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Section 1: 10-12B/A (10-12B/A)

 

As filed with the Securities and Exchange Commission on September 18, 2014

 

File No. 001-36523

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

VORNADO SPINCO

(Exact name of Registrant as specified in its charter)

 

Maryland
(State or other jurisdiction of
incorporation or organization)

47-6311266
(I.R.S. employer
Identification number)

 

 

888 Seventh Avenue
New York, New York

(Address of principal executive offices)

10019
(Zip Code)

 

 

(212) 894-7000

(Registrant’s telephone number, including area code)

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class to be so registered

Name of each exchange on which
each class is to be registered

Common Shares, par value $0.01 per share

New York Stock Exchange

 

Securities to be registered pursuant to Section 12(g) of the Act: None

 

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 “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

o Large Accelerated Filer

 

o Accelerated Filer

x Non-Accelerated Filer (Do not check if smaller reporting company)

 

o Smaller Reporting Company

 


                  The registrant is currently named Vornado SpinCo. Before the effective date of this registration statement, the registrant will change its name.

 



 

Vornado SpinCo

 

INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10

 

Certain information required to be included herein is incorporated by reference to specifically identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.

 

Item 1. Business.

 

The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Certain Relationships and Related Person Transactions,” “The Separation” and “Where You Can Find More Information.” Those sections are incorporated herein by reference.

 

Item 1A. Risk Factors.

 

The information required by this item is contained under the section of the information statement entitled “Risk Factors.” That section is incorporated herein by reference.

 

Item 2. Financial Information.

 

The information required by this item is contained under the sections of the information statement entitled “Summary Historical Combined Financial Data,” “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Index to Financial Statements” and the statements referenced therein. Those sections are incorporated herein by reference.

 

Item 3. Properties.

 

The information required by this item is contained under the section of the information statement entitled “Business — Our Portfolio.” That section is incorporated herein by reference.

 

Item 4. Security Ownership of Certain Beneficial Owners and Management.

 

The information required by this item is contained under the section of the information statement entitled “Security Ownership of Certain Beneficial Owners and Management.” That section is incorporated herein by reference.

 

Item 5. Directors and Executive Officers.

 

The information required by this item is contained under the section of the information statement entitled “Management.” That section is incorporated herein by reference.

 

Item 6. Executive Compensation.

 

The information required by this item is contained under the section of the information statement entitled “Compensation Discussion and Analysis.” That section is incorporated herein by reference.

 

Item 7. Certain Relationships and Related Transactions.

 

The information required by this item is contained under the sections of the information statement entitled “Management” and “Certain Relationships and Related Person Transactions.” Those sections are incorporated herein by reference.

 



 

Item 8. Legal Proceedings.

 

The information required by this item is contained under the section of the information statement entitled “Business — Legal Proceedings.” That section is incorporated herein by reference.

 

Item 9. Market Price of, and Dividends on, the Registrant’s Common Equity and Related Shareholder Matters.

 

The information required by this item is contained under the sections of the information statement entitled “Dividend Policy,” “Capitalization,” “The Separation,” and “Description of SpinCo’s Shares of Beneficial Interest.” Those sections are incorporated herein by reference.

 

Item 10. Recent Sales of Unregistered Securities.

 

The information required by this item is contained under the sections of the information statement entitled “Description of SpinCo’s Shares of Beneficial Interest — Sale of Unregistered Securities.” Those sections are incorporated herein by reference.

 

Item 11. Description of Registrant’s Securities to be Registered.

 

The information required by this item is contained under the sections of the information statement entitled “Dividend Policy,” “The Separation,” “Description of SpinCo’s Shares of Beneficial Interest,” and “Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws.” Those sections are incorporated herein by reference.

 

Item 12. Indemnification of Directors and Officers.

 

The information required by this item is contained under the section of the information statement entitled “Certain Provisions of Maryland Law and of our Declaration of Trust and Bylaws — Limitation of Liability and Indemnification of Trustees and Officers.” This section is incorporated herein by reference.

 

Item 13. Financial Statements and Supplementary Data.

 

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein. That section is incorporated herein by reference.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 15. Financial Statements and Exhibits.

 

(a) Financial Statements

 

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein. That section is incorporated herein by reference.

 

(b) Exhibits

 

See below.

 

The following documents are filed as exhibits hereto:

 

Exhibit No.

 

 

Exhibit Description

2.1

 

Separation and Distribution Agreement by and between Vornado Realty Trust and Vornado SpinCo*

3.1

 

Form of Declaration of Trust of Vornado SpinCo, as amended and restated*

 

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Exhibit No.

