vrt2q2012.htm - Generated by SEC Publisher for SEC Filing

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:

June 30, 2012

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

For the transition period from:

Commission File Number:

001-11954

VORNADO REALTY TRUST

(Exact name of registrant as specified in its charter)

Maryland		22-1657560
(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)

(212) 894-7000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

x Large Accelerated Filer		o Accelerated Filer
o Non-Accelerated Filer (Do not check if smaller reporting company)		o Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of June 30, 2012, 185,814,787 of the registrant’s common shares of beneficial interest are outstanding.


PART I.		Financial Information:	Page Number

	Item 1.	Financial Statements:

		Consolidated Balance Sheets (Unaudited) as of
		June 30, 2012 and December 31, 2011	3

		Consolidated Statements of Income (Unaudited) for the
		Three and Six Months Ended June 30, 2012 and 2011	4

		Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
		for the Three and Six Months Ended June 30, 2012 and 2011	5

		Consolidated Statements of Changes in Equity (Unaudited) for the
		Six Months Ended June 30, 2012 and 2011	6

		Consolidated Statements of Cash Flows (Unaudited) for the
		Six Months Ended June 30, 2012 and 2011	8

		Notes to Consolidated Financial Statements (Unaudited)	10

		Report of Independent Registered Public Accounting Firm	38

	Item 2.	Management's Discussion and Analysis of Financial
		Condition and Results of Operations	39

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	78

	Item 4.	Controls and Procedures	79


PART II.		Other Information:

	Item 1.	Legal Proceedings	80

	Item 1A.	Risk Factors	81

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81

	Item 3.	Defaults Upon Senior Securities	81

	Item 4.	Mine Safety Disclosures	81

	Item 5.	Other Information	81

	Item 6.	Exhibits	81

SIGNATURES			82

EXHIBIT INDEX			83

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(Amounts in thousands, except share and per share amounts)			June 30,		December 31,
ASSETS			2012		2011
Real estate, at cost:
	Land		$	4,598,453	$	4,578,962
	Buildings and improvements			12,298,264		12,328,234
	Development costs and construction in progress			140,394		121,555
	Leasehold improvements and equipment			125,339		126,841
		Total		17,162,450		17,155,592
	Less accumulated depreciation and amortization			(3,070,968)		(2,979,897)
Real estate, net				14,091,482		14,175,695
Cash and cash equivalents				471,363		606,553
Restricted cash				112,726		98,068
Marketable securities				466,599		741,321
Accounts receivable, net of allowance for doubtful accounts of $42,166 and $43,241				180,769		171,798
Investments in partially owned entities				1,285,147		1,233,650
Investment in Toys "R" Us				573,292		506,809
Real Estate Fund investments				460,496		346,650
Mezzanine loans receivable				132,369		133,948
Receivable arising from the straight-lining of rents, net of allowance of $2,909 and $3,290				755,926		712,231
Deferred leasing and financing costs, net of accumulated amortization of $222,123 and $241,073				382,210		368,873
Identified intangible assets, net of accumulated amortization of $349,060 and $347,105				266,386		295,460
Assets related to discontinued operations				301,946		661,724
Due from officers				-		13,127
Other assets				523,054		380,580
			$	20,003,765	$	20,446,487

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Notes and mortgages payable			$	8,360,192	$	8,483,621
Senior unsecured notes				1,357,835		1,357,661
Revolving credit facility debt				500,000		138,000
Exchangeable senior debentures				-		497,898
Convertible senior debentures				-		10,168
Accounts payable and accrued expenses				431,346		423,512
Deferred revenue				481,302		511,959
Deferred compensation plan				101,163		95,457
Deferred tax liabilities				15,577		13,315
Liabilities related to discontinued operations				70,844		93,603
Other liabilities				175,056		152,169
	Total liabilities			11,493,315		11,777,363
Commitments and contingencies
Redeemable noncontrolling interests:
	Class A units - 12,036,494 and 12,160,771 units outstanding			1,010,825		934,677
	Series D cumulative redeemable preferred units - 9,000,001 units outstanding			226,000		226,000
		Total redeemable noncontrolling interests		1,236,825		1,160,677
Vornado shareholders' equity:
	Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
		shares; issued and outstanding 42,184,609 and 42,186,709 shares		1,021,555		1,021,660
	Common shares of beneficial interest: $.04 par value per share; authorized
		250,000,000 shares; issued and outstanding 185,814,787 and 185,080,020 shares		7,402		7,373
	Additional capital			7,059,872		7,127,258
	Earnings less than distributions			(1,420,304)		(1,401,704)
	Accumulated other comprehensive (loss) income			(162,785)		73,729
		Total Vornado shareholders' equity		6,505,740		6,828,316
Noncontrolling interests in consolidated subsidiaries				767,885		680,131
	Total equity			7,273,625		7,508,447
			$	20,003,765	$	20,446,487

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

		For the Three				For the Six
		Months Ended June 30,				Months Ended June 30,
(Amounts in thousands, except per share amounts)		2012		2011		2012		2011

REVENUES:
	Property rentals	$	532,399	$	544,905	$	1,067,374	$	1,084,814
	Tenant expense reimbursements		78,833		77,902		157,934		164,507
	Cleveland Medical Mart development project		56,304		32,369		111,363		73,068
	Fee and other income		33,055		40,862		66,344		75,048
Total revenues			700,591		696,038		1,403,015		1,397,437
EXPENSES:
	Operating		251,970		257,228		515,339		528,642
	Depreciation and amortization		132,529		125,802		267,983		251,598
	General and administrative		46,834		49,795		102,405		108,243
	Cleveland Medical Mart development project		53,935		29,940		106,696		68,218
	Acquisition related costs and tenant buy-outs		2,559		1,897		3,244		20,167
Total expenses			487,827		464,662		995,667		976,868
Operating income			212,764		231,376		407,348		420,569
(Loss) income applicable to Toys "R" Us			(19,190)		(22,846)		97,281		90,098
Income from partially owned entities			12,563		26,016		32,223		41,895
Income from Real Estate Fund (of which $12,306 and $12,102 in
	each three-month period, respectively, and $20,239 and $12,028
	in each six-month period, respectively, are attributable to
	noncontrolling interests)		20,301		19,058		32,063		20,138
Interest and other investment (loss) income, net			(49,172)		7,998		(33,507)		125,097
Interest and debt expense (including amortization of deferred
	financing costs of $5,855 and $5,191, in each three-month period,
	respectively, and $11,720 and $9,792 in each six-month
	period, respectively)		(128,427)		(135,361)		(262,655)		(268,296)
Net gain on disposition of wholly owned and partially owned assets			4,856		-		4,856		6,677
Income before income taxes			53,695		126,241		277,609		436,178
Income tax expense			(7,479)		(5,641)		(14,304)		(11,589)
Income from continuing operations			46,216		120,600		263,305		424,589
Income from discontinued operations			12,012		10,369		75,187		152,201
Net income			58,228		130,969		338,492		576,790
Less net income attributable to noncontrolling interests in:
	Consolidated subsidiaries		(14,721)		(13,657)		(24,318)		(15,007)
	Operating Partnership, including unit distributions		(5,210)		(8,731)		(24,355)		(40,539)
Net income attributable to Vornado			38,297		108,581		289,819		521,244
Preferred share dividends			(17,787)		(16,668)		(35,574)		(30,116)
NET INCOME attributable to common shareholders		$	20,510	$	91,913	$	254,245	$	491,128

INCOME PER COMMON SHARE - BASIC:
	Income from continuing operations, net	$	0.05	$	0.44	$	0.99	$	1.89
	Income from discontinued operations, net		0.06		0.06		0.38		0.78
	Net income per common share	$	0.11	$	0.50	$	1.37	$	2.67
	Weighted average shares outstanding		185,673		184,268		185,521		184,129

INCOME PER COMMON SHARE - DILUTED:
	Income from continuing operations, net	$	0.05	$	0.44	$	0.98	$	1.88
	Income from discontinued operations, net		0.06		0.05		0.38		0.75
	Net income per common share	$	0.11	$	0.49	$	1.36	$	2.63
	Weighted average shares outstanding		186,342		186,144		186,271		191,736

DIVIDENDS PER COMMON SHARE		$	0.69	$	0.69	$	1.38	$	1.38


See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)


			For the Three				For the Six
			Months Ended June 30,				Months Ended June 30,
(Amounts in thousands)			2012		2011		2012		2011

Net income			$	58,228	$	130,969	$	338,492	$	576,790
Other comprehensive (loss) income:
	Change in unrealized net (loss) gain on securities
		available-for-sale		(233,218)		(27,195)		(220,525)		40,844
	Pro rata share of other comprehensive (loss) income of
		nonconsolidated subsidiaries		(4,310)		30,156		(26,254)		26,365
	Change in value of interest rate swap			(8,388)		(10,887)		(6,002)		(18,034)
	Other			496		(5,105)		373		(5,045)
Comprehensive (loss) income				(187,192)		117,938		86,084		620,920
Less comprehensive income attributable to noncontrolling interests				(4,470)		(21,875)		(32,779)		(58,650)
Comprehensive (loss) income attributable to Vornado			$	(191,662)	$	96,063	$	53,305	$	562,270


See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)

															Accumulated
(Amounts in thousands)													Earnings		Other		Non-
			Preferred Shares				Common Shares				Additional		Less Than		Comprehensive		controlling		Total
			Shares		Amount		Shares		Amount		Capital		Distributions		Income (Loss)		Interests		Equity
Balance, December 31, 2010				32,340	$	783,088		183,662	$	7,317	$	6,932,728	$	(1,480,876)	$	73,453	$	514,695	$	6,830,405
Net income				-		-		-		-		-		521,244		-		15,007		536,251
Dividends on common shares				-		-		-		-		-		(254,099)		-		-		(254,099)
Dividends on preferred shares				-		-		-		-		-		(30,116)		-		-		(30,116)
Issuance of Series J preferred shares				8,850		214,538		-		-		-		-		-		-		214,538
Common shares issued:
	Upon redemption of Class A
		units, at redemption value		-		-		401		16		35,192		-		-		-		35,208
	Under employees' share
		option plan		-		-		343		14		20,434		(397)		-		-		20,051
	Under dividend reinvestment plan			-		-		10		-		883		-		-		-		883
Contributions:
	Real Estate Fund			-		-		-		-		-		-		-		109,241		109,241
	Other			-		-		-		-		-		-		-		364		364
Distributions:
	Real Estate Fund			-		-		-		-		-		-		-		(20,796)		(20,796)
	Other			-		-		-		-		-		-		-		(15,604)		(15,604)
Conversion of Series A preferred
	shares to common shares			(1)		(75)		2		-		75		-		-		-		-
Deferred compensation shares
	and options			-		-		10		-		5,122		-		-		-		5,122
Change in unrealized net gain
	on securities available-for-sale			-		-		-		-		-		-		40,844		-		40,844
Pro rata share of other
	comprehensive income of
	nonconsolidated subsidiaries			-		-		-		-		-		-		26,365		-		26,365
Change in value of interest rate swap				-		-		-		-		-		-		(18,034)		-		(18,034)
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		-		(104,693)		-		-		-		(104,693)
Redeemable noncontrolling interests'
	share of above adjustments			-		-		-		-		-		-		(3,104)		-		(3,104)
Other				-		(105)		-		-		(4,518)		(10)		(5,045)		4,376		(5,302)
Balance, June 30, 2011				41,189	$	997,446		184,428	$	7,347	$	6,885,223	$	(1,244,254)	$	114,479	$	607,283	$	7,367,524


See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - CONTINUED
(UNAUDITED)

															Accumulated
(Amounts in thousands)													Earnings		Other		Non-
			Preferred Shares				Common Shares				Additional		Less Than		Comprehensive		controlling		Total
			Shares		Amount		Shares		Amount		Capital		Distributions		Income (Loss)		Interests		Equity
Balance, December 31, 2011				42,187	$	1,021,660		185,080	$	7,373	$	7,127,258	$	(1,401,704)	$	73,729	$	680,131	$	7,508,447
Net income				-		-		-		-		-		289,819		-		24,318		314,137
Dividends on common shares				-		-		-		-		-		(256,119)		-		-		(256,119)
Dividends on preferred shares				-		-		-		-		-		(35,574)		-		-		(35,574)
Common shares issued:
	Upon redemption of Class A
		units, at redemption value		-		-		303		12		24,964		-		-		-		24,976
	Under employees' share
		option plan		-		-		412		16		8,800		(16,389)		-		-		(7,573)
	Under dividend reinvestment plan			-		-		10		1		842		-		-		-		843
Contributions:
	Real Estate Fund			-		-		-		-		-		-		-		108,319		108,319
	Other			-		-		-		-		-		-		-		30		30
Distributions:
	Real Estate Fund			-		-		-		-		-		-		-		(44,910)		(44,910)
Conversion of Series A preferred
	shares to common shares			(2)		(105)		3		-		105		-		-		-		-
Deferred compensation shares
	and options			-		-		7		-		8,484		(339)		-		-		8,145
Change in unrealized net loss
	on securities available-for-sale			-		-		-		-		-		-		(220,525)		-		(220,525)
Pro rata share of other
	comprehensive loss of
	nonconsolidated subsidiaries			-		-		-		-		-		-		(26,254)		-		(26,254)
Change in value of interest rate swap				-		-		-		-		-		-		(6,002)		-		(6,002)
Adjustments to carry redeemable
	Class A units at redemption value			-		-		-		-		(110,581)		-		-		-		(110,581)
Redeemable noncontrolling interests'
	share of above adjustments			-		-		-		-		-		-		15,894		-		15,894
Other				-		-		-		-		-		2		373		(3)		372
Balance, June 30, 2012				42,185	$	1,021,555		185,815	$	7,402	$	7,059,872	$	(1,420,304)	$	(162,785)	$	767,885	$	7,273,625



See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

			For the Six Months Ended
			June 30,
			2012		2011
(Amounts in thousands)
Cash Flows from Operating Activities:
Net income			$	338,492	$	576,790
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization (including amortization of deferred financing costs)			285,617		273,980
	Equity in net income of partially owned entities, including Toys “R” Us			(129,504)		(131,993)
	Net gains on sale of real estate			(72,713)		(51,623)
	Loss (income) from the mark-to-market of J.C. Penney derivative position			57,687		(10,401)
	Straight-lining of rental income			(43,124)		(22,291)
	Distributions of income from partially owned entities			34,613		43,741
	Unrealized gain on Real Estate Fund assets			(27,979)		(13,570)
	Amortization of below-market leases, net			(26,457)		(33,704)
	Other non-cash adjustments			20,993		14,381
	Impairment losses			13,511		-
	Net gain on disposition of wholly owned and partially owned assets			(4,856)		(6,677)
	Net gain on extinguishment of debt			-		(83,907)
	Mezzanine loans loss reversal and net gain on disposition			-		(82,744)
	Changes in operating assets and liabilities:
		Real Estate Fund investments		(85,867)		(97,802)
		Accounts receivable, net		(8,971)		(11,478)
		Prepaid assets		(100,012)		(117,503)
		Other assets		(18,582)		(10,424)
		Accounts payable and accrued expenses		25,940		13,250
		Other liabilities		5,076		12,015
Net cash provided by operating activities				263,864		260,040

Cash Flows from Investing Activities:
	Proceeds from sales of real estate and related investments			370,037		130,789
	Additions to real estate			(83,368)		(86,944)
	Funding of J.C. Penney derivative collateral			(70,000)		-
	Proceeds from sales of marketable securities			58,460		19,301
	Development costs and construction in progress			(58,069)		(32,489)
	Investments in partially owned entities			(57,237)		(426,376)
	Acquisitions of real estate and other			(32,156)		-
	Return of J.C. Penney derivative collateral			24,950		-
	Distributions of capital from partially owned entities			17,963		271,375
	Restricted cash			(14,658)		91,127
	Proceeds from the repayment of loan to officer			13,123		-
	Proceeds from sales and repayments of mezzanine loans			1,994		99,990
	Investments in mezzanine loans receivable and other			(145)		(43,516)
Net cash provided by investing activities				170,894		23,257

See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)

				For the Six Months Ended
				June 30,
				2012		2011
(Amounts in thousands)
Cash Flows from Financing Activities:
	Repayments of borrowings			$	(1,507,220)	$	(1,636,817)
	Proceeds from borrowings				1,225,000		1,284,167
	Dividends paid on common shares				(256,119)		(254,099)
	Contributions from noncontrolling interests				108,349		109,605
	Distributions to noncontrolling interests				(69,367)		(62,111)
	Dividends paid on preferred shares				(35,576)		(27,117)
	Repurchase of shares related to stock compensation agreements and/or related
		tax withholdings			(30,034)		(748)
	Debt issuance and other costs				(14,648)		(23,319)
	Proceeds received from exercise of employee share options				9,667		21,330
	Proceeds from the issuance of Series J preferred shares				-		214,538
	Purchases of outstanding preferred units and shares				-		(8,000)
Net cash used in financing activities					(569,948)		(382,571)
Net decrease in cash and cash equivalents					(135,190)		(99,274)
Cash and cash equivalents at beginning of period					606,553		690,789
Cash and cash equivalents at end of period				$	471,363	$	591,515


Supplemental Disclosure of Cash Flow Information:
	Cash payments for interest, net of capitalized interest of $361 and $0			$	163,928	$	256,776
	Cash payments for income taxes			$	6,494	$	5,416


Non-Cash Investing and Financing Activities:
	Change in unrealized net (loss) gain on securities available-for-sale			$	(220,525)	$	40,844
	Adjustments to carry redeemable Class A units at redemption value				(110,581)		(104,693)
	L.A. Mart seller financing				35,000		-
	Common shares issued upon redemption of Class A units, at redemption value				24,976		35,208
	Contribution of mezzanine loan receivable to a joint venture				-		73,750
	Like-kind exchange of real estate				-		(45,625)
	Decrease in assets and liabilities resulting from deconsolidation
		of discontinued operations:
			Assets related to discontinued operations		-		(145,333)
			Liabilities related to discontinued operations		-		(232,502)
	Write-off of fully depreciated assets				(131,770)		(32,794)


See notes to consolidated financial statements (unaudited).

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of, and owned approximately 93.6% of the common limited partnership interest in the Operating Partnership at June 30, 2012. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

2. Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado, and the Operating Partnership and its consolidated partially owned entities. All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011, as filed with the SEC.

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the operating results for the full year. Certain prior year balances have been reclassified in order to conform to current year presentation.

3. Recently Issued Accounting Literature

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU No. 2011-04”). ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”) and requires additional disclosures, including: (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy. The adoption of this update on January 1, 2012 did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures (see Note 14 – Fair Value Measurements).

4. Acquisitions

On July 5, 2012, we entered into an agreement to acquire a retail condominium located at 666 Fifth Avenue at 53rd Street for $707,000,000. The property has 126 feet of frontage on Fifth Avenue and contains 114,000 square feet, 39,000 square feet in fee and 75,000 square feet by long-term lease from the 666 Fifth Avenue office condominium, which is 49.5% owned by Vornado. The acquisition will be funded by property level debt and proceeds from asset sales, and is expected to close in the fourth quarter, subject to customary closing conditions.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

4. Acquisitions- continued

On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE:HST), under which we will redevelop the retail and signage components of the Marriott Marquis Times Square Hotel. The lease contains options based on cash flow which, if exercised, would lead to our ownership. The Marriott Marquis with over 1,900 rooms is one of the largest hotels in Manhattan. It is located in the heart of the bow-tie of Times Square and spans the entire block front from 45th Street to 46th Street on Broadway. The Marriott Marquis is directly across from our 1540 Broadway iconic retail property leased to Forever 21 and Disney flagship stores. We plan to spend as much as $140 million to redevelop and substantially expand the existing retail space, including converting the below grade parking garage into retail, and creating six-story, 300 feet wide block front dynamic LED signs.

5. Vornado Capital Partners Real Estate Fund (the “Fund”)

In February 2011, the Fund’s subscription period closed with an aggregate of $800,000,000 of capital commitments, of which we committed $200,000,000. We are the general partner and investment manager of the Fund, which has an eight-year term and a three-year investment period. During the investment period, which concludes in July 2013, the Fund is our exclusive investment vehicle for all investments that fit within its investment parameters, as defined. The Fund is accounted for under the AICPA Investment Company Guide and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings. We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.

On April 26, 2012, the Fund acquired 520 Broadway, a 112,000 square foot office building located in Santa Monica, California for $59,650,000 and subsequently placed a $30,000,000 mortgage loan on the property. The three-year loan bears interest at LIBOR plus 2.25% and has two one-year extension options.

On June 28, 2012, the Fund made an investment in an unconsolidated subsidiary that, on July 2, 2012, acquired 1100 Lincoln Road, a 167,000 square foot retail property, the western anchor of the Lincoln Road Shopping District in Miami Beach, Florida, for $132,000,000. The purchase price consisted of $66,000,000 in cash and a $66,000,000 mortgage loan. The three-year loan bears interest at LIBOR plus 2.75% and has two one-year extension options.

At June 30, 2012, the Fund had seven investments with an aggregate fair value of approximately $460,496,000, or $40,260,000 in excess of cost, and had remaining unfunded commitments of $330,753,000, of which our share was $82,688,250. Below is a summary of income from the Fund for the three and six months ended June 30, 2012 and 2011.

		For the Three Months				For the Six Months
(Amounts in thousands)		Ended June 30,				Ended June 30,
		2012		2011		2012		2011
Operating (loss) income		$	(834)	$	3,101	$	4,084	$	3,483
Net realized gain			-		3,085		-		3,085
Net unrealized gains			21,135		12,872		27,979		13,570
Income from Real Estate Fund			20,301		19,058		32,063		20,138
Less (income) attributable to noncontrolling interests			(12,306)		(12,102)		(20,239)		(12,028)
Income from Real Estate Fund attributable to Vornado ⁽¹⁾		$	7,995	$	6,956	$	11,824	$	8,110
___________________________________

(1)	Excludes management, leasing and development fees of $600 and $865 for the three months ended June 30, 2012 and 2011, respectively, and $1,303 and $1,165 for the six months ended June 30, 2012 and 2011, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

6. Mezzanine Loans Receivable

As of June 30, 2012 and December 31, 2011, the carrying amount of mezzanine loans receivable was $132,369,000 and $133,948,000, respectively. These loans have a weighted average interest rate of 9.53% and maturities ranging from August 2014 to May 2016.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

7. Marketable Securities and Derivative Instruments

Marketable Securities

Our portfolio of marketable securities is comprised of debt and equity securities that are classified as available for sale. Available for sale securities are presented on our consolidated balance sheets at fair value. Gains and losses resulting from the mark-to-market of these securities are included in “other comprehensive (loss) income.” Gains and losses are recognized in earnings only upon the sale of the securities and are recorded based on the weighted average cost of such securities.

