                                  |   | 667             |       | 9,624            |       | 10,291           |       | 2,685                                        |       | 1969 |   | 1969 |   | 21 - 40 Years |   |
| Total Connecticut           |       | 12,443           |   | 502                              |       | 3,684                  |       | 10,113                                                 |   | 3,088           |       | 11,211           |       | 14,299           |       | 3,005                                        |       |   |   |   |   |   |   |
|                        |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Massachusetts**           |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Chicopee (4)                |       | —           |   | 510                              |       | 2,031                  |       | (936                                                   | )      | 895             |       | 710              |       | 1,605            |       | 710                                          |       | 1969 |   | 1969 |   | 13 - 40 Years |   |
| Springfield (4)             |       | 3,057            | *      | 505                              |       | 1,657                  |       | 895                                                    |   | 2,586           |       | 471              |       | 3,057            |       | 140                                          |       | 1993 |   | 1966 |   | 28 - 30 Years |   |
| Total  Massachusetts        |       | 3,057            |   | 1,015                            |       | 3,688                  |       | (41                                                    | )      | 3,481           |       | 1,181            |       | 4,662            |       | 850                                          |       |   |   |   |   |   |   |
|                        |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Puerto  Rico (San Juan)** |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |

 

163

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**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

 
| **COLUMN A**                       | ** ** | **COLUMN B**     |   | **COLUMN C**                     | ** ** | **COLUMN D**           | ** ** | **COLUMN E**                                           |   | **COLUMN F**    | ** ** | **COLUMN G**     | ** ** | **COLUMN H**     | ** ** | **COLUMN I**                                 | ** ** |
|------------------------------------|------------|------------------|--------|----------------------------------|------------|------------------------|------------|--------------------------------------------------------|--------|-----------------|------------|------------------|------------|------------------|------------|----------------------------------------------|------------|
|                               |       |             |   |                             |       | **Costs  Capitalized** |       | **Gross  amount at which  carried at close of period** |   | **Accumulated** |       |             |       |             |       | **Life on  which  depreciation   in latest** |       |
|                               |       |             |   | **Initial  cost to company (1)** |       | **subsequent**         |       |                                                   |   | **Buildings**   |       |             |       | **Depreciation** |       |                                         |       |   |   | **income** |   |
|                               |       |             |   | ** **                       |       | **Buildings  and**     |       | **to**                                                 |   |            |       | **and**          |       |             |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**                    |       | **Encumbrances** |   | **Land**                         |       | **improvements**       |       | **acquisition**                                        |   | **Land**        |       | **improvements** |       | **Total  (2)**   |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| Las Catalinas                      |       | 65,696           |   | 15,280                           |       | 71,754                 |       | (203                                                   | )      | 15,280          |       | 71,551           |       | 86,831           |       | 9,891                                        |       | 1996 |   | 2002 |   | 15 - 39 Years |   |
| Montehiedra                        |       | 57,941           |   | 9,182                            |       | 66,701                 |       | 2,304                                                  |   | 9,182           |       | 69,005           |       | 78,187           |       | 13,216                                       |       | 1996 |   | 1997 |   | 40 Years |   |
| Total Puerto Rico                  |       | 123,637          |   | 24,462                           |       | 138,455                |       | 2,101                                                  |   | 24,462          |       | 140,556          |       | 165,018          |       | 23,107                                       |       |   |   |   |   |   |   |
|                               |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Total Retail  Properties           |       | 798,883          |   | 364,971                          |       | 683,606                |       | 261,548                                                |   | 401,104         |       | 909,021          |       | 1,310,125        |       | 201,575                                      |       |   |   |   |   |   |   |
| ** **                         |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Merchandise Mart  Properties       |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Illinois**                       |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Merchandise Mart,  Chicago         |       | —           |   | 64,528                           |       | 319,146                |       | 96,626                                                 |   | 64,535          |       | 415,765          |       | 480,300          |       | 62,951                                       |       | 1930 |   | 1998 |   | 40 Years |   |
| 350 West Mart  Center, Chicago     |       | —           |   | 14,238                           |       | 67,008                 |       | 68,637                                                 |   | 14,246          |       | 135,637          |       | 149,883          |       | 19,841                                       |       | 1977 |   | 1998 |   | 40 Years |   |
| 33 North  Dearborn, Chicago        |       | —           |   | 6,624                            |       | 30,680                 |       | 5,448                                                  |   | 6,624           |       | 36,128           |       | 42,752           |       | 4,201                                        |       |   |   | 2000 |   | 40 Years |   |
| 527W. Kinzie, Chicago              |       | —           |   | 5,166                            |       | —                 |       | —                                                 |   | 5,166           |       | —           |       | 5,166            |       | —                                       |       |   |   |   |   |   |   |
|                               |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Washington  D.C.**               |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Washington Office  Center          |       | —           |   | 10,719                           |       | 69,658                 |       | 5,164                                                  |   | 10,719          |       | 74,822           |       | 85,541           |       | 12,934                                       |       | 1990 |   | 1998 |   | 40 Years |   |
| Washington Design  Center          |       | 47,496           |   | 12,274                           |       | 40,662                 |       | 10,210                                                 |   | 12,274          |       | 50,872           |       | 63,146           |       | 9,859                                        |       | 1919 |   | 1998 |   | 40 Years |   |
| Other                              |       | —           |   | 4,009                            |       | 6,273                  |       | 49                                                     |   | 4,009           |       | 6,322            |       | 10,331           |       | 1,064                                        |       |   |   | 1998 |   | 40 Years |   |
|                               |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **North  Carolina**                |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Market Square  Complex, High Point |       | 107,940          |   | 13,038                           |       | 102,239                |       | 74,606                                                 |   | 15,047          |       | 174,836          |       | 189,883          |       | 23,305                                       |       | 1902 - 1989 |   | 1998 |   | 40 Years |   |
|                               |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **California**                     |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| L.A. Mart,  Los Angeles            |       | —           |   | 10,141                           |       | 43,422                 |       | 16,630                                                 |   | 10,141          |       | 60,054           |       | 70,195           |       | 6,849                                        |       |   |   | 2000 |   | 40 Years |   |
|                               |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Total Merchandise  Mart            |       | 155,436          |   | 140,737                          |       | 679,088                |       | 277,370                                                |   | 142,761         |       | 954,436          |       | 1,097,197        |       | 141,004                                      |       |   |   |   |   |   |   |
|                               |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Temperature  Controlled Logistics: |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Alabama**                        |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Birmingham                         |       | 2,705            |   | 861                              |       | 4,376                  |       | 294                                                    |   | 874             |       | 4,657            |       | 5,531            |       | 1,029                                        |       |   |   | 1997 |   |   |   |
| Montgomery                         |       | 3,413            |   | 13                               |       | 5,814                  |       | 5,316                                                  |   | 31              |       | 11,112           |       | 11,143           |       | 3,283                                        |       |   |   | 1997 |   |   |   |
| Gadsden                            |       | 10,241           |   | 11                               |       | 306                    |       | 57                                                     |   | 11              |       | 363              |       | 374              |       | 92                                           |       |   |   | 1997 |   |   |   |
| Albertville                        |       | 5,147            |   | 540                              |       | 6,106                  |       | 195                                                    |   | 540             |       | 6,301            |       | 6,841            |       | 1,218                                        |       |   |   | 1997 |   |   |   |
| Total Alabama                      |       | 21,506           |   | 1,425                            |       | 16,602                 |       | 5,862                                                  |   | 1,456           |       | 22,433           |       | 23,889           |       | 5,622                                        |       |   |   |   |   |   |   |
|                               |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Arizona**                        |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Phoenix                            |       | 3,738            |   | 590                              |       | 12,087                 |       | 275                                                    |   | 590             |       | 12,362           |       | 12,952           |       | 4,160                                        |       |   |   | 1998 |   |   |   |
| Total Arizona                      |       | 3,738            |   | 590                              |       | 12,087                 |       | 275                                                    |   | 590             |       | 12,362           |       | 12,952           |       | 4,160                                        |       |   |   |   |   |   |   |

 

164

----

 