 

 

Exhibit Description

3.2

 

Form of Amended and Restated Bylaws of Vornado SpinCo *

10.1

 

Form of Amended and Restated Agreement of Limited Partnership of Vornado SpinCo, L.P.*

10.2

 

Form of Transition Services Agreement by and between Vornado Realty Trust and Vornado SpinCo*

10.3

 

Form of Tax Matters Agreement by and between Vornado Realty Trust and Vornado SpinCo*

10.4

 

Form of Employee Matters Agreement by and between Vornado Realty Trust and Vornado SpinCo*

21.1

 

Subsidiaries of Vornado SpinCo*

 

99.1

 

Information Statement of Vornado SpinCo, preliminary and subject to completion, dated September 18, 2014**

__________________

*                                          To be filed by amendment.

**                                    Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

VORNADO SPINCO

 

 

 

 

By:

/s/ Stephen W. Theriot

 

 

 

Name:

Stephen W. Theriot

 

 

Title:

Treasurer

 

Date:                  September 18, 2014

 

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(Back To Top)

Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

 

GRAPHIC

 

____________, 2014

 

Dear Vornado Realty Trust shareholders and Vornado Realty L.P. limited partners:

 

We are pleased to inform you that, on                   , 2014, Vornado Realty L.P. (“VRLP”), the operating partnership of Vornado Realty Trust (“Vornado”), declared the distribution of all of the outstanding common shares of Vornado SpinCo (“SpinCo”), a wholly-owned subsidiary of VRLP, to Vornado and the other holders of common limited partnership units of VRLP.  On the same date, the board of trustees of Vornado declared the distribution of all of the SpinCo common shares to be received by Vornado in the distribution by VRLP to Vornado common shareholders as of the record date (as described below). SpinCo is a newly formed indirect subsidiary of Vornado that will hold, directly or indirectly, Vornado’s shopping center business, consisting of 80 strip shopping centers located primarily in the Northeast and California and four malls, two located in New Jersey and two located in San Juan, Puerto Rico. SpinCo’s properties will also include a warehouse park adjacent to our East Hanover strip shopping center property.

 

This is a significant transaction that we believe will unlock the potential of the strip shopping centers and malls to be owned by SpinCo. We believe we are creating a new company that will be well positioned to deliver both internal growth through active asset management and redevelopments and external growth through acquisitions and selective new developments. At the same time, this transaction allows Vornado to focus on its core New York City and Washington, D.C. office portfolios and its Manhattan street retail portfolio.

 

The distribution of SpinCo common shares will occur on                   , 2015. Vornado will distribute all of its SpinCo common shares by way of a pro rata special distribution to Vornado common shareholders as of the record date. Immediately prior to such distribution by Vornado, VRLP will distribute all of the outstanding SpinCo common shares on a pro rata basis to the holders of its common limited partnership units, consisting of Vornado and the other common limited partners of VRLP. Each Vornado common shareholder will be entitled to receive one SpinCo common share for every two Vornado common shares held by such shareholder as of the close of business on                   , 2014, which is the record date for the distribution by each of Vornado and VRLP.  Vornado and each of the other limited partners of VRLP will be entitled to receive one SpinCo common share for every two common limited partnership units in VRLP held as of the close of business on the record date. The SpinCo common shares will be issued in book-entry form only, which means that no physical share certificates will be issued.  We expect that the separation of Vornado’s shopping center business from Vornado’s other businesses and the distribution of SpinCo common shares by each of Vornado and VRLP will qualify as tax-free for U.S. federal income tax purposes.

 

No vote of Vornado shareholders or VRLP limited partners is required to approve the distribution by either Vornado or VRLP, and you are not required to take any action to receive your SpinCo common shares. Following the distribution, each Vornado common shareholder will own common shares in Vornado and SpinCo and each VRLP common limited partner (other than Vornado) will own both VRLP common limited partnership units and SpinCo common shares. The number of Vornado common shares that each Vornado common shareholder owns and the number of common limited partnership units of VRLP that each common limited partner owns will not change as a result of this distribution. Vornado’s common shares will continue to trade on the New York Stock Exchange under the symbol “VNO.” SpinCo intends to apply to list its common shares on the New York Stock Exchange under the symbol “          .”

 

The information statement, which is being mailed to all holders of Vornado common shares and to all holders of common limited partnership units of VRLP (other than Vornado) as of the record date for the distribution by each of Vornado and VRLP, describes the distribution in detail and contains important information about SpinCo, its business, financial condition and operations. We urge you to read the information statement carefully.

 



 

We want to thank you for your continued support of Vornado and VRLP, and we look forward to your future support of SpinCo.

 

 

Sincerely,

 

 

 

Steven Roth
Chairman and Chief Executive Officer of
Vornado Realty Trust

 



 

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.