In the six months ended June 30, 2012 and 2011, we sold certain marketable securities for aggregate proceeds of $58,460,000 and $19,301,000, resulting in net gains of $3,582,000 and $2,139,000, respectively, of which $3,582,000 and $48,000 were recognized in the three months ended June 30, 2012 and 2011.

Below is a summary of our marketable securities portfolio as of June 30, 2012 and December 31, 2011.

		As of June 30, 2012							As of December 31, 2011
					GAAP		Unrealized					GAAP		Unrealized
		Maturity	Fair Value		Cost		(Loss) Gain		Maturity	Fair Value		Cost		Gain
Equity securities:
	J.C. Penney	n/a	$	433,193	$	591,214	$	(158,021)	n/a	$	653,228	$	591,069	$	62,159
	Other	n/a		33,406		14,183		19,223	n/a		30,568		14,585		15,983
Debt securities		n/a		-		-		-	04/13 - 10/18		57,525		53,941		3,584
			$	466,599	$	605,397	$	(138,798)		$	741,321	$	659,595	$	81,726

Investment in J.C. Penney Company, Inc. (“J.C. Penney”) (NYSE: JCP)

We own 23,400,000 J.C. Penney common shares, or 11.0% of its outstanding common shares. Below are the details of our investment.

We own 18,584,010 common shares at an average economic cost of $25.76 per share, or $478,677,000 in the aggregate. As of June 30, 2012, these shares have an aggregate fair value of $433,193,000, based on J.C. Penney’s closing share price of $23.31 per share. Unrealized gains and losses from the mark-to-market of these shares are included in “other comprehensive (loss) income.” The three and six months ended June 30, 2012 include $225,383,000 and $220,180,000, respectively, of unrealized losses. The three and six months ended June 30, 2011 include $25,611,000 of unrealized losses and $41,292,000 of unrealized gains, respectively.

We also own an economic interest in 4,815,990 common shares through a forward contract executed on October 7, 2010, at a weighted average strike price of $28.93 per share, or $139,348,000 in the aggregate. The contract may be settled, at our election, in cash or common shares, in whole or in part, at any time prior to October 9, 2012. The strike price per share increases at an annual rate of LIBOR plus 80 basis points. The contract is a derivative instrument that does not qualify for hedge accounting treatment. Gains and losses from the mark-to-market of the underlying common shares are recognized in “interest and other investment (loss) income, net” on our consolidated statements of income. In the three and six months ended June 30, 2012, we recognized losses of $58,732,000 and $57,687,000, respectively, from the mark-to-market of the underlying common shares, and as of June 30, 2012, have funded $45,050,000 in connection with this derivative position. In the three and six months ended June 30, 2011, we recognized a loss of $6,762,000 and income of $10,401,000, respectively, from the mark-to-market of the underlying common shares.

At June 30, 2012, the aggregate economic net loss on our investment in J.C. Penney, after dividends, was $43,224,000, based on our economic cost of $26.41 per share.

8. Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

As of June 30, 2012, we own 32.5% of Toys. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. We account for our investment in Toys under the equity method and record our 32.5% share of Toys net income or loss on a one-quarter lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. As of June 30, 2012, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of Toys on a purchase accounting basis.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8. Investments in Partially Owned Entities – continued

Below is a summary of Toys’ latest available financial information on a purchase accounting basis:

(Amounts in thousands)						Balance as of
Balance Sheet:						April 28, 2012		October 29, 2011
	Assets					$	11,889,000	$	13,221,000
	Liabilities						9,969,000		11,530,000
	Noncontrolling interests						34,000		-
	Toys “R” Us, Inc. equity						1,886,000		1,691,000

		For the Three Months Ended				For the Six Months Ended
Income Statement:		April 28, 2012		April 30, 2011		April 28, 2012		April 30, 2011
	Total revenues	$	2,612,000	$	2,636,000	$	8,537,000	$	8,608,000
	Net (loss) income attributable to Toys		(66,000)		(77,000)		283,000		262,000

Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX)

As of June 30, 2012, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of June 30, 2012, Alexander’s owed us $40,480,000 in fees under these agreements.

As of June 30, 2012, the market value of our investment in Alexander’s, based on Alexander’s June 30, 2012 closing share price of $431.11, was $713,085,000, or $524,376,000 in excess of the carrying amount on our consolidated balance sheet. As of June 30, 2012, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $58,552,000. 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 amortization is not material to our share of equity in Alexander’s net income. The basis difference related to the land will be recognized upon disposition of our investment.

Below is a summary of Alexander’s latest available financial information:

(Amounts in thousands)						Balance as of
Balance Sheet:						June 30, 2012		December 31, 2011
	Assets					$	1,761,000	$	1,771,000
	Liabilities						1,397,000		1,408,000
	Noncontrolling interests						5,000		4,000
	Stockholders' equity						359,000		359,000

		For the Three Months Ended				For the Six Months Ended
Income Statement:		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
	Total revenues	$	64,000	$	62,000	$	127,000	$	125,000
	Net income attributable to Alexander’s		19,000		20,000		38,000		38,000

Lexington Realty Trust (“Lexington”) (NYSE: LXP)

As of June 30, 2012, we own 18,468,969 Lexington common shares, or approximately 11.9% of Lexington’s common equity. We account for our investment in Lexington under the equity method because we believe we have the ability to exercise significant influence over Lexington’s operating and financial policies, based on, among other factors, our representation on Lexington’s Board of Trustees and the level of our ownership in Lexington as compared to other shareholders. We record our pro rata share of Lexington’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its consolidated financial statements.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8. Investments in Partially Owned Entities – continued

Based on Lexington’s June 30, 2012 closing share price of $8.47, the market value of our investment in Lexington was $156,432,000, or $102,877,000 in excess of the June 30, 2012 carrying amount on our consolidated balance sheet. As of June 30, 2012, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $45,263,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges recognized in 2008, partially offset by purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington’s real estate (land and buildings) as compared to the carrying amounts in Lexington’s consolidated financial statements. We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This amortization is not material to our share of equity in Lexington’s net income or loss. The basis difference related to the land will be recognized upon disposition of our investment.

Below is a summary of Lexington’s latest available financial information:

(Amounts in thousands)						Balance as of
Balance Sheet:						March 31, 2012		September 30, 2011
	Assets					$	3,047,000	$	3,164,000
	Liabilities						1,844,000		1,888,000
	Noncontrolling interests						60,000		59,000
	Shareholders’ equity						1,143,000		1,217,000

		For the Three Months Ended				For the Six Months Ended
Income Statement:		March 31, 2012		March 31, 2011		March 31, 2012		March 31, 2011
	Total revenues	$	83,000	$	80,000	$	166,000	$	160,000
	Net income (loss) attributable to Lexington		4,000		(17,000)		17,000		(5,000)

LNR Property LLC (“LNR”)

As of June 30, 2012, we own a 26.2% equity interest in LNR. We account for our investment in LNR under the equity method and record our 26.2% share of LNR’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to receiving LNR’s consolidated financial statements.

LNR consolidates certain Commercial Mortgage-Backed Securities (“CMBS”) and Collateralized Debt Obligation (“CDO”) trusts for which it is the primary beneficiary. The assets of these trusts (primarily commercial mortgage loans), which aggregate approximately $85 billion as of March 31, 2012, are the sole source of repayment of the related liabilities, which are non-recourse to LNR and its equity holders, including us. Changes in the fair value of these assets each period are offset by changes in the fair value of the related liabilities through LNR’s consolidated income statement. As of June 30, 2012, the carrying amount of our investment in LNR does not materially differ from our share of LNR’s equity.

Below is a summary of LNR’s latest available financial information:

(Amounts in thousands)						Balance as of
Balance Sheet:						March 31, 2012		September 30, 2011
	Assets					$	86,155,000	$	128,536,000
	Liabilities						85,383,000		127,809,000
	Noncontrolling interests						14,000		55,000
	LNR Property Corporation equity						758,000		672,000

		For the Three Months Ended				For the Six Months Ended
Income Statement:		March 31, 2012		March 31, 2011		March 31, 2012		March 31, 2011
	Total revenues	$	55,000	$	47,000	$	104,000	$	83,000
	Net income attributable to LNR		36,000		42,000		87,000		100,000

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8. Investments in Partially Owned Entities – continued

Below is a schedule of our investments in partially owned entities as of June 30, 2012 and December 31, 2011.

			Percentage
(Amounts in thousands)			Ownership at		Balance as of
Investments:			June 30, 2012		June 30, 2012		December 31, 2011
Toys				32.5 %⁽¹⁾	$	573,292	$	506,809

Alexander’s				32.4 %	$	188,709	$	189,775

Lexington				11.9 %⁽²⁾		53,555		57,402

LNR				26.2 %		192,788		174,408

India real estate ventures				4.0%-36.5%		96,518		80,499

Partially owned office buildings:
	280 Park Avenue			49.5 %		186,102		184,516
	Rosslyn Plaza			43.7%-50.4%		62,552		53,333
	West 57th Street properties			50.0 %		57,754		58,529
	One Park Avenue			30.3 %		48,202		47,568
	666 Fifth Avenue Office Condominium			49.5 %		33,107		23,655
	330 Madison Avenue			25.0 %		23,229		20,353
	1101 17th Street			55.0 %		21,688		20,407
	Fairfax Square			20.0 %		6,144		6,343
	Warner Building			55.0 %		5,009		2,715
	Other partially owned office buildings			Various		10,569		11,547

Other equity method investments:
	Verde Realty Operating Partnership			8.3 %		58,595		59,801
	Independence Plaza Partnership ⁽³⁾			51.0 %		51,718		48,511
	Downtown Crossing, Boston			50.0 %		47,365		46,691
	Monmouth Mall			50.0 %		7,573		7,536
	Other equity method investments ⁽⁴⁾			Various		133,970		140,061
					$	1,285,147	$	1,233,650


(1)		32.7% at December 31, 2011.

(2)		12.0% at December 31, 2011.

(3)		Represents an investment in mezzanine loans to the property owner entity.

(4)		Includes interests in 85 10th Avenue, Farley Project, Suffolk Downs, Dune Capital L.P., Fashion Centre Mall and others.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8. Investments in Partially Owned Entities - continued

Below is a schedule of income recognized from investments in partially owned entities for the three and six months ended June 30, 2012 and 2011.

				Percentage	For the Three Months				For the Six Months
(Amounts in thousands)				Ownership	Ended June 30,				Ended June 30,
Our Share of Net Income (Loss):				June 30, 2012	2012		2011		2012		2011
Toys:				32.5 %⁽¹⁾
	Equity in net (loss) income before income taxes				$	(35,664)	$	(49,017)	$	121,723	$	130,822
	Income tax benefit (expense)					14,103		23,969		(29,100)		(45,049)
	Equity in net (loss) income					(21,561)		(25,048)		92,623		85,773
	Management fees					2,371		2,202		4,658		4,325
					$	(19,190)	$	(22,846)	$	97,281	$	90,098

Alexander’s:				32.4 %
	Equity in net income				$	5,941	$	6,351	$	12,073	$	12,070
	Fee income					1,907		1,900		3,796		3,787
						7,848		8,251		15,869		15,857

Lexington:				11.9 %⁽²⁾
	Equity in net (loss) income					(236)		346		694		1,066
	Net gain resulting from Lexington's stock issuance					-		8,308		-		9,760
						(236)		8,654		694		10,826

LNR:				26.2 %
	Equity in net income					9,469		4,983		22,719		11,260
	Net gains from asset sales and tax settlement gains					-		6,020		-		14,997
						9,469		11,003		22,719		26,257

India real estate ventures				4.0%-36.5%		(3,815)		205		(4,608)		(2)

Partially owned office buildings:
	Warner Building:			55.0 %
		Equity in net loss				(1,589)		(3,225)		(4,599)		(3,525)
		Straight-line reserves and write-off of tenant
			improvements			-		-		-		(9,022)
						(1,589)		(3,225)		(4,599)		(12,547)
	280 Park Avenue (acquired in May 2011)			49.5 %		(1,955)		(2,184)		(7,550)		(2,184)
	666 Fifth Avenue Office Condominium (acquired
		in December 2011)		49.5 %		1,785		-		3,500		-
	1101 17th Street			55.0 %		646		700		1,329		1,423
	330 Madison Avenue			25.0 %		18		506		812		1,125
	One Park Avenue (acquired in March 2011)			30.3 %		303		(243)		634		(1,471)
	West 57th Street properties			50.0 %		252		238		565		336
	Rosslyn Plaza			43.7%-50.4%		145		(195)		303		2,220
	Fairfax Square			20.0 %		(40)		42		(52)		29
	Other partially owned office buildings			Various		555		1,997		1,082		4,086
						120		(2,364)		(3,976)		(6,983)

Other equity method investments:
	Independence Plaza Partnership (acquired in June 2011) ⁽³⁾			51.0 %		1,733		-		3,415		-
	Downtown Crossing, Boston			50.0 %		(500)		(242)		(834)		(748)
	Monmouth Mall			50.0 %		298		826		660		957
	Verde Realty Operating Partnership			8.3 %		(289)		585		(612)		(1,209)
	Other equity method investments ⁽⁴⁾			Various		(2,065)		(902)		(1,104)		(3,060)
						(823)		267		1,525		(4,060)

					$	12,563	$	26,016	$	32,223	$	41,895

(1)		32.7% at June 30, 2011.

(2)		11.7% at June 30, 2011.

(3)		Represents an investment in mezzanine loans to the property owner entity.

(3)		Includes interests in 85 10th Avenue, Farley Project, Suffolk Downs, Dune Capital L.P., Fashion Centre Mall and others.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

8. Investments in Partially Owned Entities – continued

Below is a summary of the debt of our partially owned entities as of June 30, 2012 and December 31, 2011, none of which is recourse to us.

					Interest	100% of
			Percentage		Rate at	Partially Owned Entities’ Debt at
(Amounts in thousands)			Ownership at		June 30,	June 30,		December 31,
			June 30, 2012	Maturity	2012	2012		2011
Toys:			32.5 %⁽¹⁾
	Notes, loans and mortgages payable			2012-2021	7.40 %	$	5,439,646	$	6,047,521

Alexander's:			32.4 %
	Mortgage notes payable			2013-2018	3.51 %	$	1,323,532	$	1,330,932

Lexington:			11.9 %⁽²⁾
	Mortgage notes payable			2012-2037	5.58 %	$	1,652,094	$	1,712,750

LNR:			26.2 %
	Mortgage notes payable			2013-2031	4.34 %	$	373,286	$	353,504
	Liabilities of consolidated CMBS and CDO trusts			n/a	5.32 %		84,922,346		127,348,336
						$	85,295,632	$	127,701,840

Partially owned office buildings:
	666 Fifth Avenue Office Condominium mortgage
		note payable	49.5 %	02/19	6.76 %	$	1,070,288	$	1,035,884
	280 Park Avenue mortgage notes payable		49.5 %	06/16	6.65 %		738,001		737,678
	Warner Building mortgage note payable		55.0 %	05/16	6.26 %		292,700		292,700
	One Park Avenue mortgage note payable		30.3 %	03/16	5.00 %		250,000		250,000
	330 Madison Avenue mortgage note payable		25.0 %	06/15	1.74 %		150,000		150,000
	Fairfax Square mortgage note payable		20.0 %	12/14	7.00 %		70,558		70,974
	Rosslyn Plaza mortgage note payable		43.7% to 50.4%	n/a	n/a		-		56,680
	West 57th Street properties mortgage note payable		50.0 %	02/14	4.94 %		21,026		21,864
	Other		Various	Various	6.38 %		69,972		70,230
						$	2,662,545	$	2,686,010

India Real Estate Ventures:
	TCG Urban Infrastructure Holdings mortgage notes
		payable	25.0 %	2012-2022	12.97 %	$	227,820	$	226,534

Other:
	Verde Realty Operating Partnership mortgage notes
		payable	8.3 %	2013-2025	5.51 %	$	522,022	$	340,378
	Monmouth Mall mortgage note payable		50.0 %	09/15	5.44 %		161,016		162,153
	Other⁽³⁾		Various	Various	4.88 %		973,289		992,872
						$	1,656,327	$	1,495,403


(1)		32.7% at December 31, 2011.

(2)		12.0% at December 31, 2011.

(3)		Includes interests in Suffolk Downs, Fashion Centre Mall and others.

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $26,214,635,000 and $37,531,298,000 at June 30, 2012 and December 31, 2011, respectively. Excluding our pro rata share of LNR’s liabilities related to consolidated CMBS and CDO trusts, which are non-recourse to LNR and its equity holders, including us, our pro rata share of partially owned entities debt was $3,987,060,000 and $4,199,145,000 at June 30, 2012 and December 31, 2011, respectively.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

9. Discontinued Operations

During 2012, we sold or have entered into agreements to sell (i) five Mart properties, (ii) one Washington, DC property, and (iii) 11 Retail properties, for an aggregate of $792,000,000. Below are the details of these transactions.

Merchandise Mart Properties

On January 6, 2012, we completed the sale of 350 West Mart Center, a 1.2 million square foot office building in Chicago, Illinois, for $228,000,000 in cash, which resulted in a net gain of $54,911,000.

On June 22, 2012, we completed the sale of L.A. Mart, a 784,000 square foot showroom building in Los Angeles, California for $53,000,000, of which $18,000,000 was cash and $35,000,000 was nine-month seller financing at 6.0%.

On July 5, 2012, we entered into agreements to sell the Washington Design Center, the Boston Design Center and the Canadian Trade Shows, for an aggregate of $175,000,000 in cash, which will result in a net gain aggregating approximately $24,500,000. The sales of the Canadian Trade Shows and the Washington Design Center were completed in July 2012 and the sale of the Boston Design Center is expected to be completed in the third quarter, subject to customary closing conditions.

Washington, DC Property

On July 26, 2012, we completed the sale of 409 Third Street S.W., a 409,000 square foot office building in Washington, DC, for $200,000,000 in cash, which resulted in a net gain of approximately $124,700,000, that will be recognized in the third quarter. This building is contiguous to the Washington Design Center and was sold to the same purchaser.

Retail Properties

During 2012, we sold 11 retail properties in separate transactions, for an aggregate of $136,000,000 in cash, which resulted in a net gain aggregating $17,802,000.

We have reclassified the revenues and expenses of all of the properties discussed above, as well as 10 other retail properties that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying financial statements. The tables below set forth the assets and liabilities related to discontinued operations at June 30, 2012 and December 31, 2011 and their combined results of operations for the three and six months ended June 30, 2012 and 2011.

	Assets Related to				Liabilities Related to
(Amounts in thousands)	Discontinued Operations as of				Discontinued Operations as of
	June 30,		December 31,		June 30,		December 31,
	2012		2011		2012		2011
Merchandise Mart Properties	$	134,698	$	376,571	$	67,071	$	74,236
Retail Properties		102,620		220,249		3,773		19,367
409 Third Street S.W.		64,628		64,904		-		-
Total	$	301,946	$	661,724	$	70,844	$	93,603


	For the Three Months				For the Six Months
(Amounts in thousands)	Ended June 30,				Ended June 30,
	2012		2011		2012		2011
Total revenues	$	22,678	$	34,509	$	49,429	$	76,622
Total expenses		14,051		24,598		33,444		59,951
		8,627		9,911		15,985		16,671
Net gains on sale of real estate		16,896		458		72,713		51,623
Impairment losses		(13,511)		-		(13,511)		-
Net gain on extinguishment of High Point debt		-		-		-		83,907
Income from discontinued operations	$	12,012	$	10,369	$	75,187	$	152,201

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

10. Identified Intangible Assets and Liabilities

The following summarizes our identified intangible assets (primarily acquired above-market leases) and liabilities (primarily acquired below-market leases) as of June 30, 2012 and December 31, 2011.