**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

 
| **COLUMN A**                          | ** ** | **COLUMN B**     |   | **COLUMN C**                     | ** ** | **COLUMN D**           | ** ** | **COLUMN E**                                           |   | **COLUMN F**    | ** ** | **COLUMN G**     | ** ** | **COLUMN H**     | ** ** | **COLUMN I**                                 | ** ** |
|---------------------------------------|------------|------------------|--------|----------------------------------|------------|------------------------|------------|--------------------------------------------------------|--------|-----------------|------------|------------------|------------|------------------|------------|----------------------------------------------|------------|
|                                  |       |             |   |                             |       | **Costs  Capitalized** |       | **Gross  amount at which  carried at close of period** |   | **Accumulated** |       |             |       |             |       | **Life on  which  depreciation   in latest** |       |
|                                  |       |             |   | **Initial  cost to company (1)** |       | **subsequent**         |       |                                                   |   | **Buildings**   |       |             |       | **Depreciation** |       |                                         |       |   |   | **income** |   |
|                                  |       |             |   | ** **                       |       | **Buildings  and**     |       | **to**                                                 |   |            |       | **and**          |       |             |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**                       |       | **Encumbrances** |   | **Land**                         |       | **improvements**       |       | **acquisition**                                        |   | **Land**        |       | **improvements** |       | **Total  (2)**   |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| **Arkansas**                          |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Fort Smith                            |       | 1,786            |   | 255                              |       | 3,957                  |       | 252                                                    |   | 255             |       | 4,209            |       | 4,464            |       | 786                                          |       |   |   | 1997 |   |   |   |
| West Memphis                          |       | 10,031           |   | 1,278                            |       | 13,434                 |       | 695                                                    |   | 1,278           |       | 14,129           |       | 15,407           |       | 2,840                                        |       |   |   | 1997 |   |   |   |
| Texarkana                             |       | 9,541            |   | 537                              |       | 7,922                  |       | 179                                                    |   | 568             |       | 8,070            |       | 8,638            |       | 3,479                                        |       |   |   | 1998 |   |   |   |
| Russellville                          |       | 8,115            |   | 906                              |       | 13,754                 |       | 72                                                     |   | 907             |       | 13,825           |       | 14,732           |       | 3,553                                        |       |   |   | 1998 |   |   |   |
| Russellville                          |       | 13,967           |   | 1,522                            |       | 14,552                 |       | 21                                                     |   | 1,522           |       | 14,573           |       | 16,095           |       | 4,213                                        |       |   |   | 1998 |   |   |   |
| Springdale                            |       | 8,803            |   | 864                              |       | 16,312                 |       | 362                                                    |   | 891             |       | 16,647           |       | 17,538           |       | 3,801                                        |       |   |   | 1998 |   |   |   |
| Total Arkansas                        |       | 52,243           |   | 5,362                            |       | 69,931                 |       | 1,581                                                  |   | 5,421           |       | 71,453           |       | 76,874           |       | 18,672                                       |       |   |   |   |   |   |   |
|                                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **California**                        |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Ontario                               |       | 7,082            |   | 1,006                            |       | 20,683                 |       | 5,251                                                  |   | 1,006           |       | 25,935           |       | 26,941           |       | 4,831                                        |       |   |   | 1997 |   |   |   |
| Fullerton                             |       | —           |   | 94                               |       | 565                    |       | 508                                                    |   | 144             |       | 1,023            |       | 1,167            |       | 52                                           |       |   |   | 1997 |   |   |   |
| Pajaro                                |       | —           |   | —                           |       | —                 |       | —                                                 |   | —          |       | —           |       | —           |       | —                                       |       |   |   | 1997 |   |   |   |
| Turlock                               |       | 6,144            |   | 353                              |       | 9,906                  |       | 419                                                    |   | 364             |       | 10,314           |       | 10,678           |       | 2,015                                        |       |   |   | 1997 |   |   |   |
| Turlock                               |       | 9,127            |   | 662                              |       | 16,496                 |       | 74                                                     |   | 662             |       | 16,570           |       | 17,232           |       | 3,860                                        |       |   |   | 1997 |   |   |   |
| Watsonville                           |       | 4,564            |   | 1,097                            |       | 7,415                  |       | 124                                                    |   | 1,097           |       | 7,539            |       | 8,636            |       | 1,749                                        |       |   |   | 1997 |   |   |   |
| Ontario                               |       | 3,661            |   | —                           |       | —                 |       | —                                                 |   | —          |       | —           |       | —           |       | —                                       |       |   |   |   |   |   |   |
| Total California                      |       | 30,578           |   | 3,212                            |       | 55,065                 |       | 6,376                                                  |   | 3,273           |       | 61,381           |       | 64,654           |       | 12,507                                       |       |   |   |   |   |   |   |
|                                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Colorado**                          |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Denver                                |       | 3,110            |   | 541                              |       | 6,164                  |       | 1,536                                                  |   | 541             |       | 7,700            |       | 8,241            |       | 2,414                                        |       |   |   | 1997 |   |   |   |
| Total Colorado                        |       | 3,110            |   | 541                              |       | 6,164                  |       | 1,536                                                  |   | 541             |       | 7,700            |       | 8,241            |       | 2,414                                        |       |   |   |   |   |   |   |
|                                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Florida**                           |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Tampa                                 |       | 225              |   | 423                              |       | 369                    |       | 17                                                     |   | 423             |       | 386              |       | 809              |       | 442                                          |       |   |   | 1997 |   |   |   |
| Tampa                                 |       | 6,762            |   | 283                              |       | 2,212                  |       | 1,353                                                  |   | 283             |       | 3,565            |       | 3,848            |       | 868                                          |       |   |   | 1997 |   |   |   |
| Tampa                                 |       | —           |   | 32                               |       | 5,612                  |       | 361                                                    |   | 32              |       | 5,973            |       | 6,005            |       | 1,660                                        |       |   |   | 1997 |   |   |   |
| Plant City                            |       | 1,204            |   | 108                              |       | 7,332                  |       | 707                                                    |   | 108             |       | 8,039            |       | 8,147            |       | 1,860                                        |       |   |   | 1997 |   |   |   |
| Bartow                                |       | —           |   | 9                                |       | 267                    |       | 117                                                    |   | 9               |       | 384              |       | 393              |       | 110                                          |       |   |   | 1997 |   |   |   |
| Total Florida                         |       | 8,191            |   | 855                              |       | 15,792                 |       | 2,555                                                  |   | 855             |       | 18,347           |       | 19,202           |       | 4,940                                        |       |   |   |   |   |   |   |
|                                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Georgia**                           |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Atlanta                               |       | 17,857           |   | 4,442                            |       | 18,373                 |       | 1,218                                                  |   | 4,506           |       | 19,527           |       | 24,033           |       | 4,379                                        |       |   |   | 1997 |   |   |   |
| Atlanta                               |       | 29,009           |   | 3,490                            |       | 38,488                 |       | 1,082                                                  |   | 3,500           |       | 39,560           |       | 43,060           |       | 7,687                                        |       |   |   | 1997 |   |   |   |
| Augusta                               |       | 2,363            |   | 260                              |       | 3,307                  |       | 1,129                                                  |   | 260             |       | 4,436            |       | 4,696            |       | 1,113                                        |       |   |   | 1997 |   |   |   |
| Atlanta                               |       | 16,967           |   | —                           |       | —                 |       | 10,195                                                 |   | 1,227           |       | 8,968            |       | 10,195           |       | 872                                          |       | 2001 |   |   |   |   |   |
| Atlanta                               |       | 3,256            |   | 700                              |       | 3,754                  |       | 114                                                    |   | 711             |       | 3,857            |       | 4,568            |       | 809                                          |       |   |   | 1997 |   |   |   |
| Montezuma                             |       | 5,619            |   | 66                               |       | 6,079                  |       | 688                                                    |   | 66              |       | 6,767            |       | 6,833            |       | 1,276                                        |       |   |   | 1997 |   |   |   |
| Atlanta                               |       | 5,366            |   | 2,201                            |       | 6,767                  |       | 7,777                                                  |   | 2,201           |       | 14,544           |       | 16,745           |       | 3,527                                        |       |   |   | 1997 |   |   |   |
| Atlanta –  Corporate Office |       | —           |   | —                           |       | —                 |       | 847                                                    |   | —          |       | 847              |       | 847              |       | 216                                          |       |   |   | 1997 |   |   |   |
| Thomasville                           |       | 1,967            |   | 763                              |       | 21,504                 |       | 47                                                     |   | 810             |       | 21,504           |       | 22,314           |       | 3,909                                        |       |   |   | 1998 |   |   |   |
| Total Georgia                         |       | 82,404           |   | 11,922                           |       | 98,272                 |       | 23,097                                                 |   | 13,281          |       | 120,010          |       | 133,291          |       | 23,788                                       |       |   |   |   |   |   |   |

 

165

----

 

**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

 
| **COLUMN A**         | ** ** | **COLUMN B**     |   | **COLUMN C**                     | ** ** | **COLUMN D**           | ** ** | **COLUMN E**                                           |   | **COLUMN F**    | ** ** | **COLUMN G**     | ** ** | **COLUMN H**     | ** ** | **COLUMN I**                                 | ** ** |
|----------------------|------------|------------------|--------|----------------------------------|------------|------------------------|------------|--------------------------------------------------------|--------|-----------------|------------|------------------|------------|------------------|------------|----------------------------------------------|------------|
|                 |       |             |   |                             |       | **Costs  Capitalized** |       | **Gross  amount at which  carried at close of period** |   | **Accumulated** |       |             |       |             |       | **Life on  which  depreciation   in latest** |       |
|                 |       |             |   | **Initial  cost to company (1)** |       | **subsequent**         |       |                                                   |   | **Buildings**   |       |             |       | **Depreciation** |       |                                         |       |   |   | **income** |   |
|                 |       |             |   | ** **                       |       | **Buildings  and**     |       | **to**                                                 |   |            |       | **and**          |       |             |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**      |       | **Encumbrances** |   | **Land**                         |       | **improvements**       |       | **acquisition**                                        |   | **Land**        |       | **improvements** |       | **Total  (2)**   |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| **Idaho**            |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Burley               |       | 17,602           |   | 409                              |       | 36,098                 |       | 640                                                    |   | 472             |       | 36,675           |       | 37,147           |       | 8,626                                        |       |   |   | 1997 |   |   |   |
| Nampa                |       | 10,230           |   | 1,986                            |       | 15,675                 |       | 105                                                    |   | 2,016           |       | 15,750           |       | 17,766           |       | 2,869                                        |       |   |   | 1997 |   |   |   |
| Total Idaho          |       | 27,832           |   | 2,395                            |       | 51,773                 |       | 745                                                    |   | 2,488           |       | 52,425           |       | 54,913           |       | 11,495                                       |       |   |   |   |   |   |   |
|                 |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Illinois**         |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Rochelle             |       | 12,337           |   | 2,449                            |       | 19,315                 |       | 2,200                                                  |   | 2,449           |       | 21,515           |       | 23,964           |       | 5,685                                        |       |   |   | 1997 |   |   |   |
| East Dubuque         |       | 10,918           |   | 506                              |       | 8,792                  |       | 8                                                      |   | 506             |       | 8,800            |       | 9,306            |       | 3,254                                        |       |   |   | 1998 |   |   |   |
| Total Illinois       |       | 23,255           |   | 2,955                            |       | 28,107                 |       | 2,208                                                  |   | 2,955           |       | 30,315           |       | 33,270           |       | 8,939                                        |       |   |   |   |   |   |   |
|                 |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Indiana**          |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Indianapolis         |       | 20,218           |   | 2,021                            |       | 26,569                 |       | 2,704                                                  |   | 2,071           |       | 29,223           |       | 31,294           |       | 5,730                                        |       |   |   | 1997 |   |   |   |
| Total Indiana        |       | 20,218           |   | 2,021                            |       | 26,569                 |       | 2,704                                                  |   | 2,071           |       | 29,223           |       | 31,294           |       | 5,730                                        |       |   |   |   |   |   |   |
|                 |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Iowa**             |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Fort Dodge           |       | 2,382            |   | 1,488                            |       | 3,205                  |       | 488                                                    |   | 1,619           |       | 3,562            |       | 5,181            |       | 1,995                                        |       |   |   | 1997 |   |   |   |
| Bettendorf           |       | 7,222            |   | 1,275                            |       | 12,203                 |       | 1,558                                                  |   | 1,405           |       | 13,631           |       | 15,036           |       | 2,875                                        |       |   |   | 1997 |   |   |   |
| Total Iowa           |       | 9,604            |   | 2,763                            |       | 15,408                 |       | 2,046                                                  |   | 3,024           |       | 17,193           |       | 20,217           |       | 4,870                                        |       |   |   |   |   |   |   |
|                 |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Kansas**           |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Wichita              |       | 4,359            |   | 423                              |       | 5,216                  |       | 894                                                    |   | 802             |       | 5,731            |       | 6,533            |       | 1,124                                        |       |   |   | 1997 |   |   |   |
| Garden City          |       | 5,213            |   | 159                              |       | 15,740                 |       | 148                                                    |   | 227             |       | 15,820           |       | 16,047           |       | 2,828                                        |       |   |   | 1998 |   |   |   |
| Total Kansas         |       | 9,572            |   | 582                              |       | 20,956                 |       | 1,042                                                  |   | 1,029           |       | 21,551           |       | 22,580           |       | 3,952                                        |       |   |   |   |   |   |   |
|                 |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Kentucky**         |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Sebree               |       | 4,967            |   | 42                               |       | 10,401                 |       | 109                                                    |   | 42              |       | 10,510           |       | 10,552           |       | 1,424                                        |       |   |   | 1998 |   |   |   |
| Total Kentucky       |       | 4,967            |   | 42                               |       | 10,401                 |       | 109                                                    |   | 42              |       | 10,510           |       | 10,552           |       | 1,424                                        |       |   |   |   |   |   |   |
|                 |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Maine**            |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Portland             |       | 2,941            |   | 1                                |       | 4,812                  |       | 337                                                    |   | 2               |       | 5,148            |       | 5,150            |       | 1,207                                        |       |   |   | 1997 |   |   |   |
| Total Maine          |       | 2,941            |   | 1                                |       | 4,812                  |       | 337                                                    |   | 2               |       | 5,148            |       | 5,150            |       | 1,207                                        |       |   |   |   |   |   |   |
|                 |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Massachusetts**    |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Gloucester           |       | 1,154            |   | 765                              |       | 1,821                  |       | —                                                 |   | 765             |       | 1,821            |       | 2,586            |       | 550                                          |       |   |   | 1997 |   |   |   |
| Gloucester           |       | 4,162            |   | 2,274                            |       | 8,327                  |       | 593                                                    |   | 2,274           |       | 8,920            |       | 11,194           |       | 3,863                                        |       |   |   | 1997 |   |   |   |
| Gloucester           |       | 6,118            |   | 1,629                            |       | 10,541                 |       | 247                                                    |   | 1,629           |       | 10,788           |       | 12,417           |       | 2,527                                        |       |   |   | 1997 |   |   |   |
| Gloucester           |       | 7,172            |   | 1,826                            |       | 12,271                 |       | 475                                                    |   | 1,826           |       | 12,746           |       | 14,572           |       | 3,285                                        |       |   |   | 1997 |   |   |   |
| Boston               |       | 3,711            |   | 1,464                            |       | 7,770                  |       | 374                                                    |   | 1,529           |       | 8,079            |       | 9,608            |       | 2,932                                        |       |   |   | 1997 |   |   |   |
| Total  Massachusetts |       | 22,317           |   | 7,958                            |       | 40,730                 |       | 1,689                                                  |   | 8,023           |       | 42,354           |       | 50,377           |       | 13,157                                       |       |   |   |   |   |   |   |
|                 |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Missouri**         |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Marshall             |       | 7,983            |   | 580                              |       | 9,839                  |       | 288                                                    |   | 588             |       | 10,119           |       | 10,707           |       | 2,054                                        |       |   |   | 1997 |   |   |   |
| Carthage             |       | 60,640           |   | 1,417                            |       | 68,698                 |       | 18,450                                                 |   | 1,672           |       | 86,893           |       | 88,565           |       | 20,306                                       |       |   |   | 1998 |   |   |   |