 

PRELIMINARY AND SUBJECT TO COMPLETION, DATED September 18, 2014

 

INFORMATION STATEMENT

 

VORNADO SPINCO

 

This information statement is being furnished in connection with the distribution by Vornado Realty Trust (“Vornado”) and Vornado Realty L.P. (“VRLP”), the operating partnership of Vornado, to the holders of common shares of beneficial interest, par value $0.04 per share (“Vornado common shares”), of Vornado and holders of VRLP common limited partnership units, respectively, of all of the outstanding common shares of beneficial interest, par value $0.01 per share (“SpinCo common shares”), of Vornado SpinCo (“SpinCo”).  SpinCo is a newly formed wholly-owned subsidiary of VRLP that will hold, directly or indirectly, the assets and liabilities associated with Vornado’s shopping center business, consisting of 80 strip shopping centers and four malls. SpinCo’s properties will also include a warehouse park adjacent to our East Hanover strip shopping center property. To implement the distribution, Vornado will distribute all of its SpinCo common shares by way of a pro rata special distribution to Vornado common shareholders. Immediately prior to such distribution by Vornado, VRLP will distribute all of the outstanding SpinCo common shares on a pro rata basis to the holders of VRLP’s common limited partnership units, consisting of Vornado and the other common limited partners of VRLP. As a result of such distribution by VRLP, Vornado is expected to receive approximately 94% of the outstanding SpinCo common shares, while the other common limited partners of VRLP, as a group, are expected to receive approximately 6%.  The separation of Vornado’s shopping center business from Vornado’s other businesses is expected to qualify as tax-free for U.S. federal income tax purposes.

 

For every two Vornado common shares held of record by you as of the close of business on                   , 2014, the record date for the distribution by each of Vornado and VRLP, you will receive one SpinCo common share. For every two common limited partnership units of VRLP held of record by you as of the close of business on the record date, you will receive one SpinCo common share. You will receive cash in lieu of any fractional SpinCo common shares that you would have received after application of the above ratios. As discussed under “The Separation — Trading Between the Record Date and Distribution Date,” if you sell your Vornado common shares in the “regular-way” market after the record date and before the distribution, you also will be selling your right to receive SpinCo common shares in connection with the separation. We expect the SpinCo common shares to be distributed to Vornado common shareholders and VRLP common limited partners  on                   , 2015. We refer to the date of the distribution of the SpinCo common shares as the “distribution date.”  You will continue to own the same number of Vornado common shares and common limited partnership units of VRLP, as the case may be, as you own immediately before the distribution date.

 

No vote of Vornado shareholders or VRLP limited partners is required for the distribution by either Vornado or VRLP. We are not asking you for a proxy and you are requested not to send us a proxy. You do not need to pay any consideration, exchange or surrender your existing Vornado common shares or VRLP common limited partnership units or take any other action to receive your SpinCo common shares.

 

There is no current trading market for SpinCo common shares, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution by each of Vornado and VRLP, and we expect “regular-way” trading of SpinCo common shares to begin on the first trading day following the completion of the distribution. SpinCo intends to apply to have its common shares authorized for listing on the New York Stock Exchange under the symbol “                  .”

 

SpinCo intends to elect and qualify to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes, from and after SpinCo’s taxable year that includes the distribution of our common shares by each of Vornado and VRLP.

 


                   Our current name is Vornado SpinCo. We will change our name before the effective date of this registration statement.

 



 

To assist SpinCo in qualifying as a REIT, among other purposes, SpinCo’s declaration of trust will contain various restrictions on the ownership and transfer of its shares of beneficial interest, including a provision pursuant to which shareholders will generally be restricted from owning more than 9.8% of the outstanding common shares, or 9.8% of the outstanding preferred shares of beneficial interest, par value $0.01 per share (“SpinCo preferred shares”), of SpinCo of any class or series. Please refer to “Description of SpinCo’s Shares of Beneficial Interest — Common Shares — Restrictions on Ownership of Common Shares.”

 

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 26.

 


 

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

 


 

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

 

The date of this information statement is                   , 2014.

 

This information statement was first mailed to Vornado common shareholders and holders of common limited partnership units of VRLP on or about                   , 2014.

 



 

TABLE OF CONTENTS

 

 

Page

 

 

INFORMATION STATEMENT SUMMARY

1

SUMMARY HISTORICAL COMBINED FINANCIAL DATA

22

RISK FACTORS

26

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

43

DIVIDEND POLICY

44

CAPITALIZATION

45

SELECTED HISTORICAL COMBINED FINANCIAL DATA

46

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

53

BUSINESS

75

MANAGEMENT

93

COMPENSATION DISCUSSION AND ANALYSIS

98

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

99

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

105

THE SEPARATION

107

DESCRIPTION OF SPINCO’S SHARES OF BENEFICIAL INTEREST

118

CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR DECLARATION OF TRUST AND BYLAWS

123

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

129

SHARES ELIGIBLE FOR FUTURE SALE

144

PARTNERSHIP AGREEMENT

145

WHERE YOU CAN FIND MORE INFORMATION

148

INDEX TO FINANCIAL STATEMENTS

F-1

 