	Balance as of
	June 30,		December 31,
(Amounts in thousands)	2012		2011
Identified intangible assets:
Gross amount	$	615,446	$	642,565
Accumulated amortization		(349,060)		(347,105)
Net	$	266,386	$	295,460
Identified intangible liabilities (included in deferred revenue):
Gross amount	$	819,397	$	830,411
Accumulated amortization		(386,293)		(367,525)
Net	$	433,104	$	462,886

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $12,411,000 and $16,427,000 for the three months ended June 30, 2012 and 2011, respectively, and $25,986,000 and $32,772,000 for the six months ended June 30, 2012 and 2011, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2013 is as follows:

(Amounts in thousands)
2013	$	43,597
2014		37,331
2015		34,260
2016		31,212
2017		25,704

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $14,492,000 and $13,060,000 for the three months ended June 30, 2012 and 2011, respectively, and $26,424,000 and $26,715,000 for the six months ended June 30, 2012 and 2011, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2013 is as follows:

(Amounts in thousands)
2013	$	40,047
2014		21,670
2015		16,700
2016		14,173
2017		11,571

We are a tenant under ground leases for certain properties. Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $408,000 and $344,000 for the three months ended June 30, 2012 and 2011, respectively, and $774,000 and $688,000 for the six months ended June 30, 2012 and 2011, respectively. Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2013 is as follows:

(Amounts in thousands)
2013	$	1,472
2014		1,457
2015		1,457
2016		1,457
2017		1,457

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

11. Debt

The following is a summary of our debt:

				Interest
(Amounts in thousands)				Rate at	Balance at
				June 30,	June 30,		December 31,
Notes and mortgages payable:			Maturity (1)	2012	2012		2011
Fixed rate:
	New York:
		Two Penn Plaza	03/18	5.13 %	$	425,000	$	425,000
		1290 Avenue of the Americas	01/13	5.97 %		410,841		413,111
		770 Broadway	03/16	5.65 %		353,000		353,000
		888 Seventh Avenue	01/16	5.71 %		318,554		318,554
		350 Park Avenue⁽²⁾	01/17	3.75 %		300,000		430,000
		909 Third Avenue	04/15	5.64 %		201,237		203,217
		828-850 Madison Avenue Condominium - retail	06/18	5.29 %		80,000		80,000
		510 5th Avenue - retail	01/16	5.60 %		31,495		31,732

	Washington, DC:
		Skyline Properties⁽³⁾	02/17	5.74 %		684,598		678,000
		River House Apartments	04/15	5.43 %		195,546		195,546
		2121 Crystal Drive	03/23	5.51 %		150,000		150,000
		Bowen Building	06/16	6.14 %		115,022		115,022
		1215 Clark Street, 200 12th Street and 251 18th Street	01/25	7.09 %		107,097		108,423
		West End 25	06/21	4.88 %		101,671		101,671
		Universal Buildings	04/14	6.47 %		95,755		98,239
		Reston Executive I, II, and III	01/13	5.57 %		93,000		93,000
		2011 Crystal Drive	08/17	7.30 %		80,023		80,486
		1550 and 1750 Crystal Drive	11/14	7.08 %		75,254		76,624
		220 20th Street	02/18	4.61 %		74,437		75,037
		1235 Clark Street⁽⁴⁾	07/12	6.75 %		50,786		51,309
		2231 Crystal Drive	08/13	7.08 %		42,581		43,819
		1225 Clark Street	08/13	7.08 %		25,470		26,211
		1750 Pennsylvania Avenue	n/a	n/a		-		44,330

	Retail:
		Cross-collateralized mortgages on 40 strip shopping centers	09/20	4.22 %		579,350		585,398
		Montehiedra Town Center	07/16	6.04 %		120,000		120,000
		Broadway Mall	07/13	5.30 %		86,479		87,750
		North Bergen (Tonnelle Avenue)	01/18	4.59 %		75,000		75,000
		Las Catalinas Mall	11/13	6.97 %		55,022		55,912
		Other	06/14-05/36	5.12%-7.30%		87,452		88,237

	Merchandise Mart:
		Merchandise Mart	12/16	5.57 %		550,000		550,000

	Other:
		555 California Street	09/21	5.10 %		600,000		600,000
		Borgata Land	02/21	5.14 %		60,000		60,000
Total fixed rate notes and mortgages payable				5.44 %	$	6,224,670	$	6,414,628
___________________
		See notes on page 22.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

11. Debt - continued

					Interest
(Amounts in thousands)					Rate at	Balance at
				Spread over	June 30,	June 30,		December 31,
Notes and mortgages payable:			Maturity (1)	LIBOR	2012	2012		2011
Variable rate:
	New York:
		Eleven Penn Plaza	01/19	L+235	2.59 %	$	330,000	$	330,000
		100 West 33rd Street - office & retail⁽⁵⁾	03/17	L+250	2.74 %		325,000		232,000
		4 Union Square South - retail	04/14	L+325	3.49 %		75,000		75,000
		435 Seventh Avenue - retail⁽⁶⁾	08/14	L+300 ⁽⁶⁾	5.00 %		51,093		51,353
		866 UN Plaza	05/16	L+125	1.49 %		44,978		44,978
	Washington, DC:
		2101 L Street	02/13	L+120	1.42 %		148,125		150,000
		River House Apartments	04/18	n/a⁽⁷⁾	1.62 %		64,000		64,000
		2200/2300 Clarendon Boulevard	01/15	L+75	0.99 %		50,359		53,344
		1730 M and 1150 17th Street	06/14	L+140	1.65 %		43,581		43,581
	Retail:
		Green Acres Mall	02/13	L+140	1.64 %		308,825		325,045
		Bergen Town Center	03/13	L+150	1.74 %		282,312		283,590
		San Jose Strip Center	03/13	L+400	4.25 %		109,072		112,476
		Beverly Connection ⁽⁸⁾	09/14	L+425 ⁽⁸⁾	4.75 %		100,000		100,000
		Cross-collateralized mortgages on 40 strip
		shopping centers ⁽⁹⁾	09/20	L+136 ⁽⁹⁾	2.36 %		60,000		60,000
		Other	11/12	L+375	3.99 %		19,427		19,876
	Other:
		220 Central Park South	10/13	L+275	2.99 %		123,750		123,750
	Total variable rate notes and mortgages payable				2.48 %		2,135,522		2,068,993
	Total notes and mortgages payable				4.68 %	$	8,360,192	$	8,483,621

Senior unsecured notes:
	Senior unsecured notes due 2015		04/15		4.25 %	$	499,545	$	499,462
	Senior unsecured notes due 2039 ⁽¹⁰⁾		10/39		7.88 %		460,000		460,000
	Senior unsecured notes due 2022		01/22		5.00 %		398,290		398,199
	Total senior unsecured notes				5.70 %	$	1,357,835	$	1,357,661

Unsecured revolving credit facilities:
	$1.25 billion unsecured revolving credit facility		11/16	L+125	1.47 %	$	500,000	$	138,000
	$1.25 billion unsecured revolving credit facility
		($22,195 reserved for outstanding letters of credit)	06/16	L+135	-		-		-
	Total unsecured revolving credit facilities				1.47 %	$	500,000	$	138,000

3.88% exchangeable senior debentures⁽¹¹⁾			n/a		n/a	$	-	$	497,898

2.85% convertible senior debentures⁽¹¹⁾			n/a		n/a	$	-	$	10,168

	See notes on the following page.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

11. Debt - continued

	Notes to preceding tabular information (amounts in thousands):

	(1)	Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend.

	(2)	On January 9, 2012, we completed a $300,000 refinancing of this property. The five-year fixed rate loan bears interest at 3.75% and amortizes based on a 30-year schedule beginning in the third year. The proceeds of the new loan and $132,000 of existing cash were used to repay the existing loan and closing costs.

	(3)	In the first quarter of 2012, we notified the lender that due to scheduled lease expirations resulting primarily from the effects of the Base Realignment and Closure statute, the Skyline properties had a 26% vacancy rate, which is expected to increase and, accordingly, cash flows are expected to decrease. As a result, our subsidiary that owns these properties does not have and is not expected to have for some time sufficient funds to pay all of its current obligations, including interest payments to the lender. Based on the projected vacancy and the significant amount of capital required to re-tenant these properties, at our request, the mortgage loan was transferred to the special servicer. In the second quarter of 2012, we entered into a forbearance agreement with the special servicer to apply cash flows of the property, before interest on the loan, towards the repayment of $4,000 of tenant improvements and leasing commissions we recently funded in connection with a new lease at these properties. The forbearance agreement provides that until the earlier of (i) the full repayment to us of that capital or (ii) December 1, 2012, any interest shortfall will be deferred and not give rise to a loan default. The deferred interest will be added to the principal balance of the loan and, as of June 30, 2012, amounted to $6,598. We continue to negotiate with the special servicer to restructure the terms of the loan.

	(4)	On July 11, 2012, upon maturity, we repaid this loan.

	(5)	On March 5, 2012, we completed a $325,000 refinancing of this property. The three-year loan bears interest at LIBOR plus 2.50% and has two one-year extension options. We retained net proceeds of approximately $87,000, after repaying the existing loan and closing costs.

	(6)	LIBOR floor of 2.00%.

	(7)	Interest at the Freddie Mac Reference Note Rate plus 1.53%.

	(8)	LIBOR floor of 0.50%.

	(9)	LIBOR floor of 1.00%.

	(10)	May be redeemed at our option in whole or in part beginning on October 1, 2014, at a price equal to the principal amount plus accrued interest.

	(11)	In April 2012, we redeemed all of the outstanding exchangeable and convertible senior debentures at par, for an aggregate of $510,215 in cash.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

12. Redeemable Noncontrolling Interests

Redeemable noncontrolling interests on our consolidated balance sheets represent Operating Partnership units held by third parties and are comprised of Class A units and Series D-10, D-14, D-15 and D-16 (collectively, “Series D”) cumulative redeemable preferred units. Redeemable noncontrolling interests on our consolidated balance sheets are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity. Below is a table summarizing the activity of redeemable noncontrolling interests.

(Amounts in thousands)
Balance at December 31, 2010	$	1,327,974
Net income		40,539
Distributions		(25,711)
Conversion of Class A units into common shares, at redemption value		(35,208)
Adjustments to carry redeemable Class A units at redemption value		104,693
Redemption of Series D-11 redeemable units		(8,000)
Other, net		17,180
Balance at June 30, 2011	$	1,421,467

Balance at December 31, 2011	$	1,160,677
Net income		24,355
Distributions		(24,457)
Conversion of Class A units into common shares, at redemption value		(24,976)
Adjustments to carry redeemable Class A units at redemption value		110,581
Other, net		(9,355)
Balance at June 30, 2012	$	1,236,825

As of June 30, 2012 and December 31, 2011, the aggregate redemption value of redeemable Class A units was $1,010,825,000 and $934,677,000, respectively.

Redeemable noncontrolling interests exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares. Accordingly, the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $55,097,000 and $54,865,000 as of June 30, 2012 and December 31, 2011, respectively.

On July 19, 2012, we redeemed all of the outstanding 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units with an aggregate face amount of $180,000,000 for $168,300,000 in cash, plus accrued and unpaid distributions through the date of redemption.

13. Shareholders’ Equity

On July 11, 2012, we sold 12,000,000 5.70% Series K Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We retained aggregate net proceeds of $291,923,000, after underwriters’ discounts and issuance costs. Dividends on the Series K Preferred Shares are cumulative and payable quarterly in arrears. The Series K Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series K Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series K Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us.

On July 17, 2012, we issued a notice of redemption to the holders of our 7.0% Series E Cumulative Redeemable Preferred Shares. The preferred shares will be redeemed at par on August 16, 2012, for an aggregate of $75,000,000 in cash, plus accrued and unpaid dividends through the date of redemption.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

14. Fair Value Measurements

ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.

Financial Assets and Liabilities Measured at Fair Value

Financial assets and liabilities that are measured at fair value in our consolidated financial statements consist of (i) marketable securities, (ii) Real Estate Fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) derivative positions in marketable equity securities, (v) interest rate swaps and (vi) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units). The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy at June 30, 2012 and December 31, 2011, respectively.

			As of June 30, 2012
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Marketable securities		$	466,599	$	466,599	$	-	$	-
	Real Estate Fund investments (75% of which is attributable to
		noncontrolling interests)		460,496		72,041		-		388,455
	Deferred compensation plan assets (included in other assets)			101,163		42,850		-		58,313
	J.C. Penney derivative position (included in other assets)⁽¹⁾			17,963		-		17,963		-
		Total assets	$	1,046,221	$	581,490	$	17,963	$	446,768

	Mandatorily redeemable instruments (included in other liabilities)		$	55,097	$	55,097	$	-	$	-
	Interest rate swap (included in other liabilities)			50,120		-		50,120		-
		Total liabilities	$	105,217	$	55,097	$	50,120	$	-


	(1) Represents the cash deposited with the counterparty in excess of the mark-to-market loss on the derivative position.

			As of December 31, 2011
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Marketable securities		$	741,321	$	741,321	$	-	$	-
	Real Estate Fund investments (75% of which is attributable to
		noncontrolling interests)		346,650		-		-		346,650
	Deferred compensation plan assets (included in other assets)			95,457		39,236		-		56,221
	J.C. Penney derivative position (included in other assets)⁽¹⁾			30,600		-		30,600		-
		Total assets	$	1,214,028	$	780,557	$	30,600	$	402,871

	Mandatorily redeemable instruments (included in other liabilities)		$	54,865	$	54,865	$	-	$	-
	Interest rate swap (included in other liabilities)			44,114		-		44,114		-
		Total liabilities	$	98,979	$	54,865	$	44,114	$	-


	(1) Represents the mark-to-market gain on the derivative position.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

14. Fair Value Measurements – continued

Financial Assets and Liabilities Measured at Fair Value - continued

Real Estate Fund Investments

At June 30, 2012, our Real Estate Fund had seven investments with an aggregate fair value of approximately $460,496,000, or $40,260,000 in excess of cost. These investments are classified as Level 3. We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 2.1 to 6.6 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs.

The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from original underwriting assumptions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these Fund investments at June 30, 2012.

			Weighted Average
			(based on fair
Unobservable Quantitative Input		Range	value of investments)
	Discount rates	12.5% to 23.3%	14.6 %
	Terminal capitalization rates	5.5% to 7.0%	6.1 %

The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values. The table below summarizes the changes in the fair value of Fund investments that are classified as Level 3, for the three and six months ended June 30, 2012 and 2011.

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
(Amounts in thousands)		2012		2011	2012		2011
Beginning balance	$	324,514	$	230,657	$	346,650	$	144,423
Purchases		44,592		22,808		44,592		123,047
Sales		-		(12,831)		(31,052)		(12,831)
Realized gains		-		3,085		-		3,085
Unrealized gains		21,135		12,872		27,979		13,570
Other, net		(1,786)		(796)		286		(15,499)
Ending balance	$	388,455	$	255,795	$	388,455	$	255,795

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

14. Fair Value Measurements – continued

Financial Assets and Liabilities Measured at Fair Value - continued

Deferred Compensation Plan Assets

Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties. We receive quarterly financial reports from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund. The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis. The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements. The table below summarizes the changes in the fair value of Deferred Compensation Plan Assets for the three and six months ended June 30, 2012 and 2011.

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
(Amounts in thousands)		2012		2011	2012		2011
Beginning balance	$	58,881	$	51,612	$	56,221	$	47,850
Purchases		155		17,818		3,766		19,104
Sales		(616)		(16,347)		(4,011)		(17,494)
Realized and unrealized (loss) gain		(123)		594		2,269		4,217
Other, net		16		47		68		47
Ending balance	$	58,313	$	53,724	$	58,313	$	53,724

Financial Assets and Liabilities not Measured at Fair Value

Financial assets and liabilities that are not measured at fair value in our consolidated financial statements include mezzanine loans receivable and our secured and unsecured debt. Estimates of the fair values of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value of our mezzanine loans receivable is classified as Level 3 and the fair value of our secured and unsecured debt is classified as Level 2. The table below summarizes the carrying amounts and fair values of these financial instruments as of June 30, 2012 and December 31, 2011.

			As of June 30, 2012				As of December 31, 2011
			Carrying		Fair		Carrying		Fair
(Amounts in thousands)			Amount		Value		Amount		Value
	Mezzanine loans receivable		$	132,369	$	128,000	$	133,948	$	129,000
	Debt:
		Notes and mortgages payable	$	8,360,192	$	8,430,000	$	8,483,621	$	8,686,000
		Senior unsecured notes		1,357,835		1,465,000		1,357,661		1,426,000
		Revolving credit facility debt		500,000		500,000		138,000		138,000
		Exchangeable senior debentures		-		-		497,898		510,000
		Convertible senior debentures		-		-		10,168		10,000
			$	10,218,027	$	10,395,000	$	10,487,348	$	10,770,000

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

15. Incentive Compensation

Our Omnibus Share Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, restricted Operating Partnership units and out-performance plan rewards to certain of our employees and officers. We account for all stock-based compensation in accordance ASC 718, Compensation – Stock Compensation.

On March 30, 2012, our Compensation Committee (the “Committee”) approved the 2012 formulaic annual incentive program for our senior executive management team. Under the program, our senior executive management team, including our Chairman and our President and Chief Executive Officer, will have the ability to earn annual incentive payments (cash or equity) if and only if we achieve comparable funds from operations (“Comparable FFO”) of at least 80% or more of the prior year Comparable FFO. Moreover, even if we achieve the stipulated Comparable FFO performance requirement, the Committee retains the right, consistent with best practices, to elect to make no payments under the program. Comparable FFO excludes the impact of certain non-recurring items such as income or loss from discontinued operations, the sale or mark-to-market of marketable securities or derivatives and early extinguishment of debt, restructuring costs and non-cash impairment losses, among others, and thus the Committee believes provides a better metric than total FFO for assessing management’s performance for the year. Aggregate incentive awards earned under the program are subject to a cap of 1.25% of Comparable FFO for the year, with individual award allocations determined by the Committee based on an assessment of individual and overall performance.

On March 30, 2012, the Committee also approved the 2012 Out-Performance Plan, a multi-year, performance-based equity compensation plan (the “2012 OPP”). The aggregate notional amount of the 2012 OPP is $40,000,000. Under the 2012 OPP, participants, including our Chairman and our President and Chief Executive Officer, have the opportunity to earn compensation payable in the form of equity awards if and only if we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to a relative TSR in any year during a three-year performance period. Specifically, awards under our 2012 OPP may be earned if we (i) achieve a TSR above that of the SNL US REIT Index (the “Index”) over a one-year, two-year or three-year performance period (the “Relative Component”), and/or (ii) achieve a TSR level greater than 7% per annum, or 21% over the three-year performance period (the “Absolute Component”). To the extent awards would be earned under the Absolute Component of the 2012 OPP but we underperform the Index, such awards would be reduced (and potentially fully negated) based on the degree to which we underperform the Index. In certain circumstances, in the event we outperform the Index but awards would not otherwise be earned under the Absolute Component, awards may still be earned under the Relative Component. To the extent awards would otherwise be earned under the Relative Component but we fail to achieve at least a 6% per annum absolute TSR level, such awards would be reduced based on our absolute TSR performance, with no awards being earned in the event our TSR during the applicable measurement period is 0% or negative, irrespective of the degree to which we may outperform the Index. If the designated performance objectives are achieved, OPP Units are also subject to time-based vesting requirements. Dividends on awards issued accrue during the performance period and are paid to participants if and only if awards are ultimately earned based on the achievement of the designated performance objectives. Awards earned under the 2012 OPP vest 33% in year three, 33% in year four and 34% in year five. The fair value of the 2012 OPP on the date of grant, as adjusted for estimated forfeitures, was $12,250,000, and is being amortized into expense over a five-year period from the date of grant, using a graded vesting attribution model.

Stock-based compensation expense consists of stock option awards, restricted stock awards, Operating Partnership unit awards and out-performance plan awards. Stock-based compensation expense was $8,438,000 and $6,919,000 in the three months ended June 30, 2012 and 2011, respectively, and $15,047,000 and $14,065,000 in the six months ended June 30, 2012 and 2011, respectively.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

16. Fee and Other Income

The following table sets forth the details of our fee and other income:

	For the Three Months				For the Six Months
(Amounts in thousands)	Ended June 30,				Ended June 30,
	2012		2011		2012		2011
BMS cleaning fees	$	16,982	$	15,409	$	32,492	$	30,832
Management and leasing fees		4,546		7,376		9,300		11,887
Lease termination fees		479		6,499		890		7,675
Other income		11,048		11,578		23,662		24,654
	$	33,055	$	40,862	$	66,344	$	75,048

Fee and other income above includes management fee income from Interstate Properties, a related party, of $192,000 and $194,000 for the three months ended June 30, 2012 and 2011, respectively, and $391,000 and $391,000 for the six months ended June 30, 2012 and 2011, respectively. The above table excludes fee income from partially owned entities, which is typically included in “income from partially owned entities” (see Note 8 – Investments in Partially Owned Entities).

17. Interest and Other Investment (Loss) Income, Net

The following table sets forth the details of our interest and other investment (loss) income:

		For the Three Months				For the Six Months
(Amounts in thousands)		Ended June 30,				Ended June 30,
		2012		2011		2012		2011
(Loss) income from the mark-to-market of J.C. Penney derivative position		$	(58,732)	$	(6,762)	$	(57,687)	$	10,401
Dividends and interest on marketable securities			4,846		7,669		11,093		15,336
Interest on mezzanine loans			3,165		3,083		6,015		5,727
Mark-to-market of investments in our deferred compensation plan⁽¹⁾			24		1,793		4,151		6,745
Mezzanine loans loss reversal and net gain on disposition			-		-		-		82,744
Other, net			1,525		2,215		2,921		4,144
		$	(49,172)	$	7,998	$	(33,507)	$	125,097
__________________________

(1)	This income is entirely offset by the expense resulting from the mark-to-market of the deferred compensation plan liability, which is included in "general and administrative" expense.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

18. Income Per Share

The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which includes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and dilutive share equivalents. Dilutive share equivalents may include our Series A convertible preferred shares, employee stock options, restricted stock and exchangeable senior debentures.

			For the Three Months				For the Six Months
(Amounts in thousands, except per share amounts)			Ended June 30,				Ended June 30,
			2012		2011		2012		2011
Numerator:
	Income from continuing operations, net of income
		attributable to noncontrolling interests	$	27,020	$	98,241	$	218,845	$	377,671
	Income from discontinued operations, net of income
		attributable to noncontrolling interests		11,277		10,340		70,974		143,573
	Net income attributable to Vornado			38,297		108,581		289,819		521,244
	Preferred share dividends			(17,787)		(16,668)		(35,574)		(30,116)
	Net income attributable to common shareholders			20,510		91,913		254,245		491,128
	Earnings allocated to unvested participating securities			(40)		(48)		(79)		(184)
	Numerator for basic income per share			20,470		91,865		254,166		490,944
	Impact of assumed conversions:
		Interest on 3.88% exchangeable senior debentures		-		-		-		13,090
		Convertible preferred share dividends		-		-		57		64
	Numerator for diluted income per share		$	20,470	$	91,865	$	254,223	$	504,098

Denominator:
	Denominator for basic income per share –
		weighted average shares		185,673		184,268		185,521		184,129
	Effect of dilutive securities⁽¹⁾:
		3.88% exchangeable senior debentures		-		-		-		5,736
		Employee stock options and restricted share awards		669		1,876		700		1,815
		Convertible preferred shares		-		-		50		56
	Denominator for diluted income per share –
		weighted average shares and assumed conversions		186,342		186,144		186,271		191,736

INCOME PER COMMON SHARE – BASIC:
	Income from continuing operations, net		$	0.05	$	0.44	$	0.99	$	1.89
	Income from discontinued operations, net			0.06		0.06		0.38		0.78
	Net income per common share		$	0.11	$	0.50	$	1.37	$	2.67

INCOME PER COMMON SHARE – DILUTED:
	Income from continuing operations, net		$	0.05	$	0.44	$	0.98	$	1.88
	Income from discontinued operations, net			0.06		0.05		0.38		0.75
	Net income per common share		$	0.11	$	0.49	$	1.36	$	2.63


(1)		The effect of dilutive securities above excludes anti-dilutive weighted average common share equivalent of 14,002 and 18,349 in the three months ended June 30, 2012 and 2011, respectively, and 16,292 and 12,922 in the six months ended June 30, 2012 and 2011, respectively.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

19. Commitments and Contingencies

Insurance

We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods. Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate.