 

166

----

 

**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

 
| **COLUMN A**          | ** ** | **COLUMN B**     |   | **COLUMN C**                     | ** ** | **COLUMN D**           | ** ** | **COLUMN E**                                           |   | **COLUMN F**    | ** ** | **COLUMN G**     | ** ** | **COLUMN H**     | ** ** | **COLUMN I**                                 | ** ** |
|-----------------------|------------|------------------|--------|----------------------------------|------------|------------------------|------------|--------------------------------------------------------|--------|-----------------|------------|------------------|------------|------------------|------------|----------------------------------------------|------------|
|                  |       |             |   |                             |       | **Costs  Capitalized** |       | **Gross  amount at which  carried at close of period** |   | **Accumulated** |       |             |       |             |       | **Life on  which  depreciation   in latest** |       |
|                  |       |             |   | **Initial  cost to company (1)** |       | **subsequent**         |       |                                                   |   | **Buildings**   |       |             |       | **Depreciation** |       |                                         |       |   |   | **income** |   |
|                  |       |             |   | ** **                       |       | **Buildings  and**     |       | **to**                                                 |   |            |       | **and**          |       |             |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**       |       | **Encumbrances** |   | **Land**                         |       | **improvements**       |       | **acquisition**                                        |   | **Land**        |       | **improvements** |       | **Total  (2)**   |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| Total Missouri        |       | 68,623           |   | 1,997                            |       | 78,537                 |       | 18,738                                                 |   | 2,260           |       | 97,012           |       | 99,272           |       | 22,360                                       |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Mississippi**       |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| West Point            |       | 11,705           |   | 69                               |       | 11,495                 |       | 383                                                    |   | 69              |       | 11,878           |       | 11,947           |       | 3,823                                        |       |   |   | 1998 |   |   |   |
| Total Mississippi     |       | 11,705           |   | 69                               |       | 11,495                 |       | 383                                                    |   | 69              |       | 11,878           |       | 11,947           |       | 3,823                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Nebraska**          |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Fremont               |       | 8,730            |   | 13                               |       | 12,817                 |       | 431                                                    |   | 13              |       | 13,248           |       | 13,261           |       | 2,392                                        |       |   |   | 1998 |   |   |   |
| Grand Island          |       | —           |   | 31                               |       | 582                    |       | 5,391                                                  |   | 76              |       | 5,928            |       | 6,004            |       | 993                                          |       |   |   | 1997 |   |   |   |
| Total Nebraska        |       | 8,730            |   | 44                               |       | 13,399                 |       | 5,822                                                  |   | 89              |       | 19,176           |       | 19,265           |       | 3,385                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **New York**          |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Syracuse              |       | 20,218           |   | 1,930                            |       | 31,749                 |       | 1,006                                                  |   | 1,999           |       | 32,686           |       | 34,685           |       | 6,961                                        |       |   |   | 1997 |   |   |   |
| Total New York        |       | 20,218           |   | 1,930                            |       | 31,749                 |       | 1,006                                                  |   | 1,999           |       | 32,686           |       | 34,685           |       | 6,961                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **North  Carolina**   |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Charlotte             |       | 1,575            |   | 80                               |       | —                 |       | —                                                 |   | 80              |       | —           |       | 80               |       | —                                       |       |   |   | 1997 |   |   |   |
| Charlotte             |       | 8,771            |   | 1,068                            |       | 12,296                 |       | 551                                                    |   | 1,178           |       | 12,737           |       | 13,915           |       | 2,704                                        |       |   |   | 1997 |   |   |   |
| Tarboro               |       | 5,079            |   | —                           |       | 2,160                  |       | 18,787                                                 |   | —          |       | 20,947           |       | 20,947           |       | 2,570                                        |       |   |   | 1997 |   |   |   |
| Total North  Carolina |       | 15,425           |   | 1,148                            |       | 14,456                 |       | 19,338                                                 |   | 1,258           |       | 33,684           |       | 34,942           |       | 5,274                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Ohio**              |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Massillon             |       | 16,279           |   | —                           |       | —                 |       | 11,772                                                 |   | —          |       | 11,772           |       | 11,772           |       | 1,314                                        |       | 2000 |   |   |   |   |   |
| Total Ohio            |       | 16,279           |   | —                           |       | —                 |       | 11,772                                                 |   | —          |       | 11,772           |       | 11,772           |       | 1,314                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Oklahoma**          |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Oklahoma City         |       | 1,481            |   | 280                              |       | 2,173                  |       | 162                                                    |   | 280             |       | 2,335            |       | 2,615            |       | 512                                          |       |   |   | 1997 |   |   |   |
| Oklahoma City         |       | 1,943            |   | 244                              |       | 2,450                  |       | 279                                                    |   | 263             |       | 2,710            |       | 2,973            |       | 586                                          |       |   |   | 1997 |   |   |   |
| Total Oklahoma        |       | 3,424            |   | 524                              |       | 4,623                  |       | 441                                                    |   | 543             |       | 5,045            |       | 5,588            |       | 1,098                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Oregon**            |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Hermiston             |       | 11,786           |   | 1,063                            |       | 23,105                 |       | 77                                                     |   | 1,084           |       | 23,161           |       | 24,245           |       | 5,330                                        |       |   |   | 1997 |   |   |   |
| Milwaukee             |       | 9,479            |   | 1,776                            |       | 16,546                 |       | 439                                                    |   | 1,799           |       | 16,962           |       | 18,761           |       | 3,905                                        |       |   |   | 1997 |   |   |   |
| Salem                 |       | 16,349           |   | 2,721                            |       | 27,089                 |       | 515                                                    |   | 2,854           |       | 27,471           |       | 30,325           |       | 4,997                                        |       |   |   | 1997 |   |   |   |
| Woodburn              |       | 12,337           |   | 1,084                            |       | 28,130                 |       | 421                                                    |   | 1,084           |       | 28,551           |       | 29,635           |       | 9,310                                        |       |   |   | 1997 |   |   |   |
| Brooks                |       | —           |   | 4                                |       | 1,280                  |       | 383                                                    |   | 4               |       | 1,663            |       | 1,667            |       | 1,667                                        |       |   |   | 1997 |   |   |   |
| Ontario               |       | —           |   | 1,031                            |       | 21,896                 |       | 1,596                                                  |   | 1,064           |       | 23,459           |       | 24,523           |       | 4,950                                        |       |   |   | 1997 |   |   |   |
| Total Oregon          |       | 49,951           |   | 7,679                            |       | 118,046                |       | 3,431                                                  |   | 7,889           |       | 121,267          |       | 129,156          |       | 30,159                                       |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Pennsylvania**      |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Leesport              |       | 15,388           |   | 2,823                            |       | 20,698                 |       | 1,032                                                  |   | 3,165           |       | 21,388           |       | 24,553           |       | 4,534                                        |       |   |   | 1997 |   |   |   |
| Fogelsville           |       | 28,887           |   | 9,757                            |       | 43,633                 |       | 2,756                                                  |   | 9,850           |       | 46,296           |       | 56,146           |       | 12,246                                       |       |   |   | 1997 |   |   |   |
| Total  Pennsylvania   |       | 44,275           |   | 12,580                           |       | 64,331                 |       | 3,788                                                  |   | 13,015          |       | 67,684           |       | 80,699           |       | 16,780                                       |       |   |   |   |   |   |   |

 

167

----

 

**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

 
| **COLUMN A**          | ** ** | **COLUMN B**     |   | **COLUMN C**                     | ** ** | **COLUMN D**           | ** ** | **COLUMN E**                                           |   | **COLUMN F**    | ** ** | **COLUMN G**     | ** ** | **COLUMN H**     | ** ** | **COLUMN I**                                 | ** ** |
|-----------------------|------------|------------------|--------|----------------------------------|------------|------------------------|------------|--------------------------------------------------------|--------|-----------------|------------|------------------|------------|------------------|------------|----------------------------------------------|------------|
|                  |       |             |   |                             |       | **Costs  Capitalized** |       | **Gross  amount at which  carried at close of period** |   | **Accumulated** |       |             |       |             |       | **Life on  which  depreciation   in latest** |       |
|                  |       |             |   | **Initial  cost to company (1)** |       | **subsequent**         |       |                                                   |   | **Buildings**   |       |             |       | **Depreciation** |       |                                         |       |   |   | **income** |   |
|                  |       |             |   | ** **                       |       | **Buildings  and**     |       | **to**                                                 |   |            |       | **and**          |       |             |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**       |       | **Encumbrances** |   | **Land**                         |       | **improvements**       |       | **acquisition**                                        |   | **Land**        |       | **improvements** |       | **Total  (2)**   |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| **South  Carolina**   |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Columbia              |       | 2,941            |   | 360                              |       | 4,518                  |       | 33                                                     |   | 360             |       | 4,551            |       | 4,911            |       | 960                                          |       |   |   | 1997 |   |   |   |
| Total South  Carolina |       | 2,941            |   | 360                              |       | 4,518                  |       | 33                                                     |   | 360             |       | 4,551            |       | 4,911            |       | 960                                          |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **South  Dakota**     |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Sioux Falls           |       | 10,721           |   | 59                               |       | 14,132                 |       | 939                                                    |   | 59              |       | 15,071           |       | 15,130           |       | 2,558                                        |       |   |   | 1998 |   |   |   |
| Total South  Dakota   |       | 10,721           |   | 59                               |       | 14,132                 |       | 939                                                    |   | 59              |       | 15,071           |       | 15,130           |       | 2,558                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Tennessee**         |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Memphis               |       | 2,258            |   | 80                               |       | —                 |       | (80                                                    | )      | —          |       | —           |       | —           |       | —                                       |       |   |   | 1997 |   |   |   |
| Memphis               |       | 7,510            |   | 699                              |       | 11,484                 |       | 841                                                    |   | 1,111           |       | 11,913           |       | 13,024           |       | 2,305                                        |       |   |   | 1997 |   |   |   |
| Murfreesboro          |       | 8,087            |   | 937                              |       | 12,568                 |       | 4,726                                                  |   | 947             |       | 17,284           |       | 18,231           |       | 3,304                                        |       |   |   | 1997 |   |   |   |
| Total Tennessee       |       | 17,855           |   | 1,716                            |       | 24,052                 |       | 5,487                                                  |   | 2,058           |       | 29,197           |       | 31,255           |       | 5,609                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Texas**             |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Amarillo              |       | 14,213           |   | 106                              |       | 18,549                 |       | 539                                                    |   | 127             |       | 19,067           |       | 19,194           |       | 4,690                                        |       |   |   | 1998 |   |   |   |
| Ft. Worth             |       | 9,417            |   | —                           |       | 208                    |       | 9,393                                                  |   | 2,174           |       | 7,427            |       | 9,601            |       | 985                                          |       |   |   | 1998 |   |   |   |
| Total Texas           |       | 23,630           |   | 106                              |       | 18,757                 |       | 9,932                                                  |   | 2,301           |       | 26,494           |       | 28,795           |       | 5,675                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Utah**              |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Clearfield            |       | 13,941           |   | 1,348                            |       | 24,605                 |       | 616                                                    |   | 1,348           |       | 25,221           |       | 26,569           |       | 4,672                                        |       |   |   | 1997 |   |   |   |
| Total Utah            |       | 13,941           |   | 1,348                            |       | 24,605                 |       | 616                                                    |   | 1,348           |       | 25,221           |       | 26,569           |       | 4,672                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Virginia**          |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Norfolk               |       | 4,254            |   | 1,033                            |       | 5,731                  |       | 442                                                    |   | 1,033           |       | 6,173            |       | 7,206            |       | 1,168                                        |       |   |   | 1997 |   |   |   |
| Strasburg             |       | 9,295            |   | —                           |       | —                 |       | 16,949                                                 |   | 1,204           |       | 15,745           |       | 16,949           |       | 1,960                                        |       |   |   | 1999 |   |   |   |
| Total Virginia        |       | 13,549           |   | 1,033                            |       | 5,731                  |       | 17,391                                                 |   | 2,237           |       | 21,918           |       | 24,155           |       | 3,128                                        |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Washington**        |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Burlington            |       | 7,923            |   | 756                              |       | 13,092                 |       | 248                                                    |   | 756             |       | 13,340           |       | 14,096           |       | 1,281                                        |       |   |   | 1997 |   |   |   |
| Moses Lake            |       | 17,151           |   | 659                              |       | 32,910                 |       | 242                                                    |   | 659             |       | 33,152           |       | 33,811           |       | 4,979                                        |       |   |   | 1997 |   |   |   |
| Walla Walla           |       | 5,015            |   | 954                              |       | 10,992                 |       | (225                                                   | )      | 712             |       | 11,009           |       | 11,721           |       | 3,634                                        |       |   |   | 1997 |   |   |   |
| Connell               |       | 11,484           |   | 357                              |       | 20,825                 |       | 191                                                    |   | 357             |       | 21,016           |       | 21,373           |       | 3,078                                        |       |   |   | 1997 |   |   |   |
| Wallula               |       | 3,410            |   | 125                              |       | 7,705                  |       | 88                                                     |   | 125             |       | 7,793            |       | 7,918            |       | 2,184                                        |       |   |   | 1997 |   |   |   |
| Pasco                 |       | —           |   | 9                                |       | 690                    |       | 9,257                                                  |   | 9               |       | 9,947            |       | 9,956            |       | 1,455                                        |       |   |   | 1997 |   |   |   |
| Total Washington      |       | 44,983           |   | 2,860                            |       | 86,214                 |       | 9,801                                                  |   | 2,618           |       | 96,257           |       | 98,875           |       | 16,611                                       |       |   |   |   |   |   |   |
|                  |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **Wisconsin**         |       |             |   |                             |       |                   |       |                                                   |   |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Tomah                 |       | 9,822            |   | 219                              |       | 16,990                 |       | 105                                                    |   | 222             |       | 17,092           |       | 17,314           |       | 3,352                                        |       |   |   | 1997 |   |   |   |
| Babcock               |       | 11,164           |   | —                           |       | —                 |       | 5,875                                                  |   | 341             |       | 5,534            |       | 5,875            |       | 811                                          |       |   |   | 1999 |   |   |   |
| Plover                |       | 23,975           |   | 865                              |       | 44,544                 |       | 775                                                    |   | 919             |       | 45,265           |       | 46,184           |       | 7,719                                        |       |   |   | 1997 |   |   |   |
| Total Wisconsin       |       | 44,961           |   | 1,084                            |       | 61,534                 |       | 6,755                                                  |   | 1,482           |       | 67,891           |       | 69,373           |       | 11,882                                       |       |   |   |   |   |   |   |