Presentation of Information

 

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about SpinCo assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution by each of Vornado Realty Trust and Vornado Realty L.P. Unless the context otherwise requires, references in this information statement to “SpinCo,” “our company,” “the company,” “us,” “our,” and “we” refer to Vornado SpinCo, a Maryland real estate investment trust, and its combined subsidiaries. References to SpinCo’s historical business and operations refer to the business and operations of Vornado’s shopping center business that will be transferred to SpinCo in connection with the separation. Unless the context otherwise requires, references in this information statement to “Vornado” refer to Vornado Realty Trust, a Maryland real estate investment trust, and its consolidated subsidiaries, including Vornado Realty L.P. (“VRLP”), a Delaware limited partnership through which Vornado conducts its business and holds substantially all of its interests in properties. Base rent data presented in this information statement represents the weighted average contractual rent for in-place leases for the applicable period. Except as otherwise indicated or unless the context otherwise requires, all references to SpinCo per share data assume a distribution ratio of one SpinCo common share for every two Vornado common shares, for purposes of the distribution by Vornado to its common shareholders, and one SpinCo common share for every two common limited partnership units of VRLP, for purposes of the distribution by VRLP to its holders of common limited partnership units (also referred to in this information statement as “common limited partners”).

 

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INFORMATION STATEMENT SUMMARY

 

The following is a summary of material information discussed in this information statement. This summary may not contain all of the details concerning the separation or other information that may be important to you. To better understand the separation and SpinCo’s business and financial position, you should carefully review this entire information statement. Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution by each of Vornado Realty Trust and Vornado Realty L.P.

 

This information statement discusses the business to be transferred to SpinCo by Vornado in the separation as if the transferred business were SpinCo’s business for all historical periods described. References in this information statement to SpinCo’s historical assets, liabilities, products, businesses or activities are generally intended to refer to the historical assets, liabilities, products, business or activities of the transferred business as the business was conducted as part of Vornado prior to the separation.

 

Our Company

 

Our mission will be to own and operate high-quality strip shopping centers (“strip centers”) and malls located in high barrier-to-entry markets.  We plan to grow the business through proactive leasing and management of our portfolio, through the redevelopment of certain of our existing properties and through the selective acquisition and development of additional assets that meet our investment criteria.  We believe that the creation of a stand-alone organization with focused management will position the organization to generate attractive risk-adjusted returns for shareholders.

 

Upon completion of the separation, we will operate a well-leased portfolio of retail assets located in high barrier-to-entry markets, due to land scarcity and formidable zoning and approval requirements, that we believe could not be replicated today.  This portfolio will consist of 85 properties, comprising 80 strip centers, four malls and a warehouse park adjacent to our East Hanover strip center, that are primarily located on major retail corridors and proximate to regional highways.  These properties comprise 16.9 million square feet and are located in ten states and Puerto Rico, with concentrations in New Jersey, New York and Pennsylvania.  Our strip centers have a diverse, high-quality tenant base that includes national retailers such as The Home Depot, Wal-Mart/Sam’s Wholesale, Best Buy, Lowe’s, Stop & Shop, the TJX Companies, Kohl’s, ShopRite, Sears and Kmart, BJ’s Wholesale Club, Whole Foods and PetCo.  Our strip center portfolio also has superior, industry-leading demographics, with average three-mile population of 149,000 and median three-mile household income of $71,000 for neighborhood centers and average seven-mile population of 869,000 and median seven-mile household income of $67,000 for power centers.  The four malls and the strip centers are in dense, supply constrained trade areas, have overlapping tenancies and require the same asset management and leasing skills.  Mall tenants include Macy’s, JCPenney, Lord & Taylor, Boscov’s, Target, Century 21, Kmart, Sears, Whole Foods, the TJX Companies, AMC Loews, Forever 21, H&M and other popular national merchants.  We consider Bergen Town Center, with its mix of Target, Century 21, Whole Foods, Nordstrom Rack, Bloomingdale’s Outlet, Off Fifth by Saks, Neiman Marcus Last Call Studio, Marshalls, HomeGoods, Nike and a variety of outlets and food offerings, to be the best hybrid retail offering in America.

 

A key element of our business plan will be to increase revenue and property value through intensive asset management of the existing portfolio.  Planned activities include leasing of existing vacancy, construction of new space on owned land, identifying and replacing underperforming tenants wherever possible, and functional and aesthetic improvements.  In addition, we expect to acquire additional properties and to initiate ground-up development projects in the geographic regions in which we currently operate that are consistent with our investment criteria.  We may also pursue such opportunities outside of the regions in which we currently operate if we determine that conditions are favorable and fit with our mission and business strategy.