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. Coverage for NBCR losses is up to $2.0 billion per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by PPIC.

We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years.

Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance our properties and expand our portfolio.

Other Commitments and Contingencies

Our mortgage loans are non-recourse to us. However, in certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. As of June 30, 2012, the aggregate dollar amount of these guarantees and master leases is approximately $266,074,000.

At June 30, 2012, $22,195,000 of letters of credit were outstanding under one of our revolving credit facilities. Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.

Two of our wholly owned subsidiaries that are contracted to develop and operate the Cleveland Medical Mart and Convention Center, in Cleveland, Ohio, are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, upon the completion of development and the commencement of operations.

As of June 30, 2012, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $259,607,000.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

19. Commitments and Contingencies – continued

Litigation

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters, including the matter referred to below, is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

In 2003, Stop & Shop filed an action against us in the New York Supreme Court, claiming that we had no right to reallocate and therefore continue to collect $5,000,000 of annual rent from Stop & Shop pursuant to a Master Agreement and Guaranty, because of the expiration of the leases to which the annual rent was previously allocated. Stop & Shop asserted that an order of the Bankruptcy Court for the Southern District of New York, as modified on appeal by the District Court, froze our right to reallocate and effectively terminated our right to collect the annual rent from Stop & Shop. We asserted a counterclaim seeking a judgment for all the unpaid annual rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the annual rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. After summary judgment motions by both sides were denied, the parties conducted discovery. A trial was held in November 2010. On November 7, 2011, the Court determined that we have a continuing right to allocate the annual rent to unexpired leases covered by the Master Agreement and Guaranty, and directed entry of a judgment in our favor ordering Stop & Shop to pay us the unpaid annual rent accrued through February 28, 2011 in the amount of $37,422,000, a portion of the annual rent due from March 1, 2011 through the date of judgment, interest, and attorneys’ fees. On December 16, 2011, a money judgment based on the Court’s decision was entered in our favor in the amount of $56,597,000 (including interest and costs). The amount for attorneys’ fees is being addressed in a proceeding before a special referee. Stop & Shop has appealed the Court’s decision and the judgment, and has posted a bond to secure payment of the judgment. On January 12, 2012, we commenced a new action against Stop & Shop seeking recovery of $2,500,000 of annual rent not included in the money judgment, plus additional annual rent as it accrues. A motion by Stop & Shop to dismiss the new action was denied on July 19, 2012.

As of June 30, 2012, we have a $44,900,000 receivable from Stop & Shop, excluding amounts due to us for interest and costs resulting from the Court’s judgment. As a result of Stop & Shop appealing the Court’s decision, we believe, after consultation with counsel, that the maximum reasonably possible loss is up to the total amount of the receivable of $44,900,000.

20. Related Party Transactions

On March 8, 2012, Steven Roth, the Chairman of our Board of Trustees, repaid his $13,122,500 outstanding loan from the Company.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21. Segment Information

Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment). Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation. See note (3) on page 36 for the elements of the New York segment’s EBITDA. Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the three and six months ended June 30, 2012 and 2011.


(Amounts in thousands)			For the Three Months Ended June 30, 2012
											Retail			Merchandise
				Total		New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals				$	498,644	$	245,948		$	120,532	$	75,718		$	34,015	$	-	$	22,431
Straight-line rent adjustments					21,344		17,065			1,261		2,970			82		-		(34)
Amortization of acquired below-
	market leases, net				12,411		7,623			508		2,791			-		-		1,489
Total rentals					532,399		270,636			122,301		81,479			34,097		-		23,886
Tenant expense reimbursements					78,833		36,985			10,958		28,314			1,267		-		1,309
Cleveland Medical Mart development
	project				56,304		-			-		-			56,304		-		-
Fee and other income:
	BMS cleaning fees				16,982		23,911			-		-			-		-		(6,929)
	Management and leasing fees				4,546		1,113			2,384		1,068			1		-		(20)
	Lease termination fees				479		233			128		1			117		-		-
	Other				11,048		5,455			4,971		388			312		-		(78)
Total revenues					700,591		338,333			140,742		111,250			92,098		-		18,168
Operating expenses					251,970		143,190			48,500		41,527			16,258		-		2,495
Depreciation and amortization					132,529		56,665			35,994		21,415			7,869		-		10,586
General and administrative					46,834		6,654			6,233		6,367			4,848		-		22,732
Cleveland Medical Mart development
	project				53,935		-			-		-			53,935		-		-
Acquisition related costs and
	tenant buy-outs				2,559		-			-		-			-		-		2,559
Total expenses					487,827		206,509			90,727		69,309			82,910		-		38,372
Operating income (loss)					212,764		131,824			50,015		41,941			9,188		-		(20,204)
(Loss) applicable to Toys					(19,190)		-			-		-			-		(19,190)		-
Income (loss) from partially owned
	entities				12,563		6,851			(519)		294			185		-		5,752
Income from Real Estate Fund					20,301		-			-		-			-		-		20,301
Interest and other investment
	(loss) income, net				(49,172)		1,057			29		6			-		-		(50,264)
Interest and debt expense					(128,427)		(36,407)			(29,313)		(18,963)			(7,781)		-		(35,963)
Net gain on disposition of wholly
	owned and partially owned assets				4,856		-			-		-			-		-		4,856
Income (loss) before income taxes					53,695		103,325			20,212		23,278			1,592		(19,190)		(75,522)
Income tax expense					(7,479)		(1,064)			(852)		-			(892)		-		(4,671)
Income (loss) from continuing
	operations				46,216		102,261			19,360		23,278			700		(19,190)		(80,193)
Income (loss) from discontinued
	operations				12,012		(32)			3,713		10,744			(9,588)		-		7,175
Net income (loss)					58,228		102,229			23,073		34,022			(8,888)		(19,190)		(73,018)
Less net (income) loss attributable to
		noncontrolling interests in:
		Consolidated subsidiaries			(14,721)		(2,998)			-		97			-		-		(11,820)
		Operating Partnership, including
		unit distributions			(5,210)		-			-		-			-		-		(5,210)
Net income (loss) attributable to
	Vornado				38,297		99,231			23,073		34,119			(8,888)		(19,190)		(90,048)
Interest and debt expense⁽²⁾					190,942		46,413			32,549		20,102			8,786		37,293		45,799
Depreciation and amortization⁽²⁾					184,028		63,664			39,656		22,131			9,826		32,505		16,246
Income tax (benefit) expense⁽²⁾					(5,214)		1,113			1,034		-			1,215		(14,103)		5,527
EBITDA⁽¹⁾				$	408,053	$	210,421	⁽³⁾	$	96,312	$	76,352	⁽⁴⁾	$	10,939	$	36,505	$	(22,476)	⁽⁵⁾


See notes on page 36.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21. Segment Information – continued


(Amounts in thousands)			For the Three Months Ended June 30, 2011
											Retail			Merchandise
				Total		New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals				$	521,431	$	246,218		$	137,430	$	76,137		$	39,295	$	-	$	22,351
Straight-line rent adjustments					7,047		6,093			(698)		1,486			(553)		-		719
Amortization of acquired below-
	market leases, net				16,427		11,671			512		3,135			-		-		1,109
Total rentals					544,905		263,982			137,244		80,758			38,742		-		24,179
Tenant expense reimbursements					77,902		37,891			8,724		28,391			1,543		-		1,353
Cleveland Medical Mart development
	project				32,369		-			-		-			32,369		-		-
Fee and other income:
	BMS cleaning fees				15,409		22,300			-		-			-		-		(6,891)
	Management and leasing fees				7,376		1,574			4,074		1,548			200		-		(20)
	Lease termination fees				6,499		5,571			900		28			-		-		-
	Other				11,578		6,345			5,128		450			(481)		-		136
Total revenues					696,038		337,663			156,070		111,175			72,373		-		18,757
Operating expenses					257,228		139,264			48,163		44,275			21,767		-		3,759
Depreciation and amortization					125,802		54,534			33,472		19,905			6,991		-		10,900
General and administrative					49,795		6,423			6,462		6,746			6,406		-		23,758
Cleveland Medical Mart development
	project				29,940		-			-		-			29,940		-		-
Acquisition related costs and
	tenant buy-outs				1,897		-			-		-			-		-		1,897
Total expenses					464,662		200,221			88,097		70,926			65,104		-		40,314
Operating income (loss)					231,376		137,442			67,973		40,249			7,269		-		(21,557)
(Loss) applicable to Toys					(22,846)		-			-		-			-		(22,846)		-
Income (loss) from partially owned
	entities				26,016		5,408			(767)		635			178		-		20,562
Income from Real Estate Fund					19,058		-			-		-			-		-		19,058
Interest and other investment
	income (loss), net				7,998		1,050			48		(8)			-		-		6,908
Interest and debt expense					(135,361)		(38,709)			(30,729)		(19,487)			(7,781)		-		(38,655)
Income (loss) before income taxes					126,241		105,191			36,525		21,389			(334)		(22,846)		(13,684)
Income tax expense					(5,641)		(440)			(504)		-			(695)		-		(4,002)
Income (loss) from continuing
	operations				120,600		104,751			36,021		21,389			(1,029)		(22,846)		(17,686)
Income (loss) from discontinued
	operations				10,369		110			2,490		4,593			3,294		-		(118)
Net income (loss)					130,969		104,861			38,511		25,982			2,265		(22,846)		(17,804)
Less net income attributable to
		noncontrolling interests in:
		Consolidated subsidiaries			(13,657)		(2,325)			-		(69)			-		-		(11,263)
		Operating Partnership, including
		unit distributions			(8,731)		-			-		-			-		-		(8,731)
Net income (loss) attributable to
	Vornado				108,581		102,536			38,511		25,913			2,265		(22,846)		(37,798)
Interest and debt expense⁽²⁾					202,956		45,268			34,093		20,796			9,595		43,393		49,811
Depreciation and amortization⁽²⁾					182,496		59,363			38,306		21,802			11,227		32,896		18,902
Income tax (benefit) expense⁽²⁾					(17,343)		443			607		-			911		(23,969)		4,665
EBITDA⁽¹⁾				$	476,690	$	207,610	⁽³⁾	$	111,517	$	68,511	⁽⁴⁾	$	23,998	$	29,474	$	35,580	⁽⁵⁾


See notes on page 36.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21. Segment Information – continued


(Amounts in thousands)			For the Six Months Ended June 30, 2012
											Retail			Merchandise
				Total		New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals				$	997,745	$	479,884		$	245,772	$	151,347		$	76,062	$	-	$	44,680
Straight-line rent adjustments					43,643		34,194			3,127		5,245			751		-		326
Amortization of acquired below-
	market leases, net				25,986		15,318			1,031		6,780			-		-		2,857
Total rentals					1,067,374		529,396			249,930		163,372			76,813		-		47,863
Tenant expense reimbursements					157,934		73,697			21,122		57,738			2,501		-		2,876
Cleveland Medical Mart development
	project				111,363		-			-		-			111,363		-		-
Fee and other income:
	BMS cleaning fees				32,492		46,558			-		-			-		-		(14,066)
	Management and leasing fees				9,300		2,221			5,167		1,904			46		-		(38)
	Lease termination fees				890		256			128		1			505		-		-
	Other				23,662		11,802			10,562		739			740		-		(181)
Total revenues					1,403,015		663,930			286,909		223,754			191,968		-		36,454
Operating expenses					515,339		288,862			95,662		85,033			40,799		-		4,983
Depreciation and amortization					267,983		110,424			79,517		42,025			14,885		-		21,132
General and administrative					102,405		15,241			13,186		12,700			10,757		-		50,521
Cleveland Medical Mart development
	project				106,696		-			-		-			106,696		-		-
Acquisition related costs and
	tenant buy-outs				3,244		-			-		-			-		-		3,244
Total expenses					995,667		414,527			188,365		139,758			173,137		-		79,880
Operating income (loss)					407,348		249,403			98,544		83,996			18,831		-		(43,426)
Income applicable to Toys					97,281		-			-		-			-		97,281		-
Income (loss) from partially owned
	entities				32,223		11,036			(2,389)		698			341		-		22,537
Income from Real Estate Fund					32,063		-			-		-			-		-		32,063
Interest and other investment
	(loss) income, net				(33,507)		2,109			73		20			-		-		(35,709)
Interest and debt expense					(262,655)		(72,548)			(59,724)		(38,171)			(15,561)		-		(76,651)
Net gain on disposition of wholly
	owned and partially owned assets				4,856		-			-		-			-		-		4,856
Income (loss) before income taxes					277,609		190,000			36,504		46,543			3,611		97,281		(96,330)
Income tax expense					(14,304)		(1,665)			(1,302)		-			(1,823)		-		(9,514)
Income (loss) from continuing
	operations				263,305		188,335			35,202		46,543			1,788		97,281		(105,844)
Income (loss) from discontinued operations					75,187		(640)			5,943		15,395			47,499		-		6,990
Net income (loss)					338,492		187,695			41,145		61,938			49,287		97,281		(98,854)
Less net (income) loss attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(24,318)		(5,174)			-		211			-		-		(19,355)
	Operating Partnership, including
		unit distributions			(24,355)		-			-		-			-		-		(24,355)
Net income (loss) attributable to
	Vornado				289,819		182,521			41,145		62,149			49,287		97,281		(142,564)
Interest and debt expense⁽²⁾					384,024		93,471			66,206		40,540			17,576		68,862		97,369
Depreciation and amortization⁽²⁾					375,201		125,575			87,916		44,406			19,304		67,211		30,789
Income tax expense⁽²⁾					46,226		1,806			1,557		-			2,377		29,100		11,386
EBITDA⁽¹⁾				$	1,095,270	$	403,373	⁽³⁾	$	196,824	$	147,095	⁽⁴⁾	$	88,544	$	262,454	$	(3,020)	⁽⁵⁾


See notes on page 36.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21. Segment Information – continued


(Amounts in thousands)			For the Six Months Ended June 30, 2011
											Retail			Merchandise
				Total		New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals				$	1,032,339	$	480,092		$	272,075	$	151,863		$	82,954	$	-	$	45,355
Straight-line rent adjustments					19,703		16,191			(696)		3,219			(760)		-		1,749
Amortization of acquired below-
	market leases, net				32,772		23,340			978		6,206			-		-		2,248
Total rentals					1,084,814		519,623			272,357		161,288			82,194		-		49,352
Tenant expense reimbursements					164,507		76,796			17,685		61,103			3,307		-		5,616
Cleveland Medical Mart development
	project				73,068		-			-		-			73,068		-		-
Fee and other income:
	BMS cleaning fees				30,832		44,342			-		-			-		-		(13,510)
	Management and leasing fees				11,887		2,538			6,959		2,313			303		-		(226)
	Lease termination fees				7,675		5,636			2,011		28			-		-		-
	Other				24,654		12,003			10,281		950			1,248		-		172
Total revenues					1,397,437		660,938			309,293		225,682			160,120		-		41,404
Operating expenses					528,642		282,639			95,384		91,714			49,921		-		8,984
Depreciation and amortization					251,598		109,346			66,562		40,243			13,952		-		21,495
General and administrative					108,243		13,957			12,999		13,958			13,453		-		53,876
Cleveland Medical Mart development
	project				68,218		-			-		-			68,218		-		-
Acquisition related costs and
	tenant buy-outs				20,167		15,000			-		-			3,040		-		2,127
Total expenses					976,868		420,942			174,945		145,915			148,584		-		86,482
Operating income (loss)					420,569		239,996			134,348		79,767			11,536		-		(45,078)
Income applicable to Toys					90,098		-			-		-			-		90,098		-
Income (loss) from partially owned
	entities				41,895		12,117			(4,682)		646			254		-		33,560
Income from Real Estate Fund					20,138		-			-		-			-		-		20,138
Interest and other investment
	income, net				125,097		2,122			80		-			-		-		122,895
Interest and debt expense					(268,296)		(75,293)			(59,655)		(38,875)			(15,476)		-		(78,997)
Net gain on disposition of wholly
	owned and partially owned assets				6,677		-			-		-			-		-		6,677
Income (loss) before income taxes					436,178		178,942			70,091		41,538			(3,686)		90,098		59,195
Income tax expense					(11,589)		(959)			(1,174)		(5)			(739)		-		(8,712)
Income (loss) from continuing
	operations				424,589		177,983			68,917		41,533			(4,425)		90,098		50,483
Income (loss) from discontinued operations					152,201		233			51,439		12,890			87,882		-		(243)
Net income					576,790		178,216			120,356		54,423			83,457		90,098		50,240
Less net (income) loss attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(15,007)		(4,596)			-		86			-		-		(10,497)
	Operating Partnership, including
		unit distributions			(40,539)		-			-		-			-		-		(40,539)
Net income (loss) attributable to
	Vornado				521,244		173,620			120,356		54,509			83,457		90,098		(796)
Interest and debt expense⁽²⁾					401,804		85,557			66,314		41,466			22,502		83,528		102,437
Depreciation and amortization⁽²⁾					368,344		116,072			80,205		44,177			22,402		67,569		37,919
Income tax expense⁽²⁾					49,485		910			1,455		5			1,321		45,049		745
EBITDA⁽¹⁾				$	1,340,877	$	376,159	⁽³⁾	$	268,330	$	140,157	⁽⁴⁾	$	129,682	$	286,244	$	140,305	⁽⁵⁾


See notes on the following page.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21. Segment Information - continued

	Notes to preceding tabular information:


(1)	EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.


(2)	Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.


(3)	The elements of "New York" EBITDA are summarized below.
				For the Three Months				For the Six Months
				Ended June 30,				Ended June 30,
	(Amounts in thousands)			2012		2011		2012		2011
	Office			$	142,573	$	137,630	$	278,520	$	262,321
	Retail^(a)				45,081		47,382		89,234		78,027
	Alexander's				13,026		13,921		26,397		27,202
	Hotel Pennsylvania				9,741		8,677		9,222		8,609
		Total New York		$	210,421	$	207,610	$	403,373	$	376,159


	(a)		The EBITDA for the six months ended June 30, 2011 is after a $15,000 expense for the buy-out of a below market lease.


(4)	The elements of "Retail Properties" EBITDA are summarized below.
				For the Three Months				For the Six Months
				Ended June 30,				Ended June 30,
	(Amounts in thousands)			2012		2011		2012		2011
	Strip Shopping Centers^(a)			$	52,268	$	45,622	$	99,176	$	95,782
	Regional Malls				24,084		22,889		47,919		44,375
		Total Retail Properties		$	76,352	$	68,511	$	147,095	$	140,157


	(a)		EBITDA from continuing operations was $41,438 and $39,564 for the three months ended June 30, 2012 and 2011, respectively, and $82,604 and $79,605 for the six months ended June 30, 2012 and 2011, respectively.

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

21. Segment Information - continued

	Notes to preceding tabular information - continued:


(5)	The elements of "other" EBITDA are summarized below.
				For the Three Months				For the Six Months
				Ended June 30,				Ended June 30,
	(Amounts in thousands)			2012		2011		2012		2011
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	170	$	827	$	2,288	$	1,807
		Net unrealized gains			5,284		3,218		6,995		3,392
		Net realized gains			-		771		-		771
		Carried interest			2,541		2,140		2,541		2,140
	Total				7,995		6,956		11,824		8,110
	LNR				11,671		13,410		27,233		22,800
	555 California Street				10,377		10,423		20,692		21,388
	Lexington				7,703		9,005		16,921		19,546
	Other investments				11,523		11,735		20,823		19,936
					49,269		51,529		97,493		91,780
	Corporate general and administrative expenses^(a)				(21,812)		(20,024)		(44,129)		(41,379)
	Investment income and other, net^(a)				13,387		11,660		23,832		24,743
	Fee income from Alexander's				1,907		1,900		3,796		3,787
	(Loss) income from the mark-to-market of J.C. Penney derivative
		position			(58,732)		(6,762)		(57,687)		10,401
	Acquisition costs				(2,559)		(1,897)		(3,244)		(2,127)
	Net gain on sale of condominiums				1,274		-		1,274		4,586
	Net gain resulting from Lexington's stock issuance				-		8,308		-		9,760
	Real Estate Fund placement fees				-		(403)		-		(3,451)
	Mezzanine loans loss reversal and net gain on disposition				-		-		-		82,744
	Net income attributable to noncontrolling interests in the Operating
		Partnership, including unit distributions			(5,210)		(8,731)		(24,355)		(40,539)
				$	(22,476)	$	35,580	$	(3,020)	$	140,305


	(a)		The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (the “Company”) as of June 30, 2012, and the related consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2012 and 2011, and of changes in equity and cash flows for the six-month periods ended June 30, 2012 and 2011. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2011, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 27, 2012, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the change in method of presenting comprehensive income due to the adoption of FASB Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2011 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

August 6, 2012

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this Quarterly Report constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and six months ended June 30, 2012. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Overview

Business Objective and Operating Strategy

Our business objective is to maximize shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing our performance to the Morgan Stanley REIT Index (“RMS”) and the SNL REIT Index (“SNL”) for the following periods ended June 30, 2012.

		Total Return⁽¹⁾
		Vornado	RMS	SNL
	One-year	(6.7%)	13.2%	13.0%
	Three-year	105.2%	135.6%	136.1%
	Five-year	(9.3%)	13.8%	18.0%
	Ten-year	178.6%	166.3%	178.9%


(1) Past performance is not necessarily indicative of future performance.