 

168

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**VORNADO REALTY L.P.**

**AND SUBSIDIARIES**

**SCHEDULE III**

**REAL ESTATE AND ACCUMULATEDDEPRECIATION**

**December 31, 2004**

 
| **COLUMN A**                                | ** ** | **COLUMN B**     |      | **COLUMN C**                     | ** ** | **COLUMN D**           | ** ** | **COLUMN E**                                           |      | **COLUMN F**    | ** ** | **COLUMN G**     | ** ** | **COLUMN H**     | ** ** | **COLUMN I**                                 | ** ** |
|---------------------------------------------|------------|------------------|-----------|----------------------------------|------------|------------------------|------------|--------------------------------------------------------|-----------|-----------------|------------|------------------|------------|------------------|------------|----------------------------------------------|------------|
|                                        |       |             |      |                             |       | **Costs  Capitalized** |       | **Gross  amount at which  carried at close of period** |      | **Accumulated** |       |             |       |             |       | **Life on  which  depreciation   in latest** |       |
|                                        |       |             |      | **Initial  cost to company (1)** |       | **subsequent**         |       |                                                   |      | **Buildings**   |       |             |       | **Depreciation** |       |                                         |       |   |   | **income** |   |
|                                        |       |             |      | ** **                       |       | **Buildings  and**     |       | **to**                                                 |      |            |       | **and**          |       |             |       | **and**                                      |       | **Date of** |   | **Date** |   | **statement** |   |
| **Description**                             |       | **Encumbrances** |      | **Land**                         |       | **improvements**       |       | **acquisition**                                        |      | **Land**        |       | **improvements** |       | **Total  (2)**   |       | **amortization**                             |       | **construction  (3)** |   | **acquired** |   | **is  computed** |   |
| ** **                                  |       | ** **       |      | ** **                       |       | ** **             |       | ** **                                             |      | ** **      |       | ** **       |       | ** **       |       | ** **                                   |       | ** ** |   | ** ** |   | ** ** |   |
| Total Temperature  Controlled Logistics     |       | 733,687          |      | 77,161                           |       | 1,048,848              |       | 167,835                                                |      | 84,636          |       | 1,209,209        |       | 1,293,845        |       | 265,126                                      |       |   |   |   |   |   |   |
|                                        |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Warehouse/Industrial                        |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **New  Jersey**                             |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| East Hanover                                |       | 26,660           |      | 576                              |       | 7,752                  |       | 7,830                                                  |      | 691             |       | 15,467           |       | 16,158           |       | 13,232                                       |       | 1963 - 1967 |   | 1963 |   | 7 - 40 Years |   |
| Edison                                      |       | 5,322            |      | 705                              |       | 2,839                  |       | 1,713                                                  |      | 704             |       | 4,553            |       | 5,257            |       | 3,293                                        |       | 1954 |   | 1982 |   | 12 - 25 Years |   |
| Garfield                                    |       | 8,274            |      | 96                               |       | 8,068                  |       | 5,259                                                  |      | 45              |       | 13,378           |       | 13,423           |       | 11,293                                       |       | 1942 |   | 1959 |   | 11 - 33 Years |   |
|                                        |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Total  Warehouse/Industrial                 |       | 40,256           |      | 1,377                            |       | 18,659                 |       | 14,802                                                 |      | 1,440           |       | 33,398           |       | 34,838           |       | 27,818                                       |       |   |   |   |   |   |   |
|                                        |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Other Properties                            |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **New York**                                |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Hotel  Pennsylvania                         |       | —           |      | 29,904                           |       | 121,712                |       | 20,614                                                 |      | 29,904          |       | 142,326          |       | 172,230          |       | 28,666                                       |       | 1919 |   | 1997 |   | 39 Years |   |
| Total New York                              |       | —           |      | 29,904                           |       | 121,712                |       | 20,614                                                 |      | 29,904          |       | 142,326          |       | 172,230          |       | 28,666                                       |       |   |   |   |   |   |   |
|                                        |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Total Other  Properties                     |       | —           |      | 29,904                           |       | 121,712                |       | 20,614                                                 |      | 29,904          |       | 142,326          |       | 172,230          |       | 28,666                                       |       |   |   |   |   |   |   |
|                                        |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| Leasehold  Improvements Equipment and Other |       | 50               |      | 12,734                           |       | 2,414                  |       | 308,130                                                |      | 12,794          |       | 310,483          |       | 323,277          |       | 139,143                                      |       |   |   |   |   | 3 - 20 Years |   |
|                                        |       |             |      |                             |       |                   |       |                                                   |      |            |       |             |       |             |       |                                         |       |   |   |   |   |   |   |
| **TOTAL  DECEMBER 31, 2004**                |       | $                | 3,981,436 |                             | $          | 1,637,718              |       | $                                                      | 6,381,521 |            | $          | 1,699,606        |       | $                | 1,681,792  |                                         | $          | 8,037,053 |   | $ | 9,718,845 |   | $ | 1,404,441 |   |   |   |   |   |   |   |
|                                             |            |                  |           |                                  |            |                        |            |                                                        |           |                 |            |                  |            |                  |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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*      Theseencumbrances, are cross collateralized under a blanket mortgage in the amountof $476,603 as December 31, 2004.

 

Notes:

 

(1)   Initial cost is cost as of January 30, 1982(the date on which Vornado commenced real estate operations) unless acquiredsubsequent to that date – see Column H.

(2)   The net basis of the company’s assets andliabilities for tax purposes is approximately $3,139,148 lower than the amountreported for financial statement purposes.

(3)   Date of original construction – manyproperties have had substantial renovation or additional construction – seeColumn D.

(4)   Buildings on these properties were demolished.  As a result, the cost of the buildings andimprovements, net of accumulated depreciation, were either transferred to landor written-off.

 

169

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# **VORNADO REALTY L.P.**

# **AND SUBSIDIARIES**

# ** **

# **SCHEDULE III**

# **REAL ESTATE AND ACCUMULATEDDEPRECIATION**

# **(AMOUNTS IN THOUSANDS)**

 

The following is areconciliation of real estate assets and accumulated depreciation:

 
| ** **                                                     | ** ** | **YEAR ENDED DECEMBER 31,** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                     | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Real  Estate**                                               |       |                        |       |   |   |   |   |
| Balance at  beginning of period                                |       | $                           | 7,629,736  |   | $ | 7,217,515 |   | $ | 4,426,560 |   |
| Consolidation of  investment in Americold                      |       | 1,535,344                   |       | — |   | — |   |
| Additions during  the period:                                  |       |                        |       |   |   |   |   |
| Land                                                           |       | 100,558                     |       | 69,819 |   | 595,977 |   |
| Buildings &  improvements                                  |       | 510,548                     |       | 419,746 |   | 2,276,371 |   |
|                                                           |       | 9,776,186                   |       | 7,707,080 |   | 7,298,908 |   |
| Less: Assets  sold and written-off                             |       | 57,341                      |       | 77,344 |   | 81,393 |   |
| Balance at end  of period                                      |       | $                           | 9,718,845  |   | $ | 7,629,736 |   | $ | 7,217,515 |   |
|                                                           |       |                        |       |   |   |   |   |
| **Accumulated  Depreciation**                                  |       |                        |       |   |   |   |   |
| Balance at  beginning of period                                |       | $                           | 867,177    |   | $ | 701,327 |   | $ | 485,447 |   |
| Consolidation of  investment in Americold                      |       | 353,119                     |       | — |   | — |   |
| Additions  charged to operating expenses                       |       | 207,086                     |       | 183,893 |   | 170,888 |   |
| Additions due to  acquisitions                                 |       | —                      |       | 855 |   | 63,178 |   |
|                                                           |       | 1,427,382                   |       | 886,075 |   | 719,513 |   |
|                                                           |       |                        |       |   |   |   |   |
| Less:  Accumulated depreciation on assets sold and written-off |       | 22,941                      |       | 18,898 |   | 18,186 |   |
| Balance at end  of period                                      |       | $                           | 1,404,441  |   | $ | 867,177 |   | $ | 701,327 |   |

 

