| Investments in Partially Owned Entities | Investments in Partially Owned Entities Fifth Avenue and Times Square JV As of September 30, 2024, we own a 51.5% common interest in a joint venture ("Fifth Avenue and Times Square JV") which owns interests in properties located at 640 Fifth Avenue, 655 Fifth Avenue, 666 Fifth Avenue, 689 Fifth Avenue, 697-703 Fifth Avenue, 1535 Broadway and 1540 Broadway (collectively, the "Properties"). The remaining 48.5% common interest in the joint venture is owned by a group of institutional investors (the "Investors"). Our 51.5% common interest in the joint venture represents an effective 51.0% interest in the Properties. The 48.5% common interest in the joint venture owned by the Investors represents an effective 47.2% interest in the Properties. We provide various services to Fifth Avenue and Times Square JV in accordance with management, development, leasing and other agreements. We also own $1.828 billion aggregate liquidation preference of preferred equity interests in certain of the Properties. The preferred equity had an annual coupon of 4.25% through April 2024, increasing to 4.75% for the subsequent five years and thereafter at a formulaic rate. It can be redeemed under certain conditions on a tax deferred basis. Fifth Avenue and Times Square JV operates pursuant to a limited partnership agreement (the “Partnership Agreement”) among VRLP, a wholly owned subsidiary of VRLP (“Vornado GP”) and the Investors. Vornado GP is the general partner of Fifth Avenue and Times Square JV. VRLP is jointly and severally liable with Vornado GP for Vornado GP’s obligations under the Partnership Agreement. Pursuant to the Partnership Agreement and the organizational documents of the entities owning the Properties, the Investors or directors of the entities owning the Properties appointed by the Investors, as the case may be, have the right to approve annual business plans and budgets for the Properties and certain other specified major decisions with respect to the Properties and Fifth Avenue and Times Square JV. The Partnership Agreement affords the Investors the right to remove and replace Vornado GP in the event Vornado GP or certain of its affiliates commit fraud or other bad acts in connection with Fifth Avenue and Times Square JV, become bankrupt or insolvent, or default on certain of their respective obligations under the Partnership Agreement (subject to notice and cure periods in certain circumstances). The Partnership Agreement includes (i) remedies for the failure of any partner to make a required capital contribution for necessary expenses and (ii) liquidity provisions, including transfer rights subject to mutual rights of first offer and a mutual buy-sell, customary for similar partnerships. Subject to certain limitations, either party may transfer more than 50% or control of its respective interests in Fifth Avenue and Times Square JV or exercise a buy-sell on a Property-by-Property basis (with only one property subject to a buy-sell at any time), and commencing April 18, 2029, either party may exercise a buy-sell on multiple properties concurrently. In the event the buy-sell is exercised with respect to any Property in which VRLP holds preferred equity and VRLP is the selling partner in the buy-sell, VRLP may elect whether or not to include its preferred equity in the buy-sell for the Property to be sold. As of September 30, 2024, the carrying amount of our investment in the joint venture was less than our share of the equity in the net assets of the joint venture by approximately $828,466,000, the basis difference primarily resulting from non-cash impairment losses recognized in prior periods. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Fifth Avenue and Times Square JV’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as a reduction to depreciation expense over their estimated useful lives. On June 10, 2024, the Fifth Avenue and Times Square JV completed a $400,000,000 refinancing of 640 Fifth Avenue. The non-recourse loan matures in July 2029, bears interest at a fixed rate of 7.47% and amortizes at $7,000,000 per annum. The loan replaces the previous $500,000,000 loan, which the joint venture paid down by $100,000,000. The previous loan was fully recourse to the Operating Partnership and bore interest at SOFR plus 1.11%. On August 2, 2024, the Fifth Avenue and Times Square JV entered into an agreement to sell UNIQLO the portion of its U.S. flagship store at 666 Fifth Avenue owned by the retail joint venture for $350,000,000. The joint venture owns the fee condominium interest in 17,295 square feet (6,477 square feet at grade) of UNIQLO’s 90,732 square foot store. In conjunction with the closing, the pass-through leases between the office condominium owner and the retail joint venture will be terminated. The joint venture will continue to own 23,832 square feet of retail space (7,416 square feet at grade) at 666 Fifth Avenue consisting of the Abercrombie & Fitch and Tissot stores. All of the estimated $340,000,000 of net proceeds from the sale are expected to be used to partially repay Vornado’s $390,000,000 of preferred equity in the asset. The sale is subject to customary closing conditions and the concurrent closing by UNIQLO of its separate transaction with the office condominium owner for the remainder of its store and is expected to close once the formation of the new condominium interests are completed, anticipated to occur by the first quarter of 2025. 