 

We will be self-managed and led by a dedicated management team and a board consisting of a majority of independent trustees.  Industry veteran, Jeffrey S. Olson, joined Vornado on September 1, 2014 in order to work on the separation, and upon completion of the separation will become SpinCo’s Chairman of the Board of Trustees and Chief Executive Officer.  Robert Minutoli, currently Vornado’s Executive Vice President-Retail, will be SpinCo’s Chief Operating Officer.  They will be joined by the highly experienced team that manages the strip center and mall portfolio today.  Key department heads have an average tenure of over ten years at Vornado and over 20 years in the real estate industry.  Steven Roth, Vornado Chairman and Chief Executive Officer, will serve as a trustee of SpinCo.

 

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Vornado will provide certain interim transitional support to us via a Transition Services Agreement for approximately two years.

 

For the year ended December 31, 2013, we generated net income of $112.5 million, comparable net operating income (“NOI”) of $198.8 million and comparable funds from operations (“FFO”) of $128.2 million.  For the six months ended June 30, 2014, we generated net income of $36.4 million, comparable NOI of $100.9 million and comparable FFO of $65.2 million.  Please refer to “Summary Historical Combined Financial Data — Net Operating Income” and “— Funds From Operations” in this information statement for a discussion of comparable NOI and comparable FFO, which are non-GAAP measures, and a reconciliation of these measures to their most directly comparable GAAP measures.

 

We anticipate that we will pursue a balance sheet strategy that provides access to multiple capital markets.  Over time, we intend to pursue an investment grade credit rating. As of June 30, 2014, the portfolio had approximately $1.185 billion of total combined debt outstanding plus $84.1 million of indebtedness representing our pro rata (50%) share of indebtedness of a joint venture.

 

We plan to elect to be treated as a real estate investment trust (“REIT”) in connection with the filing of our federal income tax return for the taxable year that includes the distribution of our common shares by each of Vornado and VRLP, subject to our ability to meet the requirements of a REIT at the time of election, and we intend to maintain this status in future periods.

 

We will have our executive headquarters in New York City, with operations in Paramus, New Jersey.

 

Competitive Strengths

 

Exceptionally high-quality portfolio of well-leased shopping centers concentrated in densely populated, high barrier-to-entry markets.  We will initially own 84 retail properties primarily concentrated in densely populated markets near major urban centers.  Within these markets, our assets are primarily located on major retail corridors and proximate to regional highways.  79.4% of our 2013 comparable NOI was generated by centers located in New Jersey, New York and Pennsylvania.  Average portfolio occupancy was 94.8% as of June 30, 2014.  A majority of our assets are located within the Greater New York City metropolitan area, the most populous demographic area in the United States with a population of approximately 20 million.  High barriers-to-entry in our markets limit the potential for new supply and support the long-term ability to increase rents.

 

Industry leading population density and income demographics.  Our assets are primarily located in densely populated and affluent areas in the Northeastern United States, with household incomes far in excess of the national median of $51,017 as reported by the U.S. Census Bureau for the period 2011-2012.  Our strip center portfolio is located in markets with average three-mile population of 149,000 and median three-mile household income of $71,000 for neighborhood centers and average seven-mile population of 869,000 and median seven-mile household income of $67,000 for power centers.

 

High-quality, diversified tenant base.  Our tenant base consists of approximately 325 different retailers in our strip centers and approximately 250 different retailers in our malls and is well diversified by industry and format.  Merchants include department stores, grocers, category killers, discounters, entertainment offerings, health clubs, do-it-yourself or “DIY” stores, in-line specialty shops, restaurants and other food and beverage vendors, service providers and other specialized retailers.  58% of our top 25 tenants by 2013 rental revenue have investment grade credit ratings from Standard & Poor’s or Moody’s.  61% of our 2013 rental revenue came from large tenants, defined as merchants occupying more than 10,000 square feet.  Our large number of high credit quality anchor tenants results in strong customer traffic, which in turn drives sales and rent growth.

 

Strong grocer sales.  Our superior demographics and premier locations are further demonstrated by the sales of our grocers.  Of the 80 strip centers in the portfolio, 13 are grocery anchored.  Of these merchants, the 12 that have at least one full year of operations reported average sales of $726 per square foot during 2013, well above the national average and that of SpinCo’s peer group. Grocers include Stop & Shop, ShopRite, Whole Foods, Giant Food and Food Basics (A&P).