170

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# **EXHIBIT INDEX**

 
| **Exhibit  No.** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                           | ** ** |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                           | ** ** |
| 3.1              | —     | Amended and Restated  Declaration of Trust of Vornado Realty Trust, as filed with the State  Department of Assessments and Taxation of Maryland on April 16, 1993 - Incorporated  by reference to Exhibit 3(a) to Vornado Realty Trust’s Registration Statement  on Form S-4 (File No. 33-60286), filed on April 15, 1993                                                       | *          |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                 |       |
| 3.2              | —     | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust, as filed with the State  Department of Assessments and Taxation of Maryland on May 23, 1996 - Incorporated  by reference to Exhibit 3.2 to Vornado Realty Trust’s Annual Report on Form  10-K for the year ended December 31, 2001 (File No. 001-11954), filed on  March 11, 2002                       | *          |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                 |       |
| 3.3              | —     | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust, as filed with the State  Department of Assessments and Taxation of Maryland on April 3, 1997 - Incorporated  by reference to Exhibit 3.3 to Vornado Realty Trust’s Annual Report on Form  10-K for the year ended December 31, 2001 (File No. 001-11954) , filed on  March 11, 2002                     | *          |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                 |       |
| 3.4              | —     | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust, as filed with the State  Department of Assessments and Taxation of Maryland on October 14, 1997 - Incorporated  by reference to Exhibit 3.2 to Vornado Realty Trust’s Registration Statement  on Form S-3 (File No. 333-36080), filed on May 2, 2000                                                    | *          |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                 |       |
| 3.5              | —     | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust, as filed with the State  Department of Assessments and Taxation of Maryland on April 22, 1998 - Incorporated  by reference to Exhibit 3.5 to Vornado Realty Trust’s Quarterly Report on  Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on  May 8, 2003                     | *          |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                 |       |
| 3.6              | —     | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust, as filed with the State  Department of Assessments and Taxation of Maryland on November 24, 1999 - Incorporated  by reference to Exhibit 3.4 to Vornado Realty Trust’s Registration Statement  on Form S-3 (File No. 333-36080), filed on May 2, 2000                                                   | *          |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                 |       |
| 3.7              | —     | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust, as filed with the State  Department of Assessments and Taxation of Maryland on April 20, 2000 - Incorporated  by reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement  on Form S-3 (File No. 333-36080), filed on May 2, 2000                                                      | *          |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                 |       |
| 3.8              | —     | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust, as filed with the State  Department of Assessments and Taxation of Maryland on September 14, 2000 - Incorporated  by reference to Exhibit 4.6 to Vornado Realty Trust’s Registration Statement  on Form S-8 (File No. 333-68462), filed on August 27, 2001                                              | *          |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                 |       |
| 3.9              | —     | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust dated May 31, 2002, as filed  with the State Department of Assessments and Taxation of Maryland on June 13,  2002 - Incorporated by reference to Exhibit 3.9 to Vornado Realty Trust’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No.  001-11954), filed on August 7, 2002 | *          |

 

----

*              Incorporated byreference.

 

171

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| 3.10   | — | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust dated June 6, 2002, as filed  with the State Department of Assessments and Taxation of Maryland on June 13,  2002 - Incorporated by reference to Exhibit 3.10 to Vornado Realty Trust’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No.  001-11954), filed on August 7, 2002                                               | *      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.11   | — | Articles of Amendment  of Declaration of Trust of Vornado Realty Trust dated December 16, 2004, as  filed with the State Department of Assessments and Taxation of Maryland on  December 16, 2004 - Incorporated by reference to Exhibit 3.1 to Vornado Realty  Trust’s Current Report on Form 8-K, dated December 16, 2004 (File No. 001-11954),  filed on December 21, 2004                                                  | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.12   | — | Articles Supplementary  Classifying Vornado’s $3.25 Series A Preferred Shares of Beneficial Interest,  liquidation preference $50.00 per share - Incorporated by reference to  Exhibit 3.11 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the  quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003                                                                                      | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.13   | — | Articles Supplementary  Classifying Vornado Realty Trust’s $3.25 Series A Convertible Preferred Shares  of Beneficial Interest, as filed with the State Department of Assessments and  Taxation of Maryland on December 15, 1997 - Incorporated by reference to  Exhibit 3.10 to Vornado Realty Trust’s Annual Report on Form 10-K for the  year ended December 31, 2001 (File No. 001-11954), filed on March 31, 2002    | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.14   | — | Articles Supplementary  Classifying Vornado Realty Trust’s Series D-1 8.5% Cumulative Redeemable  Preferred Shares of Beneficial Interest, no par value - Incorporated by  reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K,  dated November 12, 1998 (File No. 001-11954), filed on November 30, 1998                                                                                       | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.15   | — | Articles Supplementary  Classifying Additional Series D-1 8.5% Preferred Shares of Beneficial  Interest, liquidation preference $25.00 per share, no par value - Incorporated  by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form  8-K/A, dated November 12, 1998 (File No. 001-11954), filed on February 9,  1999                                                                                   | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.16   | — | Articles Supplementary Classifying 8.5% Series B  Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00  per share, no par value - Incorporated by reference to Exhibit 3.3 to Vornado  Realty Trust’s Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954),  filed on March 17, 1999                                                                                   | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.17   | — | Articles Supplementary Classifying Vornado Realty Trust’s  Series C 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest,  liquidation preference $25.00 per share, no par value - Incorporated by  reference to Exhibit 3.7 to Vornado Realty Trust’s Registration Statement on  Form 8-A (File No. 001-11954), filed on May 19, 1999                                                                      | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.18   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-2 8.375% Cumulative  Redeemable Preferred Shares, dated as of May 27, 1999, as filed with the State  Department of Assessments and Taxation of Maryland on May 27, 1999 - Incorporated  by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form  8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999             | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.19   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-3 8.25% Cumulative  Redeemable Preferred Shares, dated September 3, 1999, as filed with the State  Department of Assessments and Taxation of Maryland on September 3, 1999 - Incorporated  by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form  8-K, dated September 3, 1999 (File No. 001-11954), filed on October 25, 1999 | *      |

 

----

*              Incorporated byreference.

 

172

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| 3.20   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-4 8.25% Cumulative  Redeemable Preferred Shares, dated September 3, 1999, as filed with the State Department  of Assessments and Taxation of Maryland on September 3, 1999 - Incorporated  by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form  8-K, dated September 3, 1999 (File No. 001-11954), filed on October 25, 1999 | *      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.21   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-5 8.25% Cumulative  Redeemable Preferred Shares - Incorporated by reference to Exhibit 3.1 to Vornado  Realty Trust’s Current Report on Form 8-K, dated November 24, 1999 (File No.  001-11954), filed on December 23, 1999                                                                                                                           | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.22   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-6 8.25% Cumulative  Redeemable Preferred Shares, dated May 1, 2000, as filed with the State Department  of Assessments and Taxation of Maryland on May 1, 2000 - Incorporated by  reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K,  dated May 1, 2000 (File No. 001-11954), filed May 19, 2000                          | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.23   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-7 8.25% Cumulative  Redeemable Preferred Shares, dated May 25, 2000, as filed with the State Department  of Assessments and Taxation of Maryland on June 1, 2000 - Incorporated by  reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K,  dated May 25, 2000 (File No. 001-11954), filed on June 16, 2000                   | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.24   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-8 8.25% Cumulative  Redeemable Preferred Shares - Incorporated by reference to Exhibit 3.1 to Vornado  Realty Trust’s Current Report on Form 8-K, dated December 8, 2000 (File No.  001-11954), filed on December 28, 2000                                                                                                                            | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.25   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-9 8.75% Preferred Shares, dated September 21,  2001, as filed with the State Department of Assessments and Taxation of  Maryland on September 25, 2001 - Incorporated by reference to Exhibit 3.1 to  Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed  on October 12, 2001                                              | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.26   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-10 7.00% Cumulative  Redeemable Preferred Shares, dated November 17, 2003, as filed with the State  Department of Assessments and Taxation of Maryland on November 17, 2003 - Incorporated  by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form  8-K (File No. 001-11954), filed on November 18, 2003                        | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.27   | — | Articles  Supplementary Classifying Vornado Realty Trust’s Series D-11 7.20% Cumulative  Redeemable Preferred Shares, dated May 27, 2004, as filed with the State Department  of Assessments and Taxation of Maryland on May 27, 2004 - Incorporated by  reference to Exhibit 99.1 to Vornado Realty Trust’s Current Report on Form 8-K  (File No. 001-11954), filed on June 14, 2004                                     | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.28   | — | Articles  Supplementary Classifying Vornado Realty Trust’s 7.00% Series E Cumulative  Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00  per share - Incorporated by reference to Exhibit 3.27 to Vornado Realty  Trust’s Registration Statement on Form 8-A (File No. 001-11954), filed on  August 20, 2004                                                                              | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3.29   | — | Articles  Supplementary Classifying Vornado Realty Trust’s 6.75% Series F Cumulative  Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00  per share - Incorporated by reference to Exhibit 3.28 to Vornado Realty  Trust’s Registration Statement on Form 8-A (File No. 001-11954), filed on  November 17, 2004                                                                            | *      |

 

----

*              Incorporated byreference.

 

173

----

 
| 3.30   | — | Articles Supplementary  Classifying Vornado Realty Trust’s 6.55% Series D-12 Cumulative Redeemable  Preferred Shares  of Beneficial Interest, liquidation preference $25.00 per share - Incorporated  by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form  8-K, dated December 16, 2004 (File No. 001-11954), filed on December 21, 2004 | *      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.31   | — | Articles  Supplementary Classifying Vornado Realty Trust’s 6.625% Series G Cumulative  Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00  per share - Incorporated by reference to Exhibit 3.3 to Vornado Realty  Trust’s Current Report on Form 8-K, dated December 16, 2004 (File No. 001-11954),  filed on December 21, 2004   | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.32   | — | Amended  and Restated Bylaws of Vornado Realty Trust, as amended on March 2, 2000 - Incorporated  by reference to Exhibit 3.12 to Vornado Realty Trust’s Annual Report on Form  10-K for the year ended December 31, 1999 (File No. 001-11954), filed on  March 9, 2000                                                                                                | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.33   | — | Second  Amended and Restated Agreement of Limited Partnership of the Operating  Partnership, dated as of October 20, 1997 (the “Partnership Agreement”) -  Incorporated by reference to Exhibit 3.26 of Vornado Realty Trust’s Quarterly  Report on Form 10-Q for the period ended March 31, 2003 (File No. 001-11954),  filed on May 8, 2003                | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.34   | — | Amendment  to the Partnership Agreement, dated as of December 16, 1997 - Incorporated by  reference to Exhibit 3.27 of Vornado Realty Trust’s Quarterly Report on Form  10-Q for the period ended March 31, 2003 (File No. 001-11954), filed on May  8, 2003                                                                                                           | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.35   | — | Second  Amendment to the Partnership Agreement, dated as of April 1, 1998 - Incorporated  by reference to Exhibit 3.5 of Vornado Realty Trust’s Registration Statement  on Form S-3 (File No. 333-50095), filed on April 14, 1998                                                                                                                                      | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.36   | — | Third  Amendment to the Partnership Agreement, dated as of November 12, 1998 - Incorporated  by reference to Exhibit 3.2 of Vornado Realty Trust’s Current Report on Form  8-K, dated November 12, 1998 (File No. 001-11954), filed on November 30, 1998                                                                                                               | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.37   | — | Fourth  Amendment to the Partnership Agreement, dated as of November 30, 1998 - Incorporated  by reference to Exhibit 3.1 of Vornado Realty Trust’s Current Report on Form  8-K, dated December 1, 1998 (File No. 001-11954), filed on February 9, 1999                                                                                                                | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.38   | — | Fifth  Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by reference  to Exhibit 3.1 of Vornado Realty Trust’s Current Report on Form 8-K, dated March  3, 1999 (File No. 001-11954),  filed on March 17, 1999                                                                                                                         | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.39   | — | Sixth Amendment to the Partnership Agreement, dated  as of March 17, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado Realty Trust’s  Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on  July 7, 1999                                                                                                                            | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.40   | — | Seventh Amendment to the Partnership Agreement,  dated as of May 20, 1999 - Incorporated by reference to Exhibit 3.3 of Vornado Realty Trust’s  Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954),  filed on July 7, 1999                                                                                                                       | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.41   | — | Eighth Amendment to the Partnership Agreement, dated  as of May 27, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado Realty Trust’s  Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954),  filed on July 7, 1999                                                                                                                        | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.42   | — | Ninth Amendment to the Partnership Agreement, dated  as of September 3, 1999 - Incorporated by reference to Exhibit 3.3 of Vornado Realty Trust’s  Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999                                                                                                                                          | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.43   | — | Tenth Amendment to the Partnership Agreement, dated  as of September 3, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado Realty Trust’s  Current Report on Form 8-K, dated September 3, 1999 (File No. 001-11954),  filed on October 25, 1999                                                                                                                | *      |

 

----

*              Incorporated byreference.