We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:

· Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;

· Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation;

· Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;

· Investing in retail properties in select under-stored locations such as the New York City metropolitan area;

· Developing and redeveloping existing properties to increase returns and maximize value; and

· Investing in operating companies that have a significant real estate component.

We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from asset sales and by accessing the public and private capital markets. We may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire these securities in the future.

We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends. See “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for additional information regarding these factors.

Overview – continued

Quarter Ended June 30, 2012 Financial Results Summary

Net income attributable to common shareholders for the quarter ended June 30, 2012 was $20,510,000, or $0.11 per diluted share, compared to $91,913,000, or $0.49 per diluted share, for the quarter ended June 30, 2011. Net income for the quarters ended June 30, 2012 and 2011 include $17,130,000 and $3,069,000, respectively, of net gains on sale of real estate, and $14,879,000 of real estate impairment losses in the quarter ended June 30, 2012. In addition, the quarters ended June 30, 2012 and 2011 include certain other items that affect comparability, which are listed in the table below. The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the quarter ended June 30, 2012 by $44,022,000, or $0.24 per diluted share and increased net income attributable to common shareholders for the quarter ended June 30, 2011 by $20,349,000, or $0.11 per diluted share.

Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended June 30, 2012 was $166,672,000, or $0.89 per diluted share, compared to $243,418,000, or $1.27 per diluted share, for the prior year’s quarter. FFO for the quarters ended June 30, 2012 and 2011 include certain items that affect comparability, which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the quarter ended June 30, 2012 by $44,926,000, or $0.24 per diluted share and increased FFO for the quarter ended June 30, 2011 by $23,158,000, or $0.12 per diluted share.


		For the Three Months Ended June 30,
(Amounts in thousands)		2012		2011
Items that affect comparability income (expense):
	Loss from the mark-to-market of J.C. Penney derivative position	$	(58,732)	$	(6,762)
	FFO attributable to discontinued operations		9,926		15,929
	Net gain on sale of condominiums		1,274		-
	Net gain resulting from Lexington's stock issuances		-		8,308
	Our share of LNR's net gain from asset sales		-		6,020
	Other, net		(392)		1,215
			(47,924)		24,710
Noncontrolling interests' share of above adjustments			2,998		(1,552)
Items that affect comparability, net		$	(44,926)	$	23,158

The percentage increase (decrease) in GAAP basis and Cash basis same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the quarter ended June 30, 2012 over the quarter ended June 30, 2011 and the trailing quarter ended March 31, 2012 are summarized below.


						Retail	Merchandise
Same Store EBITDA:			New York		Washington, DC	Properties	Mart
	June 30, 2012 vs. June 30, 2011
		GAAP basis	2.9%		(8.1%)	0.7%	10.5%
		Cash Basis	1.5%		(9.9%)	(1.3%)	7.2%
	June 30, 2012 vs. March 31, 2012
		GAAP basis	8.0%	⁽¹⁾	(1.7%)	1.2%	(2.2%)
		Cash Basis	9.7%	⁽¹⁾	(1.8%)	0.5%	0.4%


(1)		Excluding the seasonality impact of the Hotel Pennsylvania, same store increased by 2.9% and 3.5% on a GAAP and Cash basis, respectively.

Overview – continued

Six Months Ended June 30, 2012 Financial Results Summary

Net income attributable to common shareholders for the six months ended June 30, 2012 was $254,245,000, or $1.36 per diluted share, compared to $491,128,000, or $2.63 per diluted share, for the six months ended June 30, 2011. Net income for the six months ended June 30, 2012 and 2011 include $73,608,000 and $55,883,000, respectively, of net gains on sale of real estate and $23,754,000 of real estate impairment losses in the six months ended June 30, 2012. In addition, the six months ended June 30, 2012 and 2011 include certain items that affect comparability, which are listed in the table below. The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders by $8,252,000, or $0.04 per diluted share for the six months ended June 30, 2012 and $246,409,000, or $1.29 per diluted share for the six months ended June 30, 2011.

FFO for the six months ended June 30, 2012 was $516,328,000, or $2.72 per diluted share, compared to $749,349,000, or $3.91 per diluted share, for the six months ended June 30, 2011. FFO for the six months ended June 30, 2012 and 2011 includes certain items that affect comparability, which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the six months ended June 30, 2012 by $33,617,000, or $0.18 per diluted share and increased FFO for the six months ended June 30, 2011 by $205,625,000, or $1.07 per diluted share.

		For the Six Months Ended June 30,
(Amounts in thousands)		2012		2011
Items that affect comparability income (expense):
	(Loss) income from the mark-to-market of J.C. Penney derivative position	$	(57,687)	$	10,401
	FFO attributable to discontinued operations		21,200		29,028
	Net gain on sale of condominiums		1,274		4,586
	Net gain on extinguishment of debt		-		83,907
	Mezzanine loans loss reversal and net gain on disposition		-		82,744
	Our share of LNR's asset sales and tax settlement gains		-		14,997
	Net gain resulting from Lexington's stock issuances		-		9,760
	Buy-out of a below-market lease		-		(15,000)
	Other, net		(620)		(978)
			(35,833)		219,445
Noncontrolling interests' share of above adjustments			2,216		(13,820)
Items that affect comparability, net		$	(33,617)	$	205,625

The percentage increase (decrease) in GAAP basis and Cash basis same store EBITDA of our operating segments for the six months ended June 30, 2012 over the six months ended June 30, 2011 is summarized below.

					Retail	Merchandise
Same Store EBITDA:			New York	Washington, DC	Properties	Mart
	June 30, 2012 vs. June 30, 2011
		GAAP basis	3.2%	(7.6%)	0.5%	4.6%
		Cash Basis	1.9%	(9.1%)	(0.3%)	1.0%

Calculations of same store EBITDA, reconciliations of our net income to EBITDA and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of the Financial Condition and Results of Operations.

Overview - continued

2012 Acquisitions

On April 26, 2012, our 25% owned Real Estate Fund acquired 520 Broadway, a 112,000 square foot office building in Santa Monica, California for $59,650,000 and subsequently placed a $30,000,000 mortgage loan on the property. The three-year loan bears interest at LIBOR plus 2.25% and has two one-year extension options.

On June 28, 2012, our 25% owned Real Estate Fund made an investment in an unconsolidated subsidiary that, on July 2, 2012, acquired 1100 Lincoln Road, a 167,000 square foot retail property, the western anchor of the Lincoln Road Shopping District in Miami Beach, Florida, for $132,000,000. The purchase price consisted of $66,000,000 in cash and a $66,000,000 mortgage loan. The three-year loan bears interest at LIBOR plus 2.75% and has two one-year extension options.

2012 Dispositions

We sold or have entered into agreements to sell (i) five Mart properties, (ii) one Washington, DC property, and (iii) 11 Retail properties, for an aggregate of $792,000,000. Below are the details of these transactions.

Merchandise Mart Properties

On June 22, 2012, we completed the sale of L.A. Mart, a 784,000 square foot showroom building in Los Angeles, California, for $53,000,000, of which $18,000,000 was cash and $35,000,000 was nine-month seller financing at 6.0%.

On July 5, 2012, we entered into agreements to sell the Washington Design Center, the Boston Design Center and the Canadian Trade Shows, for an aggregate of $175,000,000 in cash, which will result in a net gain aggregating approximately $24,500,000, including non-comparable FFO of $19,200,000 from the sale of the Canadian Trade Shows. The sales of the Canadian Trade Shows and the Washington Design Center were completed in July 2012 and the sale of the Boston Design Center is expected to be completed in the third quarter, subject to customary closing conditions.

Washington, DC Property

Retail Properties

We sold 11 retail properties in separate transactions, for an aggregate of $136,000,000 in cash, which resulted in a net gain aggregating $17,802,000.

We have engaged the services of a real estate broker to sell the 1.8 million square foot Green Acres Mall, located in Valley Stream, New York. In addition, Alexander’s, our 32.4% owned affiliate, has engaged the services of the same broker to sell its 1.2 million square foot Kings Plaza Regional Shopping Center, located in Brooklyn, New York. There can be no assurance that these efforts will result in the sales of these properties.

Overview – continued

2012 Financing Activities

Secured Debt

On January 9, 2012, we completed a $300,000,000 refinancing of 350 Park Avenue, a 559,000 square foot Manhattan office building. The five-year fixed rate loan bears interest at 3.75% and amortizes based on a 30-year schedule beginning in the third year. The proceeds of the new loan and $132,000,000 of existing cash were used to repay the existing loan and closing costs.

On March 5, 2012, we completed a $325,000,000 refinancing of 100 West 33^rd Street, a 1.1 million square foot property located on the entire Sixth Avenue block front between 32^nd and 33^rd Streets in Manhattan. The building contains the 257,000 square foot Manhattan Mall and 848,000 square feet of office space. The three-year loan bears interest at LIBOR plus 2.50% (2.74% at June 30, 2012) and has two one-year extension options. We retained net proceeds of approximately $87,000,000, after repaying the existing loan and closing costs.

Senior Unsecured Debt

In April 2012, we redeemed all of the outstanding exchangeable and convertible senior debentures at par, for an aggregate of $510,215,000 in cash.

Preferred Equity

Redeemable Noncontrolling Interests

Overview - continued

Recently Issued Accounting Literature

Critical Accounting Policies

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2011 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2012.

Overview - continued

Leasing Activity:

The leasing activity in the table below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Tenant improvements and leasing commissions are based on our share of square feet leased during the period. Second generation relet space represents square footage that has not been vacant for more than nine months. The leasing activity for the New York segment excludes Alexander’s and the Hotel Pennsylvania.


					New York						Retail Properties				Merchandise Mart
(Square feet in thousands)					Office		Retail		Washington, DC		Strips		Malls⁽³⁾		Office		Showroom

Quarter Ended June 30, 2012:
	Total square feet leased					474		140		526		352		32		12		79
	Our share of square feet leased:					328		140		512		352		24		12		79
		Initial rent⁽¹⁾			$	64.50	$	69.08	$	36.66	$	15.54	$	56.28	$	31.00	$	35.38
		Weighted average lease term (years)				8.1		14.5		7.2		9.3		5.6		6.0		4.3
		Second generation relet space:
			Square feet			191		137		503		271		9		12		79
			Cash basis:
				Initial rent⁽¹⁾	$	70.39	$	68.83	$	36.59	$	15.07	$	76.28	$	31.00	$	35.38
				Prior escalated rent	$	67.36	$	66.72	$	38.19	$	12.24	$	75.04	$	31.00	$	35.65
				Percentage increase (decrease)		4.5%		3.2%		(4.2%)		23.1%		1.7%		-%		(0.8%)
			GAAP basis:
				Straight-line rent⁽²⁾	$	70.81	$	72.00	$	36.37	$	15.36	$	80.42	$	30.01	$	35.68
				Prior straight-line rent	$	65.93	$	69.46	$	36.13	$	11.89	$	66.41	$	30.01	$	33.71
				Percentage increase		7.4%		3.7%		0.7%		29.2%		21.1%		-%		5.8%
		Tenant improvements and leasing
			commissions:
			Per square foot		$	49.97	$	22.97	$	32.79	$	3.66	$	1.73	$	45.50	$	8.80
			Per square foot per annum:		$	6.17	$	1.58	$	4.55	$	0.39	$	0.31	$	7.58	$	2.05
				Percentage of initial rent		9.6%		2.3%		12.4%		2.5%		0.6%		24.5%		5.8%

Six Months Ended June 30, 2012:
	Total square feet leased					987		174		1,238		874		75		12		193
	Our share of square feet leased:					837		174		1,140		874		62		12		193
		Initial rent⁽¹⁾			$	57.90	$	102.29	$	38.73	$	17.46	$	45.61	$	31.00	$	37.17
		Weighted average lease term (years)				8.7		12.2		6.5		8.6		5.3		6.0		6.0
		Second generation relet space:
			Square feet			673		147		1,093		657		15		12		193
			Cash basis:
				Initial rent⁽¹⁾	$	58.60	$	102.10	$	38.67	$	15.04	$	87.79	$	31.00	$	37.17
				Prior escalated rent	$	56.90	$	83.15	$	39.20	$	13.45	$	84.57	$	31.00	$	38.07
				Percentage increase (decrease)		3.0%		22.8%		(1.4%)		11.8%		3.8%		-%		(2.4%)
			GAAP basis:
				Straight-line rent⁽²⁾	$	57.96	$	107.41	$	38.26	$	15.70	$	90.94	$	30.01	$	37.38
				Prior straight-line rent	$	55.48	$	84.47	$	37.55	$	12.32	$	78.33	$	30.01	$	34.67
				Percentage increase		4.5%		27.2%		1.9%		27.4%		16.1%		-%		7.8%
		Tenant improvements and leasing
			commissions:
			Per square foot		$	45.46	$	28.13	$	32.14	$	9.15	$	4.17	$	45.50	$	12.73
			Per square foot per annum:		$	5.22	$	2.31	$	4.91	$	1.06	$	0.79	$	7.58	$	2.12
				Percentage of initial rent		9.0%		2.3%		12.7%		6.1%		1.7%		24.5%		5.7%



(1)			Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents. Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot.

(2)			Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent.

(3)			Mall sales per square foot, including partially owned malls, for the trailing twelve months ended June 30, 2012 and 2011 were $480 and $474, respectively.

Overview – continued

Square footage (in service) and Occupancy as of June 30, 2012:

				Square Feet (in service)
			Number of	Total	Our
(Square feet in thousands)			Properties	Portfolio	Share	Occupancy %
New York:
	Office		30	19,426	16,483	95.3%
	Retail		46	2,080	1,916	94.5%
	Alexander's		7	3,389	1,098	98.0%
	Hotel Pennsylvania		1	1,400	1,400
				26,295	20,897	95.4%

Washington, DC			76	19,594	16,986	85.9%⁽¹⁾

Retail Properties:
	Strips		112	15,402	14,820	93.8%
	Regional Malls		7	7,179	5,539	92.6%
				22,581	20,359	93.5%

Merchandise Mart:
	Office		2	1,258	1,249	89.3%
	Showroom		2	2,747	2,747	79.7%
				4,005	3,996	82.6%

Other
	555 California Street		3	1,795	1,257	92.6%
	Primarily Warehouses		5	1,235	1,235	50.1%
				3,030	2,492

Total square feet at June 30, 2012				75,505	64,730

(1)		The occupancy rate for office properties excluding residential and other properties is 83.5%.

Square footage (in service) and Occupancy as of December 31, 2011:
				Square Feet (in service)
			Number of	Total	Our
(Square feet in thousands)			properties	Portfolio	Share	Occupancy %
New York:
	Office		30	19,571	16,598	96.2%
	Retail		46	2,239	1,982	95.6%
	Alexander's		7	3,389	1,098	97.8%
	Hotel Pennsylvania		1	1,400	1,400
				26,599	21,078	96.2%

Washington, DC			76	20,120	17,516	90.0%⁽¹⁾

Retail Properties:
	Strips		112	15,417	14,834	93.3%
	Regional Malls		7	7,278	5,631	92.0%
				22,695	20,465	92.9%

Merchandise Mart:
	Office		2	1,220	1,211	90.3%
	Showroom		2	2,715	2,715	89.8%
				3,935	3,926	89.9%

Other
	555 California Street		3	1,795	1,257	93.1%
	Primarily Warehouses		5	1,235	1,235	45.3%
				3,030	2,492

Total square feet at December 31, 2011				76,379	65,477

(1)		The occupancy rate for office properties excluding residential and other properties is 88.6%.

Overview - continued

Square footage (in service) and Occupancy as of June 30, 2011:
				Square Feet (in service)
			Number of	Total	Our
(Square feet in thousands)			properties	Portfolio	Share	Occupancy %
New York:
	Office		28	18,607	16,283	95.2%
	Retail		44	2,079	1,903	97.4%
	Alexander's		7	3,402	1,102	96.8%
	Hotel Pennsylvania		1	1,400	1,400
				25,488	20,688	95.5%

Washington, DC			76	20,147	17,418	93.2%⁽¹⁾

Retail Properties:
	Strips		111	15,554	15,226	92.2%
	Regional Malls		7	7,216	5,577	92.2%
				22,770	20,803	92.2%

Merchandise Mart:
	Office		2	1,145	1,136	90.9%
	Showroom		2	2,789	2,789	95.6%
				3,934	3,925	94.2%

Other
	555 California Street		3	1,795	1,257	92.6%
	Primarily Warehouses		5	1,235	1,235	45.3%
				3,030	2,492

Total square feet at June 30, 2011				75,369	65,326

(1)		The occupancy rate for office properties excluding residential and other properties is 92.3%.

Overview - continued

Washington, DC Properties Segment

In our Form 10-K for the year ended December 31, 2011, as a result of the BRAC statute, we estimated that occupancy will decrease from 90% at year end, to between 82% to 84% in 2012 and that 2012 EBITDA from continuing operations will be lower than 2011 by approximately $55,000,000 to $65,000,000 based on 2,902,000 square feet expiring in 2012, partially offset by leasing over 1,000,000 square feet.

At June 30, 2012, occupancy is at 85.9% and EBITDA from continuing operations for the three and six months ended June 30, 2012 is lower by approximately $14,500,000 and $22,100,000, respectively, than it was for the three and six months ended June 30, 2011. Based on leasing activity as of June 30, 2012, we currently estimate that 2012 EBITDA from continuing operations will be lower than 2011 by approximately $50,000,000 to $60,000,000.

Of the 2,395,000 square feet subject to BRAC, 348,000 square feet has been taken out of service for redevelopment and 470,000 square feet has been leased or is pending. The table below summarizes the status of the BRAC space as of June 30, 2012.

			Rent Per		Square Feet
			Square Foot		Total	Crystal City	Skyline	Rosslyn

Resolved:
	Relet as of June 30, 2012		$	38.66	354,000	266,000	88,000	-
	Leases pending			39.65	116,000	116,000	-	-
	Taken out of service for redevelopment				348,000	348,000	-	-
					818,000	730,000	88,000	-

To Be Resolved:
	Already vacated			32.71	664,000	310,000	354,000	-
	Expiring in:
		2012		41.91	361,000	232,000	119,000	10,000
		2013		37.08	179,000	-	43,000	136,000
		2014		31.39	280,000	79,000	201,000	-
		2015		42.37	93,000	88,000	5,000	-
					1,577,000	709,000	722,000	146,000

Total square feet subject to BRAC					2,395,000	1,439,000	810,000	146,000

In the first quarter of 2012, we notified the lender that due to scheduled lease expirations resulting primarily from the effects of the BRAC statute, the Skyline properties had a 26% vacancy rate, which is expected to increase and, accordingly, cash flows are expected to decrease. As a result, our subsidiary that owns these properties does not have and is not expected to have for some time sufficient funds to pay all of its current obligations, including interest payments to the lender. Based on the projected vacancy and the significant amount of capital required to re-tenant these properties, at our request, the mortgage loan was transferred to the special servicer. In the second quarter of 2012, we entered into a forbearance agreement with the special servicer to apply cash flows of the property, before interest on the loan, towards the repayment of $4,000,000 of tenant improvements and leasing commissions we recently funded in connection with a new lease at these properties. The forbearance agreement provides that until the earlier of (i) the full repayment to us of that capital or (ii) December 1, 2012, any interest shortfall will be deferred and not give rise to a loan default. The deferred interest will be added to the principal balance of the loan and, as of June 30, 2012, amounted to $6,598,000. We continue to negotiate with the special servicer to restructure the terms of the loan.

Net Income and EBITDA by Segment for the Three Months Ended June 30, 2012 and 2011

Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment). Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation. See note (3) on page 52 for the elements of the New York segment’s EBITDA.

Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the three months ended June 30, 2012 and 2011.


(Amounts in thousands)			For the Three Months Ended June 30, 2012
											Retail			Merchandise
				Total		New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals				$	498,644	$	245,948		$	120,532	$	75,718		$	34,015	$	-	$	22,431
Straight-line rent adjustments					21,344		17,065			1,261		2,970			82		-		(34)
Amortization of acquired below-
	market leases, net				12,411		7,623			508		2,791			-		-		1,489
Total rentals					532,399		270,636			122,301		81,479			34,097		-		23,886
Tenant expense reimbursements					78,833		36,985			10,958		28,314			1,267		-		1,309
Cleveland Medical Mart development
	project				56,304		-			-		-			56,304		-		-
Fee and other income:
	BMS cleaning fees				16,982		23,911			-		-			-		-		(6,929)
	Management and leasing fees				4,546		1,113			2,384		1,068			1		-		(20)
	Lease termination fees				479		233			128		1			117		-		-
	Other				11,048		5,455			4,971		388			312		-		(78)
Total revenues					700,591		338,333			140,742		111,250			92,098		-		18,168
Operating expenses					251,970		143,190			48,500		41,527			16,258		-		2,495
Depreciation and amortization					132,529		56,665			35,994		21,415			7,869		-		10,586
General and administrative					46,834		6,654			6,233		6,367			4,848		-		22,732
Cleveland Medical Mart development
	project				53,935		-			-		-			53,935		-		-
Acquisition related costs and
	tenant buy-outs				2,559		-			-		-			-		-		2,559
Total expenses					487,827		206,509			90,727		69,309			82,910		-		38,372
Operating income (loss)					212,764		131,824			50,015		41,941			9,188		-		(20,204)
(Loss) applicable to Toys					(19,190)		-			-		-			-		(19,190)		-
Income (loss) from partially owned
	entities				12,563		6,851			(519)		294			185		-		5,752
Income from Real Estate Fund					20,301		-			-		-			-		-		20,301
Interest and other investment
	(loss) income, net				(49,172)		1,057			29		6			-		-		(50,264)
Interest and debt expense					(128,427)		(36,407)			(29,313)		(18,963)			(7,781)		-		(35,963)
Net gain on disposition of wholly
	owned and partially owned assets				4,856		-			-		-			-		-		4,856
Income (loss) before income taxes					53,695		103,325			20,212		23,278			1,592		(19,190)		(75,522)
Income tax expense					(7,479)		(1,064)			(852)		-			(892)		-		(4,671)
Income (loss) from continuing
	operations				46,216		102,261			19,360		23,278			700		(19,190)		(80,193)
Income (loss) from discontinued
	operations				12,012		(32)			3,713		10,744			(9,588)		-		7,175
Net income (loss)					58,228		102,229			23,073		34,022			(8,888)		(19,190)		(73,018)
Less net (income) loss attributable to
		noncontrolling interests in:
		Consolidated subsidiaries			(14,721)		(2,998)			-		97			-		-		(11,820)
		Operating Partnership, including
		unit distributions			(5,210)		-			-		-			-		-		(5,210)
Net income (loss) attributable to
	Vornado				38,297		99,231			23,073		34,119			(8,888)		(19,190)		(90,048)
Interest and debt expense⁽²⁾					190,942		46,413			32,549		20,102			8,786		37,293		45,799
Depreciation and amortization⁽²⁾					184,028		63,664			39,656		22,131			9,826		32,505		16,246
Income tax (benefit) expense⁽²⁾					(5,214)		1,113			1,034		-			1,215		(14,103)		5,527
EBITDA⁽¹⁾				$	408,053	$	210,421	⁽³⁾	$	96,312	$	76,352	⁽⁴⁾	$	10,939	$	36,505	$	(22,476)	⁽⁵⁾

____________________

See notes on page 52.