5. Investments in Partially Owned Entities - continued Alexander's, Inc. ("Alexander's") (NYSE: ALX) As of September 30, 2024, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, develop and lease Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. In addition, wholly owned subsidiaries of Vornado provide cleaning, engineering, security, and garage management services to certain Alexander’s properties. As of September 30, 2024, the market value ("fair value" pursuant to ASC Topic 820, Fair Value Measurements ("ASC 820")) of our investment in Alexander’s, based on Alexander’s September 30, 2024 closing share price of $242.36, was $400,880,000, or $327,997,000 in excess of the carrying amount on our consolidated balance sheets. As of September 30, 2024, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeded our share of the equity in the net assets of Alexander’s by approximately $29,297,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income. We provide Alexander’s with leasing services for a fee of 3% of rent for the first ten years of a lease term, 2% of rent for the eleventh through the twentieth year of a lease term, and 1% of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by tenants. Under the agreements in effect prior to May 1, 2024, in the event third-party real estate brokers were used, the fees due to us increased by 1% and we were responsible for the payment of fees to the third-party real estate brokers (“Third-Party Lease Commissions”). On May 1, 2024, our Board of Trustees approved amendments to the leasing agreements, subject to applicable consents from Alexander’s lenders, pursuant to which Alexander’s is directly responsible for any Third-Party Lease Commissions and, in such circumstances, our fee is one-third of the applicable Third-Party Lease Commissions. On May 3, 2024, Alexander’s and Bloomberg L.P. reached an agreement to extend the leases covering approximately 947,000 square feet at 731 Lexington Avenue that were scheduled to expire in February 2029 for a term of eleven years to February 2040. In connection with the lease amendments discussed above, Alexander’s paid a leasing commission to a third-party real estate broker and paid us a $5,500,000 leasing commission override. On September 30, 2024, Alexander’s completed a $400,000,000 refinancing of the office condominium portion of 731 Lexington Avenue, the Bloomberg LP headquarters building. The interest-only loan carries a fixed rate of 5.04% and matures in October 2028. The loan is prepayable, at Alexander’s option, with no penalty, beginning in October 2026. The loan replaces the previous $490,000,000 loan on the office condominium, that bore interest at the Prime Rate and was scheduled to mature in October 2024. 280 Park Avenue On April 4, 2024, a joint venture, in which we have a 50% interest, amended and extended the $1,075,000,000 mortgage loan on 280 Park Avenue. The maturity date on the amended loan was extended to September 2026, with options to fully extend to September 2028, subject to certain conditions. The interest rate on the amended loan remains at SOFR plus 1.78%. On July 8, 2024, the joint venture swapped the interest rate to a fixed rate of 5.84% through September 2028. Additionally, on April 4, 2024, the joint venture amended and extended the $125,000,000 mezzanine loan, and subsequently repaid the loan for $62,500,000. In connection with the repayment of the mezzanine loan, we recognized our $31,215,000 share of the debt extinguishment gain which is included in “income from partially owned entities” on our consolidated statements of income. 50-70 West 93rd Street On May 13, 2024, we sold our 49.9% interest in 50-70 West 93rd Street to our joint venture partner. We received net proceeds of $2,000,000 after deducting our share of the existing $83,500,000 mortgage loan, which was scheduled to mature in December 2024, resulting in a net gain of $873,000. The net gain is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. 5. Investments in Partially Owned Entities - continued 85 Tenth Avenue On September 24, 2024, a joint venture, in which we have a 49.9% interest, modified the terms of the $625,000,000 mortgage loan on 85 Tenth Avenue. Per the original loan agreement, the mortgage loan is comprised of a (i) $396,000,000 3.82% senior note, (ii) $129,000,000 5.20% mezzanine A note and (iii) $100,000,000 6.60% mezzanine B note. The modification provides for the interest payments due under the mezzanine notes to be deferred until the December 2026 loan maturity. The deferred amounts will not accrue additional interest. The cash available from the deferred interest payments will be used to fund leasing costs at the property. At loan maturity, if there is no event of default, repayment of 50% of the accrued mezzanine interest will be waived. Below is a schedule summarizing our investments in partially owned entities. (Amounts in thousands) Percentage Ownership as of September 30, 2024 Balance as of September 30, 2024 December 31, 2023 Investments: Fifth Avenue and Times Square JV (see page 24 51.5% $ 2,238,486 $ 2,242,972 Partially owned office buildings/land (1) Various 175,744 118,558 Alexander's (see page 25 32.4% 72,883 87,510 Other investments (2) Various 195,559 161,518 $ 2,682,672 $ 2,610,558 Investments in partially owned entities included in other liabilities (3) : 7 West 34th Street 53.0% $ (71,122) $ (69,899) 85 Tenth Avenue 49.9% (17,455) (11,330) $ (88,577) $ (81,229) ____________________ (1) Includes interests in 280 Park Avenue, 512 West 22nd Street, 61 Ninth Avenue and others. (2) Includes interests in Independence Plaza, Sunset Pier 94 Joint Venture (“Pier 94 JV”), Rosslyn Plaza and others. (3) Our negative basis results from distributions in excess of our investment. Below is a schedule of income from partially owned entities. (Amounts in thousands) Percentage Ownership as of September 30, 2024 For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 Our share of net income (loss): Fifth Avenue and Times Square JV (see page 24 Equity in net income 51.5% $ 9,253 $ 10,917 $ 28,971 $ 27,057 (1) Return on preferred equity, net of our share of the expense 10,541 9,430 30,127 27,985 19,794 20,347 59,098 55,042 Alexander's (see page 25 Equity in net income 32.4% 2,099 3,341 9,902 10,230 Management, leasing and development fees 1,530 1,184 3,895 4,056 Net gain on sale of land — — — 16,396 3,629 4,525 13,797 30,682 Partially owned office buildings (2) Various (7,633) (7,647) 3,261 (3) (16,864) Other investments (4) Various 2,439 1,044 6,301 3,347 $ 18,229 $ 18,269 $ 82,457 $ 72,207 ____________________ (1) Includes a $5,120 accrual of default interest which was forgiven by the lender as part of the restructuring of the 697-703 Fifth Avenue loan which is being amortized over the remaining term of the restructured loan, reducing future interest expense. (2) Includes interests in 280 Park Avenue, 7 West 34th Street, 512 West 22nd Street, 61 Ninth Avenue, 85 Tenth Avenue and others. (3) Includes our $31,215 share of the debt extinguishment gain from the repayment of the 280 Park Avenue mezzanine loan. See page 25 (4) Includes interests in Independence Plaza, Rosslyn Plaza and others. |