 

174

----

 
| 3.44   | — | Eleventh Amendment to the Partnership Agreement,  dated as of November 24, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado Realty Trust’s  Current Report on Form 8-K, dated November 24, 1999 (File No. 001-11954),  filed on December 23, 1999                    | *      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.45   | — | Twelfth Amendment to the Partnership Agreement,  dated as of May 1, 2000 - Incorporated by reference to Exhibit 3.2 of Vornado Realty Trust’s  Current Report on Form 8-K, dated May 1, 2000 (File No. 001-11954),  filed on May 19, 2000                                 | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.46   | — | Thirteenth Amendment to the Partnership Agreement,  dated as of May 25, 2000 - Incorporated by reference to Exhibit 3.2 of Vornado Realty Trust’s  Current Report on Form 8-K, dated May 25, 2000 (File No. 001-11954),  filed on June 16, 2000                           | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.47   | — | Fourteenth Amendment to the Partnership Agreement,  dated as of December 8, 2000 - Incorporated by reference to Exhibit 3.2 of Vornado Realty Trust’s  Current Report on Form 8-K, dated December 8, 2000 (File No. 001-11954),  filed on December 28, 2000                    | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.48   | — | Fifteenth Amendment to the Partnership Agreement,  dated as of December 15, 2000 - Incorporated by reference to Exhibit 4.35 of  Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-68462),  filed on August 27, 2001                                     | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.49   | — | Sixteenth Amendment to the Partnership Agreement,  dated as of July 25, 2001 - Incorporated by reference to Exhibit 3.3 of  Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954),  filed on October 12, 2001                                       | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.50   | — | Seventeenth Amendment to the Partnership Agreement,  dated as of September 21, 2001 - Incorporated by reference to Exhibit 3.4 of  Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954),  filed on October 12, 2001                                     | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.51   | — | Eighteenth Amendment to the Partnership Agreement,  dated as of January 1, 2002 - Incorporated by reference to Exhibit 3.1 of Vornado Realty Trust’s  Current Report on Form 8-K (File No. 001-11954), filed on March 18, 2002                                                 | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.52   | — | Nineteenth Amendment to the Partnership Agreement,  dated as of July 1, 2002 - Incorporated by reference to Exhibit 3.47 to  Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended  June 30, 2002 (File No. 001-11954)                                    | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.53   | — | Twentieth Amendment to the Partnership Agreement,  dated April 9, 2003 - Incorporated by reference to Exhibit 3.27 of Vornado Realty Trust’s  Quarterly Report on Form 10-Q for the period ended March 31, 2003 (File No.  001-11954), filed on May 8, 2003                    | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.54   | — | Twenty-First Amendment to the Partnership Agreement,  dated as of July 31, 2003 - Incorporated by reference to Exhibit 10.5 of  Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 2003 (File No. 001-11954), filed on November 7, 2003 | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.55   | — | Twenty-Second Amendment to the Partnership  Agreement, dated as of November 17, 2003 - Incorporated by reference to  Exhibit 3.49 of Vornado Realty Trust’s Annual Report on Form 10-K for the  year ended December 31, 2003 (File no 001-11954), filed on March 3, 2004       | *      |
|   |   |                                                                                                                                                                                                                                                                                |   |
| 3.56   | — | Twenty-Third Amendment to the Partnership Agreement,  dated May 27, 2004 - Incorporated by reference to Exhibit 99.2 of Vornado  Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on June  14, 2004                                                       | *      |

 

----

*              Incorporated byreference.

 

175

----

 
| 3.57   | — | Twenty-Fourth Amendment to the Partnership  Agreement, dated August 17, 2004 - Incorporated by reference to Exhibit 3.57  to Vornado Realty Trust and Vornado Realty L.P.’s Registration Statement on  Form S-3 (File No. 333-122306), filed on January 26, 2005                                                                                                    | *      |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 3.58   | — | Twenty-Fifth Amendment to the Partnership Agreement,  dated November 17, 2004 - Incorporated by reference to Exhibit 3.58 to  Vornado Realty Trust and Vornado Realty L.P.’s Registration Statement on Form  S-3 (File No. 333-122306), filed on January 26, 2005                                                                                                   | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 3.59   | — | Twenty-Sixth Amendment to the Partnership Agreement,  dated December 17, 2004 - Incorporated by reference to Exhibit 3.1 of Vornado  Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on  December 21, 2004                                                                                                                                     | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 3.60   | — | Twenty-Seventh Amendment to the Partnership  Agreement, dated December 20, 2004 - Incorporated by reference to Exhibit 3.2  of Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685),  filed on December 21, 2004                                                                                                                                   | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 3.61   | — | Twenty-Eighth Amendment to the Partnership  Agreement, dated December 30, 2004 - Incorporated by reference to Exhibit 3.1  of Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685),  filed on January 4, 2005                                                                                                                                      | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 4.1    | — | Instruments defining the rights of security holders  (see Exhibits 3.1 through 3.31 of this Annual Report on Form 10-K)                                                                                                                                                                                                                                                  | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 4.2    | — | Specimen certificate representing Vornado Realty Trust’s Common  Shares of Beneficial Interest, par value $0.04 per share - Incorporated by  reference to Exhibit 4.1 of Amendment No. 1 to Vornado Realty Trust’s Registration Statement on  Form S-3 (File No. 33-62395), filed on October 26, 1995                                                          | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 4.3    | — | Specimen certificate representing Vornado Realty Trust’s  $3.25 Series A Preferred Shares of Beneficial Interest, liquidation  preference $50.00 per share, no par value - Incorporated by reference to  Exhibit 4.3 of Vornado  Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended  March 31, 2003 (File No. 001-11954), filed on May 8, 2003 | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 4.4    | — | Specimen certificate evidencing Vornado Realty Trust’s  Series B 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest,  liquidation preference $25.00 per share, no par value - Incorporated by  reference to Exhibit 4.2 of Vornado  Realty Trust’s Registration Statement on Form 8-A (File No. 001-11954),  filed on March 15, 1999           | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 4.5    | — | Specimen certificate evidencing Vornado Realty Trust’s  Series 8.5% C Cumulative Redeemable Preferred Shares of Beneficial Interest,  liquidation preference $25.00 per share, no par value - Incorporated by  reference to Exhibit 4.2 of Vornado  Realty Trust’s Registration Statement on Form 8-A (File No. 001-11954),  filed on May 19, 1999             | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                     |   |
| 4.6    | — | Specimen certificate evidencing Vornado Realty Trust’s  7.00% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest,  liquidation preference $25.00 per share, no par value - Incorporated by  reference to Exhibit 4.5 to Vornado Realty Trust’s Registration Statement on  Form 8-A (File No. 001-11954), filed August 20, 2004             | *      |

 

----

*              Incorporated byreference.

 

176

----

 

 
| 4.7    | — | Specimen certificate evidencing Vornado Realty Trust’s  6.75% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest,  liquidation preference $25.00 per share, no par value - Incorporated by  reference to Exhibit 4.6 to Vornado Realty Trust’s Registration Statement on  Form 8-A (File No. 001-11954), filed November 17, 2004      | *      |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 4.8    | — | Specimen certificate evidencing Vornado Realty Trust’s  6.625% Series G Cumulative Redeemable Preferred Shares of Beneficial  Interest, liquidation preference $25.00 per share, no par value - Incorporated  by reference to Exhibit 4.7 to Vornado Realty Trust’s Registration Statement  on Form 8-A (File No. 001-11954), filed December 21, 2004     | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 4.9    | — | Indenture and Servicing Agreement, dated as of March  1, 2000, among Vornado, LaSalle Bank National Association, ABN Amro Bank N.V.  and Midland Loan Services, Inc. - Incorporated by reference to Exhibit 10.48  of Vornado’s Annual Report on Form 10-K for the year ended December 31, 1999  (File No. 001-11954), filed on March 9, 2000                  | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 4.10   | — | Indenture, dated as of June 24, 2002, between  Vornado Realty L.P. and The Bank of New York, as Trustee - Incorporated by  reference to Exhibit 4.1 to Vornado Realty L.P.’s Current Report on Form 8-K  dated June 19, 2002 (File No. 000-22685), filed on June 24, 2002                                                                                      | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 4.11   | — | Officer’s Certificate pursuant to Sections 102 and  301 of the Indenture, dated June 24, 2002 - Incorporated by reference to  Exhibit 4.2 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for  the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002                                                                 | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 10.1** | — | Vornado Realty Trust’s  1993 Omnibus Share  Plan, as amended - Incorporated by reference to Exhibit 4.1 of Vornado Realty  Trust’s Registration Statement on Form S-8 (File No. 331-09159), filed on  July 30, 1996                                                                                                                                       | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 10.2** | — | Second Amendment, dated as  of June 12, 1997, to Vornado’s 1993 Omnibus Share Plan, as amended - Incorporated by  reference to Vornado’s Registration Statement on Form S-8 (File No. 333-29011),  filed on June 12, 1997                                                                                                                                 | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 10.3   | — | Master Agreement and  Guaranty, between Vornado, Inc. and Bradlees New Jersey, Inc. dated as of May  1, 1992 - Incorporated by reference to Vornado’s Quarterly Report on Form 10-Q  for quarter ended March 31, 1992 (File No. 001-11954), filed May 8, 1992                                                                                                  | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 10.4   | — | Mortgage, Security  Agreement, Assignment of Leases and Rents and Fixture Filing dated as of  November 24, 1993 made by each of the entities listed therein, as mortgagors  to Vornado Finance Corp., as mortgagee - Incorporated by reference to Vornado’s  Current Report on Form 8-K, dated November 24, 1993 (File No. 001-11954),  filed December 1, 1993 | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 10.5** | — | Employment Agreement  between Vornado Realty Trust and Joseph Macnow dated January 1, 1998 - Incorporated  by reference to Exhibit 10.7 of Vornado’s Quarterly Report on Form 10-Q for  the quarter ended September 30, 1998 (File No. 001-11954), filed November 12,  1998                                                                                    | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 10.6** | — | Employment Agreement  between Vornado Realty Trust and Michael D. Fascitelli, dated December 2,  1996 - Incorporated by reference to Vornado’s Annual Report on Form 10-K for  the year ended December 31, 1996 (File No. 001-11954), filed March 13, 1997                                                                                                     | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |   |
| 10.7   | — | Registration Rights  Agreement between Vornado, Inc. and Steven Roth, dated December 29, 1992 - Incorporated  by reference to Vornado’s Annual Report on Form 10-K for the year ended  December 31, 1992 (File No. 001-11954), filed February 16, 1993                                                                                                         | *      |

 

----

*             Incorporatedby reference.