Net Income and EBITDA by Segment for the Three Months Ended June 30, 2012 and 2011 - continued


(Amounts in thousands)			For the Three Months Ended June 30, 2011
											Retail			Merchandise
				Total		New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals				$	521,431	$	246,218		$	137,430	$	76,137		$	39,295	$	-	$	22,351
Straight-line rent adjustments					7,047		6,093			(698)		1,486			(553)		-		719
Amortization of acquired below-
	market leases, net				16,427		11,671			512		3,135			-		-		1,109
Total rentals					544,905		263,982			137,244		80,758			38,742		-		24,179
Tenant expense reimbursements					77,902		37,891			8,724		28,391			1,543		-		1,353
Cleveland Medical Mart development
	project				32,369		-			-		-			32,369		-		-
Fee and other income:
	BMS cleaning fees				15,409		22,300			-		-			-		-		(6,891)
	Management and leasing fees				7,376		1,574			4,074		1,548			200		-		(20)
	Lease termination fees				6,499		5,571			900		28			-		-		-
	Other				11,578		6,345			5,128		450			(481)		-		136
Total revenues					696,038		337,663			156,070		111,175			72,373		-		18,757
Operating expenses					257,228		139,264			48,163		44,275			21,767		-		3,759
Depreciation and amortization					125,802		54,534			33,472		19,905			6,991		-		10,900
General and administrative					49,795		6,423			6,462		6,746			6,406		-		23,758
Cleveland Medical Mart development
	project				29,940		-			-		-			29,940		-		-
Acquisition related costs and
	tenant buy-outs				1,897		-			-		-			-		-		1,897
Total expenses					464,662		200,221			88,097		70,926			65,104		-		40,314
Operating income (loss)					231,376		137,442			67,973		40,249			7,269		-		(21,557)
(Loss) applicable to Toys					(22,846)		-			-		-			-		(22,846)		-
Income (loss) from partially owned
	entities				26,016		5,408			(767)		635			178		-		20,562
Income from Real Estate Fund					19,058		-			-		-			-		-		19,058
Interest and other investment
	income (loss), net				7,998		1,050			48		(8)			-		-		6,908
Interest and debt expense					(135,361)		(38,709)			(30,729)		(19,487)			(7,781)		-		(38,655)
Income (loss) before income taxes					126,241		105,191			36,525		21,389			(334)		(22,846)		(13,684)
Income tax expense					(5,641)		(440)			(504)		-			(695)		-		(4,002)
Income (loss) from continuing
	operations				120,600		104,751			36,021		21,389			(1,029)		(22,846)		(17,686)
Income (loss) from discontinued
	operations				10,369		110			2,490		4,593			3,294		-		(118)
Net income (loss)					130,969		104,861			38,511		25,982			2,265		(22,846)		(17,804)
Less net income attributable to
		noncontrolling interests in:
		Consolidated subsidiaries			(13,657)		(2,325)			-		(69)			-		-		(11,263)
		Operating Partnership, including
		unit distributions			(8,731)		-			-		-			-		-		(8,731)
Net income (loss) attributable to
	Vornado				108,581		102,536			38,511		25,913			2,265		(22,846)		(37,798)
Interest and debt expense⁽²⁾					202,956		45,268			34,093		20,796			9,595		43,393		49,811
Depreciation and amortization⁽²⁾					182,496		59,363			38,306		21,802			11,227		32,896		18,902
Income tax (benefit) expense⁽²⁾					(17,343)		443			607		-			911		(23,969)		4,665
EBITDA⁽¹⁾				$	476,690	$	207,610	⁽³⁾	$	111,517	$	68,511	⁽⁴⁾	$	23,998	$	29,474	$	35,580	⁽⁵⁾

__________________________

See notes on the following page.

Net Income and EBITDA by Segment for the Three Months Ended June 30, 2012 and 2011 - continued


	Notes to preceding tabular information:


(1)	EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.


(2)	Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.


(3)	The elements of "New York" EBITDA are summarized below.

				For the Three Months Ended June 30,
	(Amounts in thousands)			2012		2011
	Office			$	142,573	$	137,630
	Retail				45,081		47,382
	Alexander's				13,026		13,921
	Hotel Pennsylvania				9,741		8,677
		Total New York		$	210,421	$	207,610



(4)	The elements of "Retail Properties" EBITDA are summarized below.

				For the Three Months Ended June 30,
	(Amounts in thousands)			2012		2011
	Strip Shopping Centers^(a)			$	52,268	$	45,622
	Regional Malls				24,084		22,889
		Total Retail Properties		$	76,352	$	68,511


	(a)		EBITDA from continuing operations was $41,438 and $39,564 for the three months ended June 30, 2012 and 2011, respectively.


(5)	The elements of "other" EBITDA are summarized below.

				For the Three Months Ended June 30,
	(Amounts in thousands)			2012		2011
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	170	$	827
		Net unrealized gains			5,284		3,218
		Net realized gains			-		771
		Carried interest			2,541		2,140
	Total				7,995		6,956
	LNR				11,671		13,410
	555 California Street				10,377		10,423
	Lexington				7,703		9,005
	Other investments				11,523		11,735
					49,269		51,529
	Corporate general and administrative expenses^(a)				(21,812)		(20,024)
	Investment income and other, net^(a)				13,387		11,660
	Fee income from Alexander's				1,907		1,900
	(Loss) from the mark-to-market of J.C. Penney derivative position				(58,732)		(6,762)
	Acquisition costs				(2,559)		(1,897)
	Net gain on sale of condominiums				1,274		-
	Net gain resulting from Lexington's stock issuance				-		8,308
	Real Estate Fund placement fees				-		(403)
	Net income attributable to noncontrolling interests in the Operating
		Partnership, including unit distributions			(5,210)		(8,731)
				$	(22,476)	$	35,580


	(a)		The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability.

Net Income and EBITDA by Segment for the Three Months Ended June 30, 2012 and 2011 - continued

EBITDA by Region

Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations and other gains and losses that affect comparability), from our New York, Washington, DC, Retail Properties and Merchandise Mart segments.

		For the Three Months
		Ended June 30,
		2012	2011
Region:
	New York City metropolitan area	66%	64%
	Washington, DC / Northern Virginia metropolitan area	25%	28%
	Chicago	4%	4%
	California	2%	2%
	Puerto Rico	1%	1%
	Other geographies	2%	1%
		100%	100%

Results of Operations – Three Months Ended June 30, 2012 Compared to June 30, 2011

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $700,591,000 in the three months ended June 30, 2012, compared to $696,038,000 in the prior year’s quarter, an increase of $4,553,000. Below are the details of the increase (decrease) by segment:

(Amounts in thousands)

										Retail		Merchandise
Increase (decrease) due to:			Total			New York		Washington, DC		Properties		Mart			Other
Property rentals:
	Acquisitions, sale of partial interests
		and other	$	1,413		$	-	$	1,413	$	-	$	-		$	-
	Development			(8,106)			(1,417)		(6,690)		1		-			-
	Hotel Pennsylvania			1,644			1,644		-		-		-			-
	Trade Shows			(4,219)			-		-		-		(4,219)			-
	Amortization of acquired below-market
		leases, net		(4,016)			(4,048)		(4)		(344)		-			380
	Leasing activity (see page 46)			778			10,475		(9,662)		1,064		(426)			(673)
				(12,506)			6,654		(14,943)		721		(4,645)			(293)

Tenant expense reimbursements:
	Acquisitions/development, sale of partial
		interests and other		449			(657)		798		308		-			-
	Operations			482			(249)		1,436		(385)		(276)			(44)
				931			(906)		2,234		(77)		(276)			(44)

Cleveland Medical Mart development
	project			23,935	⁽¹⁾		-		-		-		23,935	⁽¹⁾		-

Fee and other income:
	BMS cleaning fees			1,573			1,611		-		-		-			(38)
	Management and leasing fees			(2,830)			(461)		(1,690)		(480)		(199)			-
	Lease cancellation fee income			(6,020)			(5,338)		(772)		(27)		117			-
	Other			(530)			(890)		(157)		(62)		793			(214)
				(7,807)			(5,078)		(2,619)		(569)		711			(252)

Total increase (decrease) in revenues			$	4,553		$	670	$	(15,328)	$	75	$	19,725		$	(589)



(1)		This increase in income is offset by an increase in development costs expensed in the quarter. See note (4) on page 55.

Results of Operations – Three Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $487,827,000 in the three months ended June 30, 2012, compared to $464,662,000 in the prior year’s quarter, an increase of $23,165,000. Below are the details of the increase (decrease) by segment:

(Amounts in thousands)

										Retail		Merchandise
Increase (decrease) due to:			Total			New York		Washington, DC		Properties		Mart			Other
Operating:
	Acquisitions, sale of partial interests
		and other	$	929		$	71	$	858	$	-	$	-		$	-
	Development/redevelopment			(733)			30		(1,394)		631		-			-
	Non-reimbursable expenses, including
		bad debt reserves		(6,965)			(667)		(109)		(3,569)		(2,620)			-
	Hotel Pennsylvania			507			507		-		-		-			-
	Trade Shows			(4,233)			-		-		-		(4,233)			-
	BMS expenses			1,443			1,481		-		-		-			(38)
	Operations			3,794			2,504		982		190		1,344			(1,226)
				(5,258)			3,926		337		(2,748)		(5,509)			(1,264)

Depreciation and amortization:
	Acquisitions/development, sale of partial
		interests and other		4,354			(105)		3,910		549		-			-
	Operations			2,373			2,236		(1,388)		961		878			(314)
				6,727			2,131		2,522		1,510		878			(314)

General and administrative:
	Mark-to-market of deferred compensation
		plan liability ⁽¹⁾		(1,769)			-		-		-		-			(1,769)
	Real Estate Fund placement fees			(403)			-		-		-		-			(403)
	Operations			(789)			231		(229)		(379)		(1,558)	⁽²⁾		1,146	⁽³⁾
				(2,961)			231		(229)		(379)		(1,558)			(1,026)

Cleveland Medical Mart development
	project			23,995	⁽⁴⁾		-		-		-		23,995	⁽⁴⁾		-

Acquisition related costs and
	tenant buy-outs			662			-		-		-		-			662

Total increase (decrease) in expenses			$	23,165		$	6,288	$	2,630	$	(1,617)	$	17,806		$	(1,942)



(1)		This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment (loss) income, net” on our consolidated statements of income.

(2)		Primarily from lower payroll costs due to a reduction in workforce.

(3)		Primarily from higher payroll costs and stock based compensation expense.

(4)		This increase in expense is offset by the increase in development revenue in the quarter. See note (1) on page 54.

Results of Operations – Three Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Loss Applicable to Toys

In the three months ended June 30, 2012, we recognized a net loss of $19,190,000 from our investment in Toys, comprised of $21,561,000 for our 32.5% share of Toys’ net loss ($35,664,000 before our share of Toys’ income tax benefit) and $2,371,000 of management fees. In the three months ended June 30, 2011, we recognized a net loss of $22,846,000 from our investment in Toys, comprised of $25,048,000 for our 32.7% share of Toys’ net loss ($49,017,000 before our share of Toys’ income tax benefit) and $2,202,000 of management fees.

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the three months ended June 30, 2012 and 2011.

			Percentage	For the Three Months Ended
			Ownership at	June 30,
(Amounts in thousands)			June 30, 2012	2012		2011
Equity in Net Income (Loss):
Alexander's			32.4%	$	7,848	$	8,251
Lexington⁽¹⁾			11.9%⁽²⁾		(236)		8,654
LNR⁽³⁾			26.2%		9,469		11,003
India real estate ventures			4.0%-36.5%		(3,815)		205
Partially owned office buildings:
	280 Park Avenue (acquired in May 2011)		49.5%		(1,955)		(2,184)
	666 Fifth Avenue Office Condominium (acquired in
		December 2011)	49.5%		1,785		-
	Warner Building		55.0%		(1,589)		(3,225)
	1101 17th Street		55.0%		646		700
	One Park Avenue (acquired in March 2011)		30.3%		303		(243)
	West 57th Street Properties		50.0%		252		238
	Rosslyn Plaza		43.7%-50.4%		145		(195)
	Fairfax Square		20.0%		(40)		42
	330 Madison Avenue		25.0%		18		506
	Other partially owned office buildings		Various		555		1,997
Other equity method investments:
	Independence Plaza Partnership (mezzanine position)
		(acquired in June 2011)	51.0%		1,733		-
	Downtown Crossing, Boston		50.0%		(500)		(242)
	Monmouth Mall		50.0%		298		826
	Verde Realty Operating Partnership		8.3%		(289)		585
	Other equity method investments		Various		(2,065)		(902)
				$	12,563	$	26,016


(1)		2011 includes an $8,308 net gain resulting from Lexington's stock issuance.

(2)		11.7% at June 30, 2011.

(3)		2011 includes $6,020 of net gains from asset sales.

Results of Operations – Three Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Income from Real Estate Fund

Below are the components of the income from our Real Estate Fund for the three months ended June 30, 2012 and 2011.


(Amounts in thousands)		For the Three Months Ended June 30,
		2012		2011
Operating (loss) income		$	(834)	$	3,101
Net realized gain			-		3,085
Net unrealized gains			21,135		12,872
Income from Real Estate Fund			20,301		19,058
Less (income) attributable to noncontrolling interests			(12,306)		(12,102)
Income from Real Estate Fund attributable to Vornado ⁽¹⁾		$	7,995	$	6,956
___________________________________

(1)	Excludes management, leasing and development fees of $600 and $865 for the three months ended June 30, 2012 and 2011, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

Interest and Other Investment (Loss) Income, net

Interest and other investment (loss) income, net (comprised of the mark-to-market of derivative positions in marketable equity securities, interest income on mezzanine loans receivable, other interest income and dividend income) was a loss of $49,172,000 in the three months ended June 30, 2012, compared to income of $7,998,000 in the prior year’s quarter, a decrease of $57,170,000. This decrease resulted from:


(Amounts in thousands)
J.C. Penney derivative position ($58,732 mark-to-market loss in the current year's quarter, compared to
	$6,762 in the prior year's quarter)	$	(51,970)
Decrease in the value of investments in our deferred compensation plan (offset by a corresponding
	decrease in the liability for plan assets in general and administrative expenses)		(1,769)
Other, net (primarily lower average investments in marketable securities)			(3,431)
		$	(57,170)

Interest and Debt Expense

Interest and debt expense was $128,427,000 in the three months ended June 30, 2012, compared to $135,361,000 in the prior year’s quarter, a decrease of $6,934,000. This decrease was primarily due to (i) $7,842,000 from the redemption of our exchangeable and convertible senior debentures in April 2012 and November 2011, respectively, and (ii) $3,146,000 from the refinancing of 350 Park Avenue in January 2012 (of which $1,880,000 was due to a lower rate and $1,266,000 was due to a lower outstanding loan balance), partially offset by (iii) $5,046,000 from the issuance of $400,000,000 of senior unsecured notes in November 2011.

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

Net gain on disposition of wholly owned and partially owned assets was $4,856,000 in the three months ended June 30, 2012 and resulted primarily from the sale of marketable securities and residential condominiums.

Results of Operations – Three Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Income Tax Expense

Income tax expense was $7,479,000 in the three months ended June 30, 2012, compared to $5,641,000 in the prior year’s quarter, an increase of $1,838,000. This increase resulted primarily from higher taxable income of our taxable REIT subsidiaries.

Income from Discontinued Operations

In the second quarter of 2012, we sold four retail properties in separate transactions, for an aggregate of $43,500,000 in cash, which resulted in a net gain aggregating $16,896,000.

We have reclassified the revenues and expenses of the properties that were sold and that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements. The table below sets forth the combined results of assets related to discontinued operations for the three months ended June 30, 2012 and 2011.


	For the Three Months Ended June 30,
(Amounts in thousands)	2012		2011
Total revenues	$	22,678	$	34,509
Total expenses		14,051		24,598
		8,627		9,911
Net gains on sale of real estate		16,896		458
Impairment losses		(13,511)		-
Income from discontinued operations	$	12,012	$	10,369

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

Net income attributable to noncontrolling interests in consolidated subsidiaries was $14,721,000 in the three months ended June 30, 2012, compared to $13,657,000 in the prior year’s quarter, an increase of $1,064,000. This increase resulted primarily from higher income at 1290 Avenue of the Americas and 555 California Street.

Net Income Attributable to Noncontrolling Interests in the Operating Partnership, including Unit Distributions

Net income attributable to noncontrolling interests in the Operating Partnership, including unit distributions for the three months ended June 30, 2012 and 2011 is primarily comprised of allocations of income to redeemable noncontrolling interests of $1,337,000 and $6,283,000, respectively, and preferred unit distributions of the Operating Partnership of $3,873,000 and $4,448,000, respectively. The decrease of $4,946,000 in allocations of income to redeemable noncontrolling interests resulted primarily from lower net income subject to allocation to unitholders.

Preferred Share Dividends

Preferred share dividends were $17,787,000 in the three months ended June 30, 2012, compared to $16,668,000 in the prior year’s quarter, an increase of $1,119,000. This increase resulted from the issuance of Series J preferred shares during 2011.

Results of Operations – Three Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Same Store EBITDA

Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods. Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items. We present same store EBITDA on both a GAAP basis and a cash basis, which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies.

Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended June 30, 2012, compared to the three months ended June 30, 2011.

							Retail		Merchandise
(Amounts in thousands)			New York		Washington, DC		Properties		Mart
EBITDA for the three months ended June 30, 2012			$	210,421	$	96,312	$	76,352	$	10,939
	Add-back: non-property level overhead
		expenses included above		6,654		6,233		6,367		4,848
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(9,384)		(4,745)		(13,446)		6,448
GAAP basis same store EBITDA for the three months
		ended June 30, 2012		207,691		97,800		69,273		22,235
	Less: Adjustments for straight-line rents,
		amortization of below-market leases, net, and other
		non-cash adjustments		(29,307)		(1,883)		(4,365)		(83)
Cash basis same store EBITDA for the three months
		ended June 30, 2012	$	178,384	$	95,917	$	64,908	$	22,152


EBITDA for the three months ended June 30, 2011			$	207,610	$	111,517	$	68,511	$	23,998
	Add-back: non-property level overhead
		expenses included above		6,423		6,462		6,746		6,406
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(12,124)		(11,582)		(6,491)		(10,289)
GAAP basis same store EBITDA for the three months
		ended June 30, 2011		201,909		106,397		68,766		20,115
	Less: Adjustments for straight-line rents,
		amortization of below-market leases, net, and other
		non-cash adjustments		(26,246)		50		(2,972)		553
Cash basis same store EBITDA for the three months
		ended June 30, 2011	$	175,663	$	106,447	$	65,794	$	20,668


Increase (decrease) in GAAP basis same store EBITDA for
		the three months ended June 30, 2012 over the
		three months ended June 30, 2011	$	5,782	$	(8,597)	$	507	$	2,120

Increase (decrease) in Cash basis same store EBITDA for
		the three months ended June 30, 2012 over the
		three months ended June 30, 2011	$	2,721	$	(10,530)	$	(886)	$	1,484


% increase (decrease) in GAAP basis same store EBITDA				2.9%		(8.1%)		0.7%		10.5%

% increase (decrease) in Cash basis same store EBITDA				1.5%		(9.9%)		(1.3%)		7.2%

Net Income and EBITDA by Segment for the Six Months Ended June 30, 2012 and 2011

Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment). Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation. See note (3) on page 62 for the elements of the New York segment’s EBITDA.

Below is a summary of net income and a reconciliation of net income to EBITDA⁽¹⁾ by segment for the six months ended June 30, 2012 and 2011.