 

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Accomplished management team with a demonstrated track record in the retail sector and deep knowledge of the portfolio.  Jeffrey S. Olson will be Chairman of the Board of Trustees and Chief Executive Officer of SpinCo.  Mr. Olson served as Chief Executive Officer of Equity One, Inc. (“Equity One”) from 2006 to 2014, where he was widely recognized as the driving force behind Equity One’s transformative portfolio makeover into higher quality assets in densely populated core coastal markets. Previously, Mr. Olson was President of Kimco Realty Corporation’s Eastern and Western Divisions.  While at Equity One, Mr. Olson successfully directed the company’s growth into several high barrier-to-entry markets, including the Northeastern United States, Miami and California.  Robert Minutoli will be Chief Operating Officer of SpinCo and has headed Vornado’s strip center and mall division since 2012.  Prior to joining Vornado in 2009, Mr. Minutoli was Executive Vice President-New Business at The Rouse Company, where he spent 27 years and held various construction, development, acquisitions/dispositions and business development positions.  Mr. Olson and Mr. Minutoli will be joined by Vornado’s existing, highly experienced retail team (key department heads average 10-plus years with Vornado and 20-plus years in the retail industry), which has consistently delivered strong performance from the portfolio.

 

Balance sheet providing significant liquidity and capacity to support growth.  We will be capitalized to enable access to multiple forms of capital.  As of June 30, 2014, the portfolio had approximately $1.185 billion of total combined debt outstanding plus $84.1 million of indebtedness representing our pro rata (50%) share of indebtedness of a joint venture. We believe our moderate leverage and strong liquidity will enable us to take advantage of attractive redevelopment, development, and acquisition opportunities.

 

Significant growth potential from embedded development and redevelopment opportunities.  Our portfolio has significant embedded development and redevelopment opportunities.  We have identified in excess of $100 million of current expansion and redevelopment opportunities that are expected to generate strong investment returns.

 

Consistent operating performance demonstrated by continued strong occupancy and rent growth.  Our portfolio has delivered consistent operating performance over the past five years.  Our portfolio, which was 94.8% occupied as of June 30, 2014, maintained average annual occupancy exceeding 94% during that time despite substantial economic volatility resulting from the recession.  We have achieved 9.2% annual growth in cash leasing spreads over expiring rents for the five year period ended December 31, 2013, and 14.5% annual growth in cash leasing spreads over expiring rents for the ten year period ended December 31, 2013.  We believe our well-laddered lease expiration schedule with less than 10.5% of total square footage expiring in any year will contribute to our expected continued consistent performance in the future.

 

Experienced trustees possessing substantial expertise with public REITs and SpinCo’s portfolio.  The majority of our trustees will be independent.  Mr. Olson will be Chief Executive Officer and Chairman of the Board of Trustees.  In addition to Mr. Olson’s prior experience as Chief Executive Officer of Equity One and President of the Eastern and Western Divisions of Kimco Realty Corporation, he has been a director of Equity One since 2006.  Steven Roth, Chairman and Chief Executive Officer of Vornado, will also be a trustee.  Mr. Roth is one of the most tenured and respected executives in the REIT industry and has substantial experience across all real estate sectors.  Further, Mr. Roth has decades of personal experience with many of SpinCo’s strip centers, having been personally involved in their development, redevelopment and management since 1980.

 

Company Strategies

 

Redevelop and/or expand existing properties to increase returns and maximize value.  While our properties have been well-maintained and have benefited from significant capital investment under Vornado’s ownership, we believe that our properties will benefit from greater executive management focus and capital allocation priorities tailored to unlocking and growing their value.

 

Our management team will seek to identify investment opportunities that will create value for our shareholders, that are consistent with our strategic objectives and that have attractive risk-return profiles.  We will have a smaller asset base as compared to Vornado, and, therefore, strategic initiatives may have a more meaningful impact on us than they would otherwise have had on Vornado.  In short, we expect that we will devote substantial executive management attention to value creating investment opportunities that may generate attractive growth in revenues and cash flow and thus enhance the value of our portfolio.

 

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We have identified a pipeline of potential new development and redevelopment projects within the existing portfolio of properties totaling in excess of $100 million.  These projects generally consist of renovations and ground-up development projects on owned land.  We may also proactively recapture space occupied by underperforming users and replace those users with merchants that can enhance our tenant mix and potentially pay higher rents.

 

Focus on high barrier-to-entry markets.  The majority of our properties are located in densely populated, affluent markets, with particularly strong presence in the Greater New York City metropolitan area.  We will continue to invest in our existing markets, and, over time, may expand into new markets that have significant barriers-to-entry and attractive demographics.  We believe that shopping centers located in high barrier-to-entry markets represent a more attractive risk-return profile relative to other markets.

 

Maximize value and cash flow growth through proactive asset management and leasing.  Given the favorable competitive factors that characterize our shopping centers, we believe we are well-positioned to drive growth in cash flow and to maximize the value of our portfolio by proactive leasing and asset management.  We believe our portfolio’s positioning in trade areas with desirable demographics provides us with strong negotiating leverage with tenants.  Our historical 9.2% and 14.5% annual growth in cash leasing spreads over expiring rents for the five and ten year periods ended December 31, 2013, respectively, reflects our competitive positioning and the strategic importance of our portfolio’s location to tenants.