**           Management contractor compensatory agreement.

 

177

----

 
| 10.8   | — | Stock Pledge Agreement  between Vornado, Inc. and Steven Roth dated December 29, 1992 - Incorporated  by reference to Vornado’s Annual Report on Form 10-K for the year ended  December 31, 1992 (File No. 001-11954), filed February 16, 1993                                                                                | *      |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.9   | — | Management Agreement  between Interstate Properties and Vornado, Inc. dated July 13, 1992 -Incorporated  by reference to Vornado’s Annual Report on Form 10-K for the year ended  December 31, 1992 (File No. 001-11954), filed February 16, 1993                                                                             | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.10  | — | Real Estate Retention  Agreement between Vornado, Inc., Keen Realty Consultants, Inc. and  Alexander’s, Inc., dated as of July 20, 1992 - Incorporated by reference to  Vornado’s Annual Report on Form 10-K for the year ended December 31, 1992  (File No. 001-11954), filed February 16, 1993                         | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.11  | — | Amendment to Real Estate  Retention Agreement dated February 6, 1995 - Incorporated by reference to  Vornado’s Annual Report on Form 10-K for the year ended December 31, 1994  (File No. 001-11954), filed March 23, 1995                                                                                                    | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.12  | — | Stipulation between Keen  Realty Consultants Inc. and Vornado Realty Trust re: Alexander’s Retention  Agreement - Incorporated by reference to Vornado’s Annual Report on Form 10-K  for the year ended December 31, 1993 (File No. 001-11954), filed March 24,  1994                                                    | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.13  | — | Stock Purchase Agreement,  dated February 6, 1995, among Vornado Realty Trust and Citibank, N.A. - Incorporated  by reference to Vornado’s Current Report on Form 8-K, dated February 6, 1995  (File No. 001-11954), filed February 21, 1995                                                                                  | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.14  | — | Management and Development  Agreement, dated as of February 6, 1995 - Incorporated by reference to  Vornado’s Current Report on Form 8-K, dated February 6, 1995 (File No. 001-11954),  filed February 21, 1995                                                                                                               | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.15  | — | Standstill and Corporate  Governance Agreement, dated as of February 6, 1995 - Incorporated by  reference to Vornado’s Current Report on Form 8-K, dated February 6, 1995  (File No. 001-11954), filed February 21, 1995                                                                                                      | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.16  | — | Credit Agreement, dated as  of March 15, 1995, among Alexander’s Inc., as borrower, and Vornado Lending  Corp., as lender - Incorporated by reference from Annual Report on Form 10-K  for the year ended December 31, 1994 (File No. 001 - 11954), filed March 23,  1995                                                     | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.17  | — | Subordination and  Intercreditor Agreement, dated as of March 15, 1995 among Vornado Lending  Corp., Vornado Realty Trust and First Fidelity Bank, National Association - Incorporated  by reference to Vornado’s Annual Report on Form 10-K for the year ended  December 31, 1994 (File No. 001-11954), filed March 23, 1995 | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.18  | — | Form of Intercompany  Agreement between Vornado Realty L.P. and Vornado Operating, Inc. - Incorporated  by reference to Exhibit 10.1 of Amendment No. 1 to Vornado Operating, Inc.’s  Registration Statement on Form S-11 (File No. 333-40701), filed on January  23, 1998                                                    | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.19  | — | Form of Revolving Credit  Agreement between Vornado Realty L.P. and Vornado Operating, Inc., together  with related form of Note - Incorporated by reference to Exhibit 10.2 of  Amendment No. 1 to Vornado Operating, Inc.’s Registration Statement on Form S-11  (File No. 333-40701)                                       | *      |
|   |   |                                                                                                                                                                                                                                                                                                                               |   |
| 10.20  | — | Registration Rights  Agreement, dated as of April 15, 1997, between Vornado Realty Trust and the  holders of Units listed on Schedule A thereto - Incorporated by reference to  Exhibit 10.2 of Vornado’s Current Report on Form 8-K (File No. 001-11954),  filed on April 30, 1997                                           | *      |

 

----

*              Incorporated byreference.

 

178

----

 
| 10.21   | — | Noncompetition Agreement,  dated as of April 15, 1997, by and among Vornado Realty Trust, the Mendik  Company, L.P., and Bernard H. Mendik - Incorporated by reference to Exhibit  10.3 of Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on  April 30, 1997                                                                                                                      | *      |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.22** | — | Employment Agreement,  dated as of April 15, 1997, by and among Vornado Realty Trust, The Mendik  Company, L.P. and David R. Greenbaum - Incorporated by reference to Exhibit  10.4 of Vornado’s Current Report on Form 8-K (File No. 001-11954), filed on  April 30, 1997                                                                                                                          | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.23   | — | Agreement, dated September  28, 1997, between Atlanta Parent Incorporated, Portland Parent Incorporated  and Crescent Real Estate Equities, Limited Partnership - Incorporated by  reference to Exhibit 99.6 of Vornado’s Current Report on Form 8-K (File No.  001-11954), filed on October 8, 1997                                                                                                | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.24   | — | Contribution Agreement  between Vornado Realty Trust, Vornado Realty L.P. and The Contributors  Signatory - thereto - Merchandise Mart Properties, Inc. (DE) and Merchandise  Mart Enterprises, Inc. - Incorporated by reference to Exhibit 10.34 of  Vornado’s Annual Report on Form 10-K/A for the year ended December 31, 1997  (File No. 001-11954), filed on April 8, 1998                     | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.25   | — | Sale Agreement executed  November 18, 1997, and effective December 19, 1997, between MidCity  Associates, a New York partnership, as Seller, and One Penn Plaza LLC, a New  York limited liability company, as purchaser - Incorporated by reference to  Exhibit 10.35 of Vornado’s Annual Report on Form 10-K/A for the year ended  December 31, 1997 (File No. 001-11954), filed on April 8, 1998 | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.26   | — | Credit Agreement, dated as  of June 22, 1998, among One Penn Plaza, LLC, as Borrower, The Lenders Party  hereto, The Chase Manhattan Bank, as Administrative Agent - Incorporated by  reference to Exhibit 10 of Vornado’s Quarterly Report on Form 10-Q for the  quarter ended June 30, 1998 (File No. 001-11954), filed August 13, 1998                                                           | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.27   | — | Registration Rights  Agreement, dated as of April 1, 1998, between Vornado and the Unit Holders  named herein - Incorporated by reference to Exhibit 10.2 of Amendment No. 1  to Vornado’s Registration Statement on Form S-3 (File No. 333-50095), filed  on May 6, 1998                                                                                                                           | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.28   | — | Registration Rights  Agreement, dated as of August 5, 1998, between Vornado and the Unit Holders  named therein - Incorporated by reference to Exhibit 10.1 of Vornado’s  Registration Statement on Form S-3 (File No. 333-89667), filed on October 25,  1999                                                                                                                                       | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.29   | — | Registration Rights  Agreement, dated as of July 23, 1998, between Vornado and the Unit Holders  named therein - Incorporated by reference to Exhibit 10.2 of Vornado’s  Registration Statement on Form S-3 (File No. 333-89667), filed on October 25,  1999                                                                                                                                        | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.30   | — | Consolidated and Restated  Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture  Filing, dated as of March 1, 2000, between Entities named therein (as  Mortgagors) and Vornado (as Mortgagee) - Incorporated by reference to Exhibit  10.47 of Vornado’s Annual Report on Form 10-K for the period ended December  31, 1999 (File No. 001-11954), filed on March 9, 2000       | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.31** | — | Employment Agreement,  dated January 22, 2000, between Vornado Realty Trust and Melvyn Blum - Incorporated  by reference to Exhibit 10.49 of Vornado’s Annual Report on Form 10-K for the  period ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000                                                                                                                              | *      |

 

----

*             Incorporatedby reference.

**           Management contractor compensatory agreement.

 

179

----

 
| 10.32** | — | Deferred Stock Agreement,  dated December 29, 2000, between Vornado Realty Trust and Melvyn Blum - Incorporated  by reference to Exhibit 10.32 of Vornado’s Annual Report on Form 10-K for the  period ended December 31, 2002 (File No. 001-11954), filed on March 7, 2003                                                                                                                                                                                           | *      |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.33   | — | First Amended and Restated  Promissory Note of Steven Roth, dated November 16, 1999 - Incorporated by  reference to Exhibit 10.50 of Vornado’s Annual Report on Form 10-K for the  period ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000                                                                                                                                                                                                        | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.34   | — | Letter agreement, dated  November 16, 1999, between Steven Roth and Vornado Realty Trust - Incorporated  by reference to Exhibit 10.51 of Vornado’s Annual Report on Form 10-K for the  period ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000                                                                                                                                                                                                   | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.35   | — | Revolving Credit Agreement  dated as of March 21, 2000 among Vornado Realty L.P., as borrower, Vornado  Realty Trust, as general partner, and UBS AG, as Bank - Incorporated by reference  to Vornado’s Quarterly Report on Form 10-Q for the quarter ended March 31,  2000 (File No. 001-11954) filed on May 5, 2000                                                                                                                                                 | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.36   | — | Agreement and Plan of  Merger, dated as of October 18, 2001, by and among Vornado Realty Trust,  Vornado Merger Sub L.P., Charles E. Smith Commercial Realty L.P., Charles E.  Smith Commercial Realty L.L.C., Robert H. Smith, individually, Robert P.  Kogod, individually, and Charles E. Smith Management, Inc. - Incorporated by  reference to Exhibit 2.1 of Vornado Realty Trust’s Current Report on Form 8-K  (File No. 001-11954), filed on January 16, 2002 | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.37   | — | Registration Rights  Agreement, dated January 1, 2002, between Vornado Realty Trust and the  holders of the Units listed on Schedule A thereto - Incorporated by reference  to Exhibit 10.1 of Vornado’s Current Report on Form 8-K (File No. 1-11954),  filed on March 18, 2002                                                                                                                                                                                      | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.38   | — | Registration Rights  Agreement, dated January 1, 2002, between Vornado Realty Trust and the  holders of the Units listed on Schedule A thereto - Incorporated by reference  to Exhibit 10.2 of Vornado’s Current Report on Form 8-K (File No. 1-11954),  filed on March 18, 2002                                                                                                                                                                                      | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.39   | — | Tax Reporting and  Protection Agreement, dated December 31, 2001, by and among Vornado, Vornado  Realty L.P., Charles E. Smith Commercial Realty L.P. and Charles E. Smith  Commercial Realty L.L.C. - Incorporated by reference to Exhibit 10.3 of  Vornado’s Current Report on Form 8-K (File No. 1-11954), filed on March 18,  2002                                                                                                                                | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.40** | — | Employment Agreement  between Vornado Realty Trust and Michael D. Fascitelli, dated March 8, 2002 -  Incorporated by reference to Exhibit 10.7 to Vornado Realty Trust’s Quarterly  Report on Form 10-Q for the quarter ended March 31, 2002 (File No. 001-11954),  filed on May 1, 2002                                                                                                                                                                              | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.41** | — | First Amendment, dated  October 31, 2002, to the Employment Agreement between Vornado Realty Trust  and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference to  Exhibit 99.6 to the Schedule 13D filed by Michael D. Fascitelli on November  8, 2002                                                                                                                                                                                                    | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.42** | — | First Amendment, dated  June 7, 2002, to the Convertible Units Agreement between Vornado Realty Trust  and Michael D. Fascitelli, dated December 2, 1996 - Incorporated by reference  to Exhibit 99.3 to the Schedule 13D filed by Michael D. Fascitelli on  November 8, 2002                                                                                                                                                                                              | *      |

 

----

*             Incorporatedby reference.