(Amounts in thousands)			For the Six Months Ended June 30, 2012
											Retail			Merchandise
				Total		New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals				$	997,745	$	479,884		$	245,772	$	151,347		$	76,062	$	-	$	44,680
Straight-line rent adjustments					43,643		34,194			3,127		5,245			751		-		326
Amortization of acquired below-
	market leases, net				25,986		15,318			1,031		6,780			-		-		2,857
Total rentals					1,067,374		529,396			249,930		163,372			76,813		-		47,863
Tenant expense reimbursements					157,934		73,697			21,122		57,738			2,501		-		2,876
Cleveland Medical Mart development
	project				111,363		-			-		-			111,363		-		-
Fee and other income:
	BMS cleaning fees				32,492		46,558			-		-			-		-		(14,066)
	Management and leasing fees				9,300		2,221			5,167		1,904			46		-		(38)
	Lease termination fees				890		256			128		1			505		-		-
	Other				23,662		11,802			10,562		739			740		-		(181)
Total revenues					1,403,015		663,930			286,909		223,754			191,968		-		36,454
Operating expenses					515,339		288,862			95,662		85,033			40,799		-		4,983
Depreciation and amortization					267,983		110,424			79,517		42,025			14,885		-		21,132
General and administrative					102,405		15,241			13,186		12,700			10,757		-		50,521
Cleveland Medical Mart development
	project				106,696		-			-		-			106,696		-		-
Acquisition related costs and
	tenant buy-outs				3,244		-			-		-			-		-		3,244
Total expenses					995,667		414,527			188,365		139,758			173,137		-		79,880
Operating income (loss)					407,348		249,403			98,544		83,996			18,831		-		(43,426)
Income applicable to Toys					97,281		-			-		-			-		97,281		-
Income (loss) from partially owned
	entities				32,223		11,036			(2,389)		698			341		-		22,537
Income from Real Estate Fund					32,063		-			-		-			-		-		32,063
Interest and other investment
	(loss) income, net				(33,507)		2,109			73		20			-		-		(35,709)
Interest and debt expense					(262,655)		(72,548)			(59,724)		(38,171)			(15,561)		-		(76,651)
Net gain on disposition of wholly
	owned and partially owned assets				4,856		-			-		-			-		-		4,856
Income (loss) before income taxes					277,609		190,000			36,504		46,543			3,611		97,281		(96,330)
Income tax expense					(14,304)		(1,665)			(1,302)		-			(1,823)		-		(9,514)
Income (loss) from continuing
	operations				263,305		188,335			35,202		46,543			1,788		97,281		(105,844)
Income (loss) from discontinued operations					75,187		(640)			5,943		15,395			47,499		-		6,990
Net income (loss)					338,492		187,695			41,145		61,938			49,287		97,281		(98,854)
Less net (income) loss attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(24,318)		(5,174)			-		211			-		-		(19,355)
	Operating Partnership, including
		unit distributions			(24,355)		-			-		-			-		-		(24,355)
Net income (loss) attributable to
	Vornado				289,819		182,521			41,145		62,149			49,287		97,281		(142,564)
Interest and debt expense⁽²⁾					384,024		93,471			66,206		40,540			17,576		68,862		97,369
Depreciation and amortization⁽²⁾					375,201		125,575			87,916		44,406			19,304		67,211		30,789
Income tax expense⁽²⁾					46,226		1,806			1,557		-			2,377		29,100		11,386
EBITDA⁽¹⁾				$	1,095,270	$	403,373	⁽³⁾	$	196,824	$	147,095	⁽⁴⁾	$	88,544	$	262,454	$	(3,020)	⁽⁵⁾

____________________

See notes on page 62.

Net Income and EBITDA by Segment for the Six Months Ended June 30, 2012 and 2011 - continued


(Amounts in thousands)			For the Six Months Ended June 30, 2011
											Retail			Merchandise
				Total		New York			Washington, DC		Properties			Mart		Toys		Other
Property rentals				$	1,032,339	$	480,092		$	272,075	$	151,863		$	82,954	$	-	$	45,355
Straight-line rent adjustments					19,703		16,191			(696)		3,219			(760)		-		1,749
Amortization of acquired below-
	market leases, net				32,772		23,340			978		6,206			-		-		2,248
Total rentals					1,084,814		519,623			272,357		161,288			82,194		-		49,352
Tenant expense reimbursements					164,507		76,796			17,685		61,103			3,307		-		5,616
Cleveland Medical Mart development
	project				73,068		-			-		-			73,068		-		-
Fee and other income:
	BMS cleaning fees				30,832		44,342			-		-			-		-		(13,510)
	Management and leasing fees				11,887		2,538			6,959		2,313			303		-		(226)
	Lease termination fees				7,675		5,636			2,011		28			-		-		-
	Other				24,654		12,003			10,281		950			1,248		-		172
Total revenues					1,397,437		660,938			309,293		225,682			160,120		-		41,404
Operating expenses					528,642		282,639			95,384		91,714			49,921		-		8,984
Depreciation and amortization					251,598		109,346			66,562		40,243			13,952		-		21,495
General and administrative					108,243		13,957			12,999		13,958			13,453		-		53,876
Cleveland Medical Mart development
	project				68,218		-			-		-			68,218		-		-
Acquisition related costs and
	tenant buy-outs				20,167		15,000			-		-			3,040		-		2,127
Total expenses					976,868		420,942			174,945		145,915			148,584		-		86,482
Operating income (loss)					420,569		239,996			134,348		79,767			11,536		-		(45,078)
Income applicable to Toys					90,098		-			-		-			-		90,098		-
Income (loss) from partially owned
	entities				41,895		12,117			(4,682)		646			254		-		33,560
Income from Real Estate Fund					20,138		-			-		-			-		-		20,138
Interest and other investment
	income, net				125,097		2,122			80		-			-		-		122,895
Interest and debt expense					(268,296)		(75,293)			(59,655)		(38,875)			(15,476)		-		(78,997)
Net gain on disposition of wholly
	owned and partially owned assets				6,677		-			-		-			-		-		6,677
Income (loss) before income taxes					436,178		178,942			70,091		41,538			(3,686)		90,098		59,195
Income tax expense					(11,589)		(959)			(1,174)		(5)			(739)		-		(8,712)
Income (loss) from continuing
	operations				424,589		177,983			68,917		41,533			(4,425)		90,098		50,483
Income (loss) from discontinued operations					152,201		233			51,439		12,890			87,882		-		(243)
Net income					576,790		178,216			120,356		54,423			83,457		90,098		50,240
Less net (income) loss attributable to
	noncontrolling interests in:
	Consolidated subsidiaries				(15,007)		(4,596)			-		86			-		-		(10,497)
	Operating Partnership, including
		unit distributions			(40,539)		-			-		-			-		-		(40,539)
Net income (loss) attributable to
	Vornado				521,244		173,620			120,356		54,509			83,457		90,098		(796)
Interest and debt expense⁽²⁾					401,804		85,557			66,314		41,466			22,502		83,528		102,437
Depreciation and amortization⁽²⁾					368,344		116,072			80,205		44,177			22,402		67,569		37,919
Income tax expense⁽²⁾					49,485		910			1,455		5			1,321		45,049		745
EBITDA⁽¹⁾				$	1,340,877	$	376,159	⁽³⁾	$	268,330	$	140,157	⁽⁴⁾	$	129,682	$	286,244	$	140,305	⁽⁵⁾

___________________________

See notes on the following page.

Net Income and EBITDA by Segment for the Six Months Ended June 30, 2012 and 2011 - continued


	Notes to preceding tabular information:


(1)	EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.


(2)	Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.


(3)	The elements of "New York" EBITDA are summarized below.

				For the Six Months Ended June 30,
	(Amounts in thousands)			2012		2011
	Office			$	278,520	$	262,321
	Retail^(a)				89,234		78,027
	Alexander's				26,397		27,202
	Hotel Pennsylvania				9,222		8,609
		Total New York		$	403,373	$	376,159


	(a)		The EBITDA for the six months ended June 30, 2011 is after a $15,000 expense for the buy-out of a below market lease.


(4)	The elements of "Retail Properties" EBITDA are summarized below.

				For the Six Months Ended June 30,
	(Amounts in thousands)			2012		2011
	Strip Shopping Centers^(a)			$	99,176	$	95,782
	Regional Malls				47,919		44,375
		Total Retail Properties		$	147,095	$	140,157


	(a)		EBITDA from continuing operations was $82,604 and $79,605 for the six months ended June 30, 2012 and 2011, respectively.

(5)	The elements of "other" EBITDA are summarized below.

				For the Six Months Ended June 30,
	(Amounts in thousands)			2012		2011
	Our share of Real Estate Fund:
		Income before net realized/unrealized gains		$	2,288	$	1,807
		Net unrealized gains			6,995		3,392
		Net realized gains			-		771
		Carried interest			2,541		2,140
	Total				11,824		8,110
	LNR				27,233		22,800
	555 California Street				20,692		21,388
	Lexington				16,921		19,546
	Other investments				20,823		19,936
					97,493		91,780
	Corporate general and administrative expenses^(a)				(44,129)		(41,379)
	Investment income and other, net^(a)				23,832		24,743
	Fee income from Alexander's				3,796		3,787
	(Loss) income from the mark-to-market of J.C. Penney derivative position				(57,687)		10,401
	Acquisition costs				(3,244)		(2,127)
	Net gain on sale of condominiums				1,274		4,586
	Mezzanine loans loss reversal and net gain on disposition				-		82,744
	Net gain resulting from Lexington's stock issuance				-		9,760
	Real Estate Fund placement fees				-		(3,451)
	Net income attributable to noncontrolling interests in the Operating
		Partnership, including unit distributions			(24,355)		(40,539)
				$	(3,020)	$	140,305


	(a)		The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability.

Net Income and EBITDA by Segment for the Six Months Ended June 30, 2012 and 2011 - continued

EBITDA by Region

		For the Six Months Ended June 30,
		2012	2011
Region:
	New York City metropolitan area	66%	64%
	Washington, DC / Northern Virginia metropolitan area	26%	28%
	Chicago	4%	4%
	California	2%	2%
	Puerto Rico	1%	1%
	Other geographies	1%	1%
		100%	100%

Results of Operations – Six Months Ended June 30, 2012 Compared to June 30, 2011

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $1,403,015,000 for the six months ended June 30, 2012, compared to $1,397,437,000 in the prior year’s six months, an increase of $5,578,000. Below are the details of the increase (decrease) by segment:

(Amounts in thousands)

										Retail		Merchandise
Increase (decrease) due to:			Total			New York		Washington, DC		Properties		Mart			Other
Property rentals:
	Acquisitions, sale of partial interests
		and other	$	3,037		$	-	$	3,037	$	-	$	-		$	-
	Development			(13,203)			(3,160)		(10,130)		87		-			-
	Hotel Pennsylvania			2,229			2,229		-		-		-			-
	Trade Shows			(3,550)			-		-		-		(3,550)			-
	Amortization of acquired below-market
		leases, net		(6,786)			(8,022)		53		574		-			609
	Leasing activity (see page 46)			833			18,726		(15,387)		1,423		(1,831)			(2,098)
				(17,440)			9,773		(22,427)		2,084		(5,381)			(1,489)

Tenant expense reimbursements:
	Acquisitions/development, sale of partial
		interests and other		(2,446)			(997)		1,963		(725)		-			(2,687)
	Operations			(4,127)			(2,102)		1,474		(2,640)		(806)			(53)
				(6,573)			(3,099)		3,437		(3,365)		(806)			(2,740)

Cleveland Medical Mart development
	project			38,295	⁽¹⁾		-		-		-		38,295	⁽¹⁾		-

Fee and other income:
	BMS cleaning fees			1,660			2,216		-		-		-			(556)
	Management and leasing fees			(2,587)			(317)		(1,792)		(409)		(257)			188
	Lease cancellation fee income			(6,785)			(5,380)		(1,883)		(27)		505			-
	Other			(992)			(201)		281		(211)		(508)			(353)
				(8,704)			(3,682)		(3,394)		(647)		(260)			(721)

Total increase (decrease) in revenues			$	5,578		$	2,992	$	(22,384)	$	(1,928)	$	31,848		$	(4,950)



(1)		This increase in income is offset by an increase in development costs expensed in the period. See note (4) on page 65.

Results of Operations – Six Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $995,667,000 for the six months ended June 30, 2012, compared to $976,868,000 in the prior year’s six months, an increase of $18,799,000. Below are the details of the increase (decrease) by segment:

(Amounts in thousands)

											Retail		Merchandise
Increase (decrease) due to:			Total			New York			Washington, DC		Properties		Mart			Other
Operating:
	Acquisitions, sale of partial interests
		and other	$	(762)		$	160		$	1,765	$	-	$	-		$	(2,687)
	Development/redevelopment			(2,109)			100			(2,044)		(165)		-			-
	Non-reimbursable expenses, including
		bad debt reserves		(11,577)			(1,869)			(533)		(4,247)		(4,928)			-
	Hotel Pennsylvania			1,428			1,428			-		-		-			-
	Trade Shows			(3,905)			-			-		-		(3,905)			-
	BMS expenses			1,123			1,679			-		-		-			(556)
	Operations			2,499			4,725			1,090		(2,269)		(289)			(758)
				(13,303)			6,223			278		(6,681)		(9,122)			(4,001)

Depreciation and amortization:
	Acquisitions/development, sale of partial
		interests and other		15,957			(708)			15,849		816		-			-
	Operations			428			1,786			(2,894)		966		933			(363)
				16,385			1,078			12,955		1,782		933			(363)

General and administrative:
	Mark-to-market of deferred compensation
		plan liability⁽¹⁾		(2,594)			-			-		-		-			(2,594)
	Real Estate Fund placement fees			(3,451)			-			-		-		-			(3,451)
	Operations			207			1,284			187		(1,258)		(2,696)	⁽²⁾		2,690	⁽³⁾
				(5,838)			1,284			187		(1,258)		(2,696)			(3,355)

Cleveland Medical Mart development
	project			38,478	⁽⁴⁾		-			-		-		38,478	⁽⁴⁾		-

Acquisition related costs and
	tenant buy-outs			(16,923)			(15,000)	⁽⁵⁾		-		-		(3,040)			1,117

Total increase (decrease) in expenses			$	18,799		$	(6,415)		$	13,420	$	(6,157)	$	24,553		$	(6,602)



(1)		This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment (loss) income, net” on our consolidated statements of income.

(2)		Primarily from lower payroll costs due to a reduction in workforce.

(3)		Primarily from higher payroll costs and stock based compensation.

(4)		This increase in expense is offset by the increase in development revenue in the period. See note (1) on page 64.

(5)		Represents the buy-out of a below-market lease in the prior year.

Results of Operations – Six Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Income Applicable to Toys

In the six months ended June 30, 2012, we recognized net income of $97,281,000 from our investment in Toys, comprised of $92,623,000 for our 32.5% share of Toys’ net income ($121,723,000 before our share of Toys’ income tax expense) and $4,658,000 of management fees. In the six months ended June 30, 2011, we recognized net income of $90,098,000 from our investment in Toys, comprised of $85,773,000 for our 32.7% share of Toys’ net income ($130,822,000 before our share of Toys’ income tax expense) and $4,325,000 of management fees.

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the six months ended June 30, 2012 and 2011.

			Percentage	For the Six Months Ended
			Ownership at	June 30,
(Amounts in thousands)			June 30, 2012	2012		2011
Equity in Net Income (Loss):
Alexander's			32.4%	$	15,869	$	15,857
Lexington⁽¹⁾			11.9%⁽²⁾		694		10,826
LNR⁽³⁾			26.2%		22,719		26,257
India real estate ventures			4.0%-36.5%		(4,608)		(2)
Partially owned office buildings:
	280 Park Avenue (acquired in May 2011)		49.5%		(7,550)		(2,184)
	Warner Building⁽⁴⁾		55.0%		(4,599)		(12,547)
	666 Fifth Avenue Office Condominium (acquired in
		December 2011)	49.5%		3,500		-
	1101 17th Street		55.0%		1,329		1,423
	330 Madison Avenue		25.0%		812		1,125
	One Park Avenue (acquired in March 2011)		30.3%		634		(1,471)
	West 57th Street Properties		50.0%		565		336
	Rosslyn Plaza		43.7%-50.4%		303		2,220
	Fairfax Square		20.0%		(52)		29
	Other partially owned office buildings		Various		1,082		4,086
Other equity method investments:
	Independence Plaza Partnership (mezzanine position)
		(acquired in June 2011)	51.0%		3,415		-
	Downtown Crossing, Boston		50.0%		(834)		(748)
	Monmouth Mall		50.0%		660		957
	Verde Realty Operating Partnership		8.3%		(612)		(1,209)
	Other equity method investments		Various		(1,104)		(3,060)
				$	32,223	$	41,895


(1)		2011 includes a $9,760 net gain resulting from Lexington's stock issuance.

(2)		11.7% at June 30, 2011.

(3)		2011 includes $8,977 for our share of a tax settlement gain and $6,020 of net gains from asset sales.

(4)		2011 includes $9,022 for our share of expense, primarily for straight-line reserves and the write-off of tenant improvements in connection with a tenant's bankruptcy at the Warner Building.

Results of Operations – Six Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Income from Real Estate Fund

Below are the components of the income from our Real Estate Fund for the six months ended June 30, 2012 and 2011.


(Amounts in thousands)		For the Six Months Ended June 30,
		2012		2011
Operating income		$	4,084	$	3,483
Net realized gain			-		3,085
Net unrealized gains			27,979		13,570
Income from Real Estate Fund			32,063		20,138
Less income attributable to noncontrolling interests			(20,239)		(12,028)
Income from Real Estate Fund attributable to Vornado ⁽¹⁾		$	11,824	$	8,110
___________________________________

(1)	Excludes management, leasing and development fees of $1,303 and $1,165 for the six months ended June 30, 2012 and 2011, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

Interest and Other Investment (Loss) Income, net

Interest and other investment (loss) income, net (comprised of the mark-to-market of derivative positions in marketable equity securities, interest income on mezzanine loans receivable, other interest income and dividend income) was a loss of $33,507,000 in the six months ended June 30, 2012, compared to income of $125,097,000 in the prior year’s six months, a decrease of $158,604,000. This decrease resulted from:


(Amounts in thousands)
Mezzanine loan loss reversal and net gain on disposition in 2011		$	(82,744)
J.C. Penney derivative position ($57,687 mark-to-market loss in 2012, compared to a $10,401
	mark-to-market gain in 2011)		(68,088)
Decrease in the value of investments in our deferred compensation plan (offset by a corresponding
	decrease in the liability for plan assets in general and administrative expenses)		(2,594)
Other, net (primarily lower average investments in marketable securities)			(5,178)
		$	(158,604)

Interest and Debt Expense

Interest and debt expense was $262,655,000 in the six months ended June 30, 2012, compared to $268,296,000 in the prior year’s six months, a decrease of $5,641,000. This decrease was primarily due to (i) $10,093,000 from the redemption of our exchangeable and convertible senior debentures in April 2012 and November 2011, respectively, and (ii) $5,659,000 from the refinancing of 350 Park Avenue in January 2012 (of which $3,554,000 was due to a lower rate and $2,105,000 was due to a lower outstanding loan balance), partially offset by (iii) $10,091,000 from the issuance of $400,000,000 of senior unsecured notes in November 2011.

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

Net gain on disposition of wholly owned and partially owned assets was $4,856,000 in the six months ended June 30, 2012 compared to $6,677,000, in the prior year’s six months and resulted primarily from the sale of marketable securities and residential condominiums.

Results of Operations – Six Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Income Tax Expense

Income tax expense was $14,304,000 in the six months ended June 30, 2012, compared to $11,589,000 in the prior year’s six months, an increase of $2,715,000. This increase resulted primarily from higher taxable income of our taxable REIT subsidiaries.

Income from Discontinued Operations

In addition, during 2012, we sold 11 retail properties in separate transactions, for an aggregate of $136,000,000 in cash, which resulted in a net gain aggregating $17,802,000.

We have reclassified the revenues and expenses of the properties that were sold and that are currently being held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements. The table below sets forth the combined results of assets related to discontinued operations for the six months ended June 30, 2012 and 2011.

	For the Six Months Ended June 30,
(Amounts in thousands)	2012		2011
Total revenues	$	49,429	$	76,622
Total expenses		33,444		59,951
		15,985		16,671
Net gains on sales of real estate		72,713		51,623
Impairment losses		(13,511)		-
Net gain on extinguishment of High Point debt		-		83,907
Income from discontinued operations	$	75,187	$	152,201

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

Net income attributable to noncontrolling interests in consolidated subsidiaries was $24,318,000 in the six months ended June 30, 2012, compared to $15,007,000 in the prior year’s six months, an increase of $9,311,000. This increase resulted primarily from an $8,211,000 increase in income allocated to the noncontrolling interests of our Real Estate Fund.

Net Income Attributable to Noncontrolling Interests in the Operating Partnership, including Unit Distributions

Net income attributable to noncontrolling interests in the Operating Partnership, including unit distributions for the six months ended June 30, 2012 and 2011 is primarily comprised of allocations of income to redeemable noncontrolling interests of $16,608,000 and $33,588,000, respectively, and preferred unit distributions of the Operating Partnership of $7,747,000 and $8,951,000, respectively. The decrease of $16,980,000 in allocations of income to redeemable noncontrolling interests resulted primarily from lower net income subject to allocation to unitholders.

Preferred Share Dividends

Preferred share dividends were $35,574,000 in the six months ended June 30, 2012, compared to $30,116,000 in the prior year’s six months, an increase of $5,458,000. This increase resulted from the issuance of Series J preferred shares in 2011.

Results of Operations – Six Months Ended June 30, 2012 Compared to June 30, 2011 - continued

Same Store EBITDA

Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the six months ended June 30, 2012, compared to the six months ended June 30, 2011.

							Retail		Merchandise
(Amounts in thousands)			New York		Washington, DC		Properties		Mart
EBITDA for the six months ended June 30, 2012			$	403,373	$	196,824	$	147,095	$	88,544
	Add-back: non-property level overhead
		expenses included above		15,241		13,186		12,700		10,757
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(19,900)		(12,792)		(21,891)		(54,577)
GAAP basis same store EBITDA for the six months
		ended June 30, 2012		398,714		197,218		137,904		44,724
	Less: Adjustments for straight-line rents,
		amortization of below-market leases, net, and other
		non-cash adjustments		(58,756)		(3,583)		(7,780)		(751)
Cash basis same store EBITDA for the six months
		ended June 30, 2012	$	339,958	$	193,635	$	130,124	$	43,973


EBITDA for the six months ended June 30, 2011			$	376,159	$	268,330	$	140,157	$	129,682
	Add-back: non-property level overhead
		expenses included above		13,957		12,999		13,958		13,453
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(3,810)		(67,816)		(16,830)		(100,359)
GAAP basis same store EBITDA for the six months
		ended June 30, 2011		386,306		213,513		137,285		42,776
	Less: Adjustments for straight-line rents,
		amortization of below-market leases, net, and other
		non-cash adjustments		(52,670)		(587)		(6,727)		760
Cash basis same store EBITDA for the six months
		ended June 30, 2011	$	333,636	$	212,926	$	130,558	$	43,536


Increase (decrease) in GAAP basis same store EBITDA for
		the six months ended June 30, 2012 over the
		six months ended June 30, 2011	$	12,408	$	(16,295)	$	619	$	1,948

Increase (decrease) in Cash basis same store EBITDA for
		the six months ended June 30, 2012 over the
		six months ended June 30, 2011	$	6,322	$	(19,291)	$	(434)	$	437


% increase (decrease) in GAAP basis same store EBITDA				3.2%		(7.6%)		0.5%		4.6%

% increase (decrease) in Cash basis same store EBITDA				1.9%		(9.1%)		(0.3%)		1.0%

SUPPLEMENTAL INFORMATION

Reconciliation of EBITDA to Same Store EBITDA - Three Months Ended June 30, 2012 vs. March 31, 2012

Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended June 30, 2012, compared to the three months ended March 31, 2012.