 

Maintain a flexible balance sheet to support growth.  We will proactively manage our balance sheet to be flexible and to provide significant capacity for growth.  Over time, we intend to pursue an investment grade credit rating and expect that internally generated funds and funds from selective asset sales will also be available to support growth.

 

Target a diverse and creditworthy tenant base.  Our tenant base comprises a diverse group of merchants, including department stores, grocers, category killers, discounters, entertainment offerings, health clubs, DIY stores, in-line specialty shops, restaurants and other food and beverage vendors, service providers and other specialized retailers.  We believe that this diversification provides stability to our cash flows as no specific retail category comprises more than 20% of our portfolio’s annual base rental revenue and no one retailer contributed more than 7% of our annual base rental revenue in 2013.  We intend to maintain the credit quality of our tenant base, which currently has 58% of our top 25 tenants by 2013 rental revenue possessing investment grade credit ratings from Standard & Poor’s or Moody’s.

 

Constant portfolio evaluation and, where appropriate, pruning. We intend to constantly evaluate the future prospects for each shopping center and, where appropriate, to dispose of those properties that we do not believe will meet our investment criteria in the long-term.  The proceeds from any such disposition would typically be reinvested in our portfolio via acquisition or redevelopment or used to pay down debt.

 

Our Portfolio

 

Initially, our portfolio will consist of 85 properties, including 80 strip centers aggregating 12.6 million square feet, four malls aggregating 3.4 million square feet and a warehouse park adjacent to our East Hanover strip center.  Our properties include existing, vested entitlements for approximately 425,000 square feet of new development where most infrastructure such as utilities and paving is already in place.  They also include an additional 30 acres of unentitled and unimproved land adjacent to existing centers that could support approximately 125,000 square feet of new development once entitled and infrastructured.

 

The following tables set forth our occupancy rates and average annual base rent per square foot for our strip center and mall properties as of June 30, 2014 and as of December 31 for the last five years.

 

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Strip Centers

 

As of

 

Square Feet
Owned

 

Occupancy
Rate

 

Average Annual
Base Rent per
Square Foot

 

 

 

 

 

 

 

 

 

June 30, 2014

 

12,129,000

 

94.8%

 

$17.54

 

December 31, 2013

 

12,130,000

 

95.5%

 

17.50

 

December 31, 2012

 

11,877,000

 

95.2%

 

17.27

 

December 31, 2011

 

11,879,000

 

95.4%

 

16.92

 

December 31, 2010

 

12,006,000

 

95.0%

 

16.19

 

December 31, 2009

 

11,774,000

 

94.5%

 

15.93

 

 

 

 

Malls

 

As of

 

Square Feet
Owned

 

Occupancy
Rate

 

Average Annual
Base Rent per
Square Foot

 

 

 

 

 

 

 

 

 

June 30, 2014

 

2,353,000

 

94.8%

 

$26.08

 

December 31, 2013

 

2,352,000

 

95.4%

 

25.95

 

December 31, 2012

 

2,346,000

 

93.6%

 

26.20

 

December 31, 2011

 

2,305,000

 

92.9%

 

25.49

 

December 31, 2010

 

2,133,000

 

93.5%

 

26.47

 

December 31, 2009

 

2,071,000

 

94.3%

 

25.01

 

 

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Top Ten Tenants

 

As of December 31, 2013, our top ten tenants measured by 2013 rental revenue are as follows:

 

Tenant

 

Square Feet
Leased

 

2013 Rental
Revenues

 

Percentage of
Total Annual
Rental
Revenues

 

The Home Depot

 

865,000

 

$ 13,954,000

 

6.0%

 

Wal-Mart/Sam’s Wholesale

 

1,439,000

 

10,458,000

 

4.5%

 

Best Buy

 

368,000

 

9,232,000

 

4.0%

 

Lowe’s

 

976,000

 

8,520,000

 

3.7%

 

Stop & Shop

 

633,000

 

7,449,000

 

3.2%

 

The TJX Companies, Inc.

 

518,000

 

7,308,000

 

3.2%

 

Kohl’s

 

716,000

 

6,656,000

 

2.9%

 

ShopRite

 

337,000

 

5,298,000

 

2.3%

 

Sears and Kmart

 

547,000

 

5,001,000

 

2.2%

 

BJ’s Wholesale Club

 

454,000

 

4,864,000

 

2.1%

 

 

 

6,853,000

 

$78,740,000

 

34.1%

 

 

As of December 31, 2013, the composition of our 2013 rental revenue by type of retail tenant is as follows:

 

Discount Stores

 

  20%

 

Home Improvement

 

  11%

 

Supermarkets

 

  10%

 

Family Apparel

 

   8%

 

Home Entertainment and Electronics

 

   7%

 

Restaurants

 

   7%

 

Banking and Other Business Services

 

   4%

 

Personal Services

 

   4%

 

Sporting Goods, Toys and Hobbies

 

   4%

 

Home Furnishings

 

   3%

 

Women’s Apparel

 

   3%

 

Membership Warehouse Clubs

 

   2%

 

Other

 

  17%

 

 

 

100%

 

 

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Lease Expirations

 

The table below sets forth lease expirations for all of our properties as of June 30, 2014, assuming none of the tenants exercise renewal options.