**           Management contractor compensatory agreement.

 

180

----

 
| 10.43** | — | Second Amendment, dated  October 31, 2002, to the Convertible Units Agreement between Vornado Realty  Trust and Michael D. Fascitelli, dated December 2, 1996 - Incorporated by  reference to Exhibit 99.4 to the Schedule 13D filed by Michael D. Fascitelli  on November 8, 2002                                                                                           | *      |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.44** | — | 2002 Units Agreement  between Vornado Realty Trust and Michael D. Fascitelli, dated March 8, 2002 -  Incorporated by reference to Exhibit 99.7 to the Schedule 13D filed by  Michael D. Fascitelli on November 8, 2002                                                                                                                                                       | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.45** | — | First Amendment, dated  October 31, 2002, to the 2002 Units Agreement between Vornado Realty Trust  and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference to  Exhibit 99.8 to the Schedule 13D filed by Michael D. Fascitelli on November  8, 2002                                                                                                      | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.46** | — | First Amendment, dated  October 31, 2002, to the Registration Agreement between Vornado Realty Trust  and Michael D. Fascitelli, dated December 2, 1996 - Incorporated by reference  to Exhibit 99.9 to the Schedule 13D filed by Michael D. Fascitelli on  November 8, 2002                                                                                                 | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.47** | — | Trust Agreement between  Vornado Realty Trust and Chase Manhattan Bank, dated December 2, 1996 - Incorporated  by reference to Exhibit 99.10 to the Schedule 13D filed by Michael D.  Fascitelli on November 8, 2002                                                                                                                                                         | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.48** | — | First Amendment, dated September 17, 2002, to the Trust Agreement  between Vornado Realty Trust and Chase Manhattan Bank, dated December 2, 1996  - Incorporated by reference to Exhibit 99.11 to the Schedule 13D filed by  Michael D. Fascitelli on November 8, 2002                                                                                                       | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.49   | — | Amended and Restated  Credit Agreement, dated July 3, 2002, between Alexander’s Inc. and Vornado  Lending L.L.C. (evidencing a $50,000,000 line of credit facility) - Incorporated  by reference to Exhibit 10(i)(B)(3) of Alexander’s Inc.’s quarterly report  for the period ended June 30, 2002 (File No. 001-06064), filed on August 7,  2002             | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.50   | — | Credit Agreement, dated  July 3, 2002, between Alexander’s and Vornado Lending L.L.C. (evidencing a  $35,000,000 loan) - Incorporated by reference to Exhibit 10(i)(B)(4) of  Alexander’s Inc.’s quarterly report for the period ended June 30, 2002 (File  No. 001-06064), filed on August 7, 2002                                                           | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.51   | — | Guaranty of Completion,  dated as of July 3, 2002, executed by Vornado Realty L.P. for the benefit of  Bayerische Hypo-und Vereinsbank AG, New York Branch, as Agent for the Lenders  - Incorporated by reference to Exhibit 10(i)(C)(5) of Alexander’s Inc.’s  quarterly report for the period ended June 30, 2002 (File No. 001-06064),  filed on August 7, 2002 | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.52   | — | Reimbursement Agreement,  dated as of July 3, 2002, by and between Alexander’s, Inc., 731 Commercial  LLC, 731 Residential LLC and Vornado Realty L.P. - Incorporated by reference  to Exhibit 10(i)(C)(8) of Alexander’s Inc.’s quarterly report for the period  ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002                           | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.53   | — | Amendment to Real Estate  Retention Agreement, dated as of July 3, 2002, by and between Alexander’s,  Inc. and Vornado Realty L.P. - Incorporated by reference to Exhibit  10(i)(E)(3) of Alexander’s Inc.’s quarterly report for the period ended June  30, 2002 (File No. 001-06064), filed on August 7, 2002                                               | *      |

 

----

*             Incorporatedby reference.

**           Management contractor compensatory agreement.

 

181

----

 
| 10.54   | — | 59th Street Real Estate  Retention Agreement, dated as of July 3, 2002, by and between Vornado Realty  L.P., 731 Residential LLC and 731 Commercial LLC - Incorporated by reference  to Exhibit 10(i)(E)(4) of Alexander’s Inc.’s quarterly report for the period  ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002                                    | *      |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.55   | — | Amended and Restated  Management and Development Agreement, dated as of July 3, 2002, by and  between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management  Corp. - Incorporated by reference to Exhibit 10(i)(F)(1) of Alexander’s  Inc.’s quarterly report for the period ended June 30, 2002 (File No. 001-06064),  filed on August 7, 2002 | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.56   | — | 59th Street Management and  Development Agreement, dated as of July 3, 2002, by and between 731  Commercial LLC and Vornado Management Corp. - Incorporated by reference to  Exhibit 10(i)(F)(2) of Alexander’s Inc.’s quarterly report for the period  ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002                                               | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.57   | — | Amendment dated May 29,  2002, to the Stock Pledge Agreement between Vornado Realty Trust and Steven  Roth dated December 29, 1992 - Incorporated by reference to Exhibit 5 of  Interstate Properties’ Schedule 13D dated May 29, 2002 (File No. 005-44144),  filed on May 30, 2002                                                                                     | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.58** | — | Vornado Realty Trust’s 2002 Omnibus Share Plan - Incorporated by  reference to Exhibit 4.2 to Vornado’s Registration Statement on Form S-3  (File No. 333-102216), filed on December 26, 2002                                                                                                                                                                           | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.59** | — | First Amended and Restated  Promissory Note from Michael D Fascitelli to Vornado Realty Trust, dated  December 17, 2001 - Incorporated by reference to Exhibit 10.59 of Vornado’s  Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-11954),  filed on March 7, 2003                                                                             | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.60** | — | Promissory Note from  Joseph Macnow to Vornado Realty Trust, dated July 23, 2002 - Incorporated by  reference to Exhibit 10.60 of Vornado’s Annual Report on Form 10-K for the  year ended December 31, 2002 (File No. 001-11954), filed on March 7, 2003                                                                                                                    | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.61** | — | Amendment to Employment  Agreement by and between Vornado Realty Trust and Melvyn H. Blum, dated  February 13, 2003 - Incorporated by reference to Exhibit 10.61 of Vornado’s  Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-11954),  filed on March 7, 2003                                                                                 | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.62** | — | Amendment No. 1 to  Deferred Stock Agreement by and between Vornado Realty Trust and Melvyn H.  Blum, dated February 13, 2003 - Incorporated by reference to Exhibit 10.62 of  Vornado’s Annual Report on Form 10-K for the year ended December 31, 2002  (File No. 001-11954), filed on March 7, 2003                                                                       | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.63** | — | Employment agreement between Vornado Realty Trust  and Mitchell Schear, dated April 7, 2003 - Incorporated by reference to  Exhibit 10.1 of Vornado Realty Trust’s Quarterly Report on form 10-Q for the  quarter ended June 30, 2003 (File No. 001-11954), filed on August 8, 2003                                                                                          | *      |

 

----

*             Incorporatedby reference.

**           Management contractor compensatory agreement.

 

182

----

 
| 10.64   | — | Revolving Credit Agreement, dated as of July 2, 2003  among Vornado Realty L.P., as borrower, Vornado Realty Trust, as general  partner, and JPMorgan Chase Bank (as Administrative Agent), Bank of America,  N.A. and Citicorp North American, Inc., Deutsche Bank Trust Company Americas  and Fleet National Bank, and JPMorgan Chase Bank (in its individual capacity)  - Incorporated by reference to Exhibit 10.2 of Vornado Realty Trust’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (File No.  001-11954), filed on August 8, 2003 | *      |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.65   | — | Guaranty of Payment, made as of July 2, 2003, by  Vornado Realty Trust, for the benefit of JPMorgan Chase Bank - Incorporated  by reference to Exhibit 10.3 of Vornado Realty Trust’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2003 (File No. 001-11954), filed on  August 8, 2003                                                                                                                                                                                                                                                            | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.66   | — | Registration Rights Agreement, dated as of July 31,  2003, by and between Vornado Realty Trust and the Unit Holders named therein -  Incorporated by reference to Exhibit 10.4 of Vornado Realty Trust’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2003 (File No.  001-11954), filed on November 7, 2003                                                                                                                                                                                                                             | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.67   | — | Second Amendment to the Registration Rights  Agreement, dated as of July 31, 2003, between Vornado Realty Trust and the  Unit Holders named therein - Incorporated by reference to Exhibit 10.5 of  Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 2003 (File No. 001-11954), filed on November 7, 2003                                                                                                                                                                                                                 | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.68   | — | Registration Rights Agreement between Vornado and  Bel Holdings LLC dated as of November 17, 2003 - Incorporated by  reference to Exhibit 10.68 of Vornado Realty Trust’s Annual Report on Form 10-K  for the year ended December 31, 2003 (File No. 001-11954), filed on March 3,  2004                                                                                                                                                                                                                                                                      | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.69   | — | Registration Rights Agreement, dated as of April 9,  2003, by and between Vornado Realty Trust and the unit holders named therein -  Incorporated by reference to Exhibit 10 to Vornado Realty Trust’s  Registration Statement on Form S-3 (File No. 333-114807), filed on April 23,  2004                                                                                                                                                                                                                                                                         | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.70** |   | Employment Agreement by and between Vornado Realty  Trust and Sandeep Mathrani, dated as of February 4, 2002 - Incorporated by  reference to Exhibit 10.70 of Vornado Realty Trust’s Quarterly Report on Form  10-Q for the quarter ended March 31, 2004 (File No. 001-11954), filed on May  6, 2004                                                                                                                                                                                                                                                               | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.71** |   | First Amendment to the Employment Agreement by and  between Vornado Realty Trust and Sandeep Mathrani, dated as of December 12,  2003 - Incorporated by reference to Exhibit 10.71 of Vornado Realty Trust’s  Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (File No.  001-11954), filed on May 6, 2004                                                                                                                                                                                                                                       | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.72** |   | Deferred Stock Agreement by and between Vornado  Realty Trust and Sandeep Mathrani, dated as of March 4, 2002 - Incorporated  by reference to Exhibit 10.72 of Vornado Realty Trust’s Quarterly Report on  Form 10-Q for the quarter ended March 31, 2004 (File No. 001-11954), filed on  May 6, 2004                                                                                                                                                                                                                                                              | *      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.73** |   | Promissory Note from Melvyn Blum to Vornado Realty  Trust, dated March 11, 2004 - Incorporated by reference to Exhibit 10.73 of  Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended  March 31, 2004 (File No. 001-11954), filed on May 6, 2004                                                                                                                                                                                                                                                                                             | *      |

 

----

*             Incorporatedby reference.

**           Management contractor compensatory agreement.

 

183

----

 
| 10.74   |   | — | Registration Rights Agreement, dated as of October  7, 2003, between Vornado and the Unit Holder named therein - Incorporated by  reference to Exhibit 10.2 to Amendment No. 1 to Vornado Realty Trust’s  Registration Statement on Form S-3 (File No. 333-120384), filed on December  2, 2004                          | *      |
|---------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 10.75   |   | — | Registration Rights Agreement, dated as of May 27,  2004, between Vornado Realty Trust and GSEP 2004 Realty Corp. - Incorporated  by reference to Exhibit 10.75 of Vornado Realty Trust’s annual report on Form  10-K for the year ended December 31, 2004 (File No. 001-11954), filed on  February 25, 2005            | *      |
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 10.76   |   | — | Registration Rights Agreement, dated as of December  17, 2004, between Vornado Realty Trust and Montebello Realty Corp. 2002 - Incorporated  by reference to Exhibit 10.76 of Vornado Realty Trust’s annual report on Form  10-K for the year ended December 31, 2004 (File No. 001-11954), filed on  February 25, 2005 | *      |
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 10.77** |   | — | Form of Stock Option Agreement between Vornado  Realty Trust and certain employees, dated as of February 8, 2005 - Incorporated  by reference to Exhibit 10.77 of Vornado Realty Trust’s annual report on Form  10-K for the year ended December 31, 2004 (File No. 001-11954), filed on  February 25, 2005             | *      |
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 10.78** |   | — | Form of Restricted Stock Option Agreement between Vornado  Realty Trust and certain employees, dated as of February 8, 2005 - Incorporated  by reference to Exhibit 10.78 of Vornado Realty Trust’s annual report on Form  10-K for the year ended December 31, 2004 (File No. 001-11954), filed on  February 25, 2005  | *      |
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 21      |   | — | Subsidiaries of Registrant                                                                                                                                                                                                                                                                                                   |   |
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 23      |   | — | Consent of Independent Registered Public Accounting  Firm                                                                                                                                                                                                                                                                    |   |
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 31.1    |   | — | Rule 13a-14 (a) Certification of the Chief Executive  Officer                                                                                                                                                                                                                                                                |   |
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 31.2    |   | — | Rule 13a-14 (a) Certification of the Chief Financial  Officer                                                                                                                                                                                                                                                                |   |
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 32.1    |   | — | Section 1350 Certification of the Chief Executive  Officer                                                                                                                                                                                                                                                                   |   |
|    |   |   |                                                                                                                                                                                                                                                                                                                         |   |
| 32.2    |   | — | Section 1350 Certification of the Chief Financial  Officer                                                                                                                                                                                                                                                                   |   |

 

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| *  |   | Incorporated by  reference.                     |
|----|--------|-------------------------------------------------|
| ** |   | Management contract or  compensatory agreement. |

 

 

 

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