							Retail		Merchandise
(Amounts in thousands)			New York		Washington, DC		Properties		Mart
EBITDA for the three months ended June 30, 2012			$	210,421	$	96,312	$	76,352	$	10,939
	Add-back: non-property level overhead expenses
		included above		6,654		6,233		6,367		4,848
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(4,961)		(4,745)		(10,467)		6,331
GAAP basis same store EBITDA for the three months
	ended June 30, 2012			212,114		97,800		72,252		22,118
	Less: Adjustments for straight-line rents, amortization of
		below-market leases, net, and other non-cash adjustments		(33,461)		(1,883)		(4,832)		(83)
Cash basis same store EBITDA for the three months
	ended June 30, 2012		$	178,653	$	95,917	$	67,420	$	22,035


EBITDA for the three months ended March 31, 2012⁽¹⁾			$	192,952	$	100,512	$	70,743	$	77,605
	Add-back: non-property level overhead expenses
		included above		8,587		6,953		6,333		5,909
	Less: EBITDA from acquisitions, dispositions
		and other non-operating income or expenses		(5,185)		(7,926)		(5,692)		(60,908)
GAAP basis same store EBITDA for the three months
	ended March 31, 2012			196,354		99,539		71,384		22,606
	Less: Adjustments for straight-line rents, amortization of
		below-market leases, net, and other non-cash adjustments		(33,567)		(1,822)		(4,285)		(668)
Cash basis same store EBITDA for the three months
	ended March 31, 2012		$	162,787	$	97,717	$	67,099	$	21,938


Increase (decrease) in GAAP basis same store EBITDA for
	the three months ended June 30, 2012 over the
	three months ended March 31, 2012		$	15,760	$	(1,739)	$	868	$	(488)

Increase (decrease) in Cash basis same store EBITDA for
	the three months ended June 30, 2012 over the
	three months ended March 31, 2012		$	15,866	$	(1,800)	$	321	$	97


% increase (decrease) in GAAP basis same store EBITDA				8.0%		(1.7%)		1.2%		(2.2%)

% increase (decrease) in Cash basis same store EBITDA				9.7%		(1.8%)		0.5%		0.4%


(1)		Below is the reconciliation of net income to EBITDA for the three months ended March 31, 2012.
							Retail		Merchandise
(Amounts in thousands)			New York		Washington, DC		Properties		Mart
Net income attributable to Vornado for the three months
	ended March 31, 2012		$	83,290	$	18,072	$	28,030	$	58,175
Interest and debt expense				47,058		33,657		20,438		8,790
Depreciation and amortization				61,911		48,260		22,275		9,478
Income tax expense				693		523		-		1,162
EBITDA for the three months ended March 31, 2012			$	192,952	$	100,512	$	70,743	$	77,605

Related Party Transactions

On March 8, 2012, Steven Roth, the Chairman of our Board of Trustees, repaid his $13,122,500 outstanding loan from the Company.

Liquidity and Capital Resources

Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties. Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, dividends to shareholders, distributions to unitholders of the Operating Partnership, as well as acquisition and development costs. Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans, senior unsecured borrowings, and our revolving credit facilities; proceeds from the issuance of common and preferred equity; and asset sales.

We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to shareholders, debt amortization and recurring capital expenditures. Capital requirements for development expenditures and acquisitions (excluding Fund acquisitions) may require funding from borrowings and/or equity offerings. Our Real Estate Fund has aggregate unfunded equity commitments of $330,753,000 for acquisitions, including $82,688,250 from us.

We may from time to time purchase or retire outstanding debt securities or redeem our equity securities. Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.

See “Overview” on page 43 for significant transactions that have occurred subsequent to quarter end that may have an impact on our liquidity and capital resources.

Cash Flows for the Six Months Ended June 30, 2012

Our cash and cash equivalents were $471,363,000 at June 30, 2012, a $135,190,000 decrease over the balance at December 31, 2011. Our consolidated outstanding debt was $10,218,027,000 at June 30, 2012, a $269,321,000 decrease over the balance at December 31, 2011. As of June 30, 2012 and December 31, 2011, $500,000,000 and $138,000,000, respectively, was outstanding under our revolving credit facilities. During the remainder of 2012 and 2013, $70,213,000 and $1,685,477,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it using a portion of our $2,471,363,000 of available capacity (comprised of $471,363,000 of cash and cash equivalents and $2,000,000,000 of availability under our revolving credit facilities).

Cash flows provided by operating activities of $263,864,000 was comprised of (i) net income of $338,492,000, (ii) distributions of income from partially owned entities of $34,613,000 and (iii) $73,175,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities and net gains on sale of real estate, partially offset by (iv) the net change in operating assets and liabilities of $182,416,000, including $85,867,000 related to Real Estate Fund investments.

Net cash provided by investing activities of $170,894,000 was comprised of (i) $370,037,000 of proceeds from sales of real estate and related investments, (ii) $58,460,000 of proceeds from the sale of marketable securities, (iii) $24,950,000 from the return of the J.C. Penney derivative collateral, (iv) $17,963,000 of capital distributions from partially owned entities, (v) $13,123,000 of proceeds from the repayment of loan to officer and (vi) $1,994,000 of proceeds from repayments of mezzanine loans, partially offset by (vii) $83,368,000 of additions to real estate, (viii) $70,000,000 for the funding of the J.C. Penney derivative collateral, (ix) $58,069,000 of development costs and construction in progress, (x) $57,237,000 of investments in partially owned entities, (xi) $32,156,000 of acquisitions of real estate and other, (xii) $14,658,000 of changes in restricted cash, and (xiii) $145,000 of investments in mezzanine loans receivable and other.

Net cash used in financing activities of $569,948,000 was comprised of (i) $1,507,220,000 for the repayments of borrowings, (ii) $256,119,000 of dividends paid on common shares, (iii) $69,367,000 of distributions to noncontrolling interests, (iv) $35,576,000 of dividends paid on preferred shares, (v) $30,034,000 for the repurchase of shares related to stock compensation agreements and related tax holdings and (vi) $14,648,000 of debt issuance and other costs, partially offset by (vii) $1,225,000,000 of proceeds from borrowings, (viii) $108,349,000 of contributions from noncontrolling interests in consolidated subsidiaries and (ix) $9,667,000 of proceeds from exercise of employee share options.

Liquidity and Capital Resources – continued

Capital Expenditures in the six months ended June 30, 2012

Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions. Recurring capital expenditures include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital expenditures include expenditures to lease space that has been vacant for more than nine months and expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition, as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition. Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the six months ended June 30, 2012.

										Retail		Merchandise
(Amounts in thousands)				Total		New York		Washington, DC		Properties		Mart		Other
Expenditures to maintain assets				$	22,625	$	10,033	$	5,244	$	2,665	$	1,891	$	2,792
Tenant improvements					60,511		25,820		25,332		6,503		2,856		-
Leasing commissions					23,438		14,219		7,342		1,755		122		-
Non-recurring capital expenditures					4,877		4,095		-		-		-		782
Total capital expenditures and leasing
	commissions (accrual basis)				111,451		54,167		37,918		10,923		4,869		3,574
Adjustments to reconcile to cash basis:
		Expenditures in the current year
			applicable to prior periods		58,095		20,667		16,603		4,917		10,672		5,236
		Expenditures to be made in future
			periods for the current period		(69,209)		(33,249)		(27,479)		(6,951)		(1,530)		-
Total capital expenditures and leasing
	commissions (cash basis)			$	100,337	$	41,585	$	27,042	$	8,889	$	14,011	$	8,810

Tenant improvements and leasing commissions:
	Per square foot per annum			$	3.51	$	4.57	$	4.91	$	1.05	$	2.44	$	-
	Percentage of initial rent				8.5%		7.0%		12.7%		5.4%		6.6%		-

Development and Redevelopment Expenditures in the six months ended June 30, 2012

Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions, capitalized interest and operating costs until the property is substantially completed and ready for its intended use. Below is a summary of development and redevelopment expenditures incurred in the six months ended June 30, 2012.

							Retail		Merchandise
(Amounts in thousands)	Total		New York		Washington, DC		Properties		Mart		Other
510 Fifth Avenue	$	8,369	$	8,369	$	-	$	-	$	-	$	-
Bergen Town Center		8,114		-		-		8,114		-		-
Crystal Square 5		6,976		-		6,976		-		-		-
Beverly Connection		5,842		-		-		5,842		-		-
220 Central Park South		3,108		-		-		-		-		3,108
1290 Avenue of the Americas		2,947		2,947		-		-		-		-
Poughkeepsie, New York		1,411		-		-		1,411		-		-
Crystal City Hotel		1,316		-		1,316		-		-		-
Crystal Plaza 5		1,191		-		1,191		-		-		-
Other		18,795		5,933		5,327		7,260		28		247
	$	58,069	$	17,249	$	14,810	$	22,627	$	28	$	3,355

As of June 30, 2012, the estimated costs to complete the above projects are approximately $26,000,000. In addition, during 2012, we plan to redevelop 1851 South Bell Street, a 348,000 square foot office building in Crystal City, into a new 700,000 square foot office building (readdressed as 1900 Crystal Drive). The estimated cost of this project is approximately $300,000,000, or $425 per square foot. There can be no assurance that these projects will commence, or, if commenced, be completed on schedule or within budget.

Liquidity and Capital Resources – continued

Cash Flows for the Six Months Ended June 30, 2011

Our cash and cash equivalents were $591,515,000 at June 30, 2011, a $99,274,000 decrease over the balance at December 31, 2010. This decrease was primarily due to cash flows from financing activities, partially offset by cash flows from operating activities, as discussed below.

Cash flows provided by operating activities of $260,040,000 was comprised of (i) net income of $576,790,000 and (ii) distributions of income from partially owned entities of $43,741,000, partially offset by (iii) $148,549,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income and equity in net income of partially owned entities, and (iv) the net change in operating assets and liabilities of $211,942,000, including $97,802,000 related to Real Estate Fund investments.

Net cash provided by investing activities of $23,257,000 was comprised of (i) $271,375,000 of capital distributions from partially owned entities, (ii) $130,789,000 of proceeds from sales of real estate and related investments, (iii) $99,990,000 of proceeds from sales and repayments of mezzanine loans, (iv) changes in restricted cash of $91,127,000 and (v) $19,301,000 of proceeds from sales of, and return of investments in, marketable securities, partially offset by (vi) $426,376,000 of investments in partially owned entities, (vii) $86,944,000 of additions to real estate, (viii) $43,516,000 of investments in mezzanine loans receivable and other and (ix) $32,489,000 of development costs and construction in progress.

Net cash used in financing activities of $382,571,000 was comprised of (i) $1,636,817,000 for the repayments of borrowings, (ii) $254,099,000 of dividends paid on common shares, (iii) $62,111,000 of distributions to noncontrolling interests, (iv) $27,117,000 of dividends paid on preferred shares, (v) $23,319,000 of debt issuance and other costs, (vi) $8,000,000 for the purchase of outstanding preferred units and (vii) $748,000 for the repurchase of shares related to stock compensation agreements and related tax holdings, partially offset by (viii) $1,284,167,000 of proceeds from borrowings, (ix) $214,538,000 of proceeds from the issuance of Series J preferred shares, (x) $109,605,000 of contributions from noncontrolling interests and (xi) $21,330,000 of proceeds received from exercise of employee share options.

Liquidity and Capital Resources – continued

Capital Expenditures in the six months ended June 30, 2011

										Retail		Merchandise
(Amounts in thousands)				Total		New York		Washington, DC		Properties		Mart		Other
Expenditures to maintain assets				$	20,864	$	8,400	$	4,124	$	2,387	$	4,326	$	1,627
Tenant improvements					38,972		22,293		12,608		1,610		2,139		322
Leasing commissions					10,142		7,467		2,177		303		72		123
Non-recurring capital expenditures					14,945		13,085		-		500		-		1,360
Total capital expenditures and leasing
	commissions (accrual basis)				84,923		51,245		18,909		4,800		6,537		3,432
Adjustments to reconcile to cash basis:
		Expenditures in the current year
			applicable to prior periods		62,082		25,604		9,028		7,412		19,210		828
		Expenditures to be made in future
			periods for the current period		(49,923)		(31,924)		(13,547)		(2,405)		(2,047)		-
Total capital expenditures and leasing
	commissions (cash basis)			$	97,082	$	44,925	$	14,390	$	9,807	$	23,700	$	4,260

Tenant improvements and leasing commissions:
	Per square foot per annum			$	3.31	$	5.10	$	3.96	$	0.60	$	1.47	$	-
	Percentage of initial rent				8.0%		7.6%		10.1%		3.1%		4.3%		-

Development and Redevelopment Expenditures in the six months ended June 30, 2011

							Retail		Merchandise
(Amounts in thousands)	Total		New York		Washington, DC		Properties		Mart		Other
Bergen Town Center	$	10,105	$	-	$	-	$	10,105	$	-	$	-
Green Acres Mall		3,539		-		-		3,539		-		-
West End 25		1,841		-		1,841		-		-		-
North Bergen, New Jersey		1,494		-		-		1,494		-		-
510 Fifth Avenue		1,492		1,492		-		-		-		-
Crystal City Hotel		1,207		-		1,207		-		-		-
Crystal Square		1,046		-		1,046		-		-		-
Crystal Plaza		1,013		-		1,013		-		-		-
Poughkeepsie, New York		796		-		-		796		-		-
Other		9,956		2,664		3,559		1,528		310		1,895
	$	32,489	$	4,156	$	8,666	$	17,462	$	310	$	1,895

Liquidity and Capital Resources – continued

Insurance

Other Commitments and Contingencies

As of June 30, 2012, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $259,607,000.

Liquidity and Capital Resources – continued

Litigation

Funds From Operations (“FFO”)

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gain from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro-rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flows as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in footnote 18 – Income per Share, in the notes to our consolidated financial statements on page 29 of this Quarterly Report on Form 10-Q.

FFO for the Three and Six Months Ended June 30, 2012 and 2011

FFO attributable to common shareholders plus assumed conversions was $166,672,000, or $0.89 per diluted share for the three months ended June 30, 2012, compared to $243,418,000, or $1.27 per diluted share, for the prior year’s quarter. FFO attributable to common shareholders plus assumed conversions was $516,328,000, or $2.72 per diluted share for the six months ended June 30, 2012, compared to $749,349,000, or $3.91 per diluted share, for the prior year’s six months. Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”

			For The Three Months				For The Six Months
(Amounts in thousands, except per share amounts)			Ended June 30,				Ended June 30,
Reconciliation of our net income to FFO:			2012		2011		2012		2011
Net income attributable to Vornado			$	38,297	$	108,581	$	289,819	$	521,244
Depreciation and amortization of real property				126,063		124,326		258,621		248,647
Net gains on sale of real estate				(16,896)		(458)		(72,713)		(51,623)
Real estate impairment losses				13,511		-		13,511		-
Proportionate share of adjustments to equity in net income
	of Toys, to arrive at FFO:
		Depreciation and amortization of real property		16,513		17,168		33,801		34,897
		Net gains on sale of real estate		-		(491)		-		(491)
		Real estate impairment losses		1,368		-		8,394		-
		Income tax effect of above adjustments		(6,351)		(5,835)		(14,848)		(12,040)
Proportionate share of adjustments to equity in net income of
	partially owned entities, excluding Toys, to arrive at FFO:
		Depreciation and amortization of real property		21,684		22,233		43,060		46,202
		Net gains on sale of real estate		(234)		(2,120)		(895)		(3,769)
		Real estate impairment losses		-		-		1,849		-
Noncontrolling interests' share of above adjustments				(9,524)		(9,906)		(16,584)		(16,756)
FFO				184,431		253,498		544,015		766,311
Preferred share dividends				(17,787)		(16,668)		(35,574)		(30,116)
FFO attributable to common shareholders				166,644		236,830		508,441		736,195
Interest on 3.88% exchangeable senior debentures				-		6,556		7,830		13,090
Convertible preferred share dividends				28		32		57		64
FFO attributable to common shareholders plus assumed conversions			$	166,672	$	243,418	$	516,328	$	749,349

Reconciliation of Weighted Average Shares
	Weighted average common shares outstanding			185,673		184,268		185,521		184,129
	Effect of dilutive securities:
		3.88% exchangeable senior debentures		-		5,736		3,430		5,736
		Employee stock options and restricted share awards		669		1,876		700		1,815
		Convertible preferred shares		49		55		50		56
	Denominator for FFO per diluted share			186,391		191,935		189,701		191,736

FFO attributable to common shareholders plus assumed conversions			$	0.89	$	1.27	$	2.72	$	3.91

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have exposure to fluctuations in market interest rates. Market interest rates are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates on our consolidated and non-consolidated debt (all of which arises out of non-trading activity) is as follows:

(Amounts in thousands, except per share amounts)			2012						2011
						Weighted	Effect of 1%				Weighted
			June 30,			Average	Change In		December 31,		Average
Consolidated debt:			Balance			Interest Rate	Base Rates		Balance		Interest Rate
	Variable rate		$	2,635,522		2.29%	$	26,355	$	2,206,993	2.25%
	Fixed rate			7,582,505		5.49%		-		8,280,355	5.55%
			$	10,218,027		4.66%		26,355	$	10,487,348	4.86%
Pro-rata share of debt of non-consolidated
	entities (non-recourse):
	Variable rate – excluding Toys		$	344,482		2.70%		3,445	$	284,372	2.85%
	Variable rate – Toys			633,411		6.00%		6,334		706,301	4.83%
	Fixed rate (including $1,134,474 and
		$1,270,029 of Toys debt in 2012 and 2011)		3,009,167	⁽¹⁾	6.99%		-		3,208,472	6.96%
			$	3,987,060		6.46%		9,779	$	4,199,145	6.32%
Noncontrolling interests’ share of above								(2,276)
Total change in annual net income							$	33,858
Per share-diluted							$	0.18



(1)	Excludes $22.2 billion for our 26.2% pro rata share of LNR's liabilities related to consolidated CMBS and CDO trusts which are non-recourse to LNR and its equity holders, including us.

We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of June 30, 2012, variable rate debt with an aggregate principal amount of $211,093,000 and a weighted average interest rate of 4.13% was subject to LIBOR caps. These caps are based on a notional amount of $211,093,000 and cap LIBOR at a weighted average rate of 4.03%. In addition, we have one interest rate swap on a $425,000,000 loan that swapped the rate from LIBOR plus 2.00% (2.25% at June 30, 2012) to a fixed rate of 5.13% for the remaining seven-year term of the loan.

As of June 30, 2012, we have investments in mezzanine loans with an aggregate carrying amount of $54,770,000 that are based on variable interest rates which partially mitigate our exposure to a change in interest rates on our variable rate debt.

Fair Value of Debt

The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the rate at which similar loans could be made currently to borrowers with similar credit ratings, for the remaining term of such debt. As of June 30, 2012, the estimated fair value of our consolidated debt was $10,395,000,000.

Derivative Instruments

We have, and may in the future enter into, derivative positions that do not qualify for hedge accounting treatment, including our economic interest in J.C. Penney common shares. Because these derivatives do not qualify for hedge accounting treatment, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income, net” on our consolidated statements of income. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR. Because the market value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our investment income or expense in any given period. In the three and six months ended June 30, 2012, we recognized losses of $58,732,000 and $57,687,000, respectively, from derivative instruments, compared to a loss of $6,762,000 and income of $10,401,000, respectively, for the three and six months ended June 30, 2011.

Item 4. Controls and Procedures

Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2012, such disclosure controls and procedures were effective.

Internal Control Over Financial Reporting: There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the second quarter of 2012, we issued 16,257 common shares upon the redemption of Class A units of the Operating Partnership held by persons who received units, in private placements in earlier periods, in exchange for their interests in limited partnerships that owned real estate. The common shares were issued without registration under the Securities Act of 1933 in reliance on Section 4 (2) of that Act.

Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under Part III, Item 12 of the Annual Report on Form 10-K for the year ended December 31, 2011, and such information is incorporated by reference herein.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		VORNADO REALTY TRUST
		(Registrant)


Date: August 6, 2012	By:	/s/ Joseph Macnow
		Joseph Macnow, Executive Vice President - Finance and Administration and Chief Financial Officer (duly authorized officer and principal financial and accounting officer)

	EXHIBIT INDEX

Exhibit No.

	3.3		-	Articles Supplementary, 5.70% Series K Cumulative Redeemable Preferred Shares of	*
				Beneficial Interest, liquidation preference $25.00 per share, no par value – Incorporated by
				reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement on Form 8-A
				(File No. 001-11954), filed on July 18, 2012

	3.48		-	Forty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership,	*
				dated as of July 18, 2012 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s
				Current Report on Form 8-K (File No. 001-34482), filed on July 18, 2012


	15.1		-	Letter regarding Unaudited Interim Financial

	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

	101.INS		-	XBRL Instance Document

	101.SCH		-	XBRL Taxonomy Extension Schema

	101.CAL		-	XBRL Taxonomy Extension Calculation Linkbase

	101.DEF		-	XBRL Taxonomy Extension Definition Linkbase

	101.LAB		-	XBRL Taxonomy Extension Label Linkbase

	101.PRE		-	XBRL Taxonomy Extension Presentation Linkbase

				______________________________
		*		Incorporated by reference