 

 

 

Number of

 

Square Feet of

 

Percentage
of Retail

 

Weighted Average Annual
Base Rent of Expiring
Leases

 

% of Weighted
Average Annual
Base Rent

 

 

 

Expiring

 

Expiring

 

Properties

 

 

 

Per Square

 

of Expiring

 

Year

 

Leases

 

Leases

 

Square Feet

 

Total

 

Foot

 

Leases

 

Month to month

 

13

 

37,542

 

0.3%

 

$1,134,204

 

$30.21

 

0.5%

 

2014

 

37

 

172,666

 

1.3%

 

4,493,724

 

26.03

 

2.1%

 

2015

 

73

 

398,287

 

3.0%

 

11,179,548

 

28.07

 

5.1%

 

2016

 

87

 

657,255

 

5.0%

 

13,707,672

 

20.86

 

6.3%

 

2017

 

75

 

461,325

 

3.5%

 

9,795,912

 

21.23

 

4.5%

 

2018

 

73

 

1,266,124

 

9.6%

 

20,450,736

 

16.15

 

9.4%

 

2019

 

92

 

1,181,913

 

9.0%

 

24,437,928

 

20.68

 

11.2%

 

2020

 

57

 

1,094,952

 

8.3%

 

17,980,380

 

16.42

 

8.2%

 

2021

 

43

 

675,065

 

5.1%

 

11,970,996

 

17.73

 

5.5%

 

2022

 

49

 

963,375

 

7.3%

 

12,646,236

 

13.13

 

5.8%

 

2023

 

46

 

1,044,252

 

7.9%

 

18,719,196

 

17.93

 

8.6%

 

2024

 

51

 

1,314,006

 

10.0%

 

17,499,528

 

13.32

 

8.0%

 

Subsequent

 

70

 

3,882,820

 

29.7%

 

53,959,632

 

13.90

 

24.8%

 

 

The Separation

 

On April 11, 2014, Vornado announced that it intended to separate its shopping center business, consisting of 80 strip centers, four malls and a warehouse park adjacent to our East Hanover strip center, from Vornado’s other businesses.  The separation will be effectuated by means of a pro rata distribution by Vornado to its common shareholders of all SpinCo common shares held by Vornado.  SpinCo was formed as a subsidiary of VRLP to hold the assets and liabilities associated with Vornado’s shopping center business.  Immediately prior to such distribution by Vornado, VRLP will distribute all outstanding SpinCo common shares on a pro rata basis to holders of VRLP’s common limited partnership units, consisting of Vornado and the other common limited partners of VRLP.  On               , 2014, the board of trustees of Vornado declared the distribution of all SpinCo common shares to be received by Vornado in the distribution by VRLP on the basis of one SpinCo common share for every two Vornado common shares held of record as of the close of business on                   , 2014, which is the record date for the distribution by each of Vornado and VRLP (the “record date”).  On the same date, VRLP declared the distribution of all of the outstanding SpinCo common shares to Vornado and the other holders of common limited partnership units of VRLP on the basis of one SpinCo common share for every two common limited partnership units of VRLP held of record as of the close of business on the record date.  Following the distribution by each of Vornado and VRLP, Vornado and SpinCo will be two independent, publicly held companies.

 

Structure and Formation of SpinCo

 

Prior to or concurrently with the separation of the shopping center business from Vornado’s other businesses and the distribution by each of Vornado and VRLP of SpinCo common shares, Vornado will engage in certain restructuring transactions that are designed to consolidate the ownership of a portfolio of interests in the strip centers and malls currently owned directly or indirectly by VRLP into SpinCo, facilitate the separation and distribution by each of Vornado and VRLP and provide us with our initial capital.

 

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In connection with the separation and distribution of SpinCo common shares by each of Vornado and VRLP, the following transactions have occurred or are expected to occur concurrently with or prior to completion of the separation and distribution by each of Vornado and VRLP:

 

·                  Vornado SpinCo was formed as a Maryland real estate investment trust on June 18, 2014.

 

·                  Our operating partnership, which we refer to as SpinCo, L.P., was formed as a Delaware limited partnership on         , 2014.

 

·                  Pursuant to the terms of the Separation Agreement (the “Separation Agreement”), the interests in our properties (including interests in entities holding properties) currently held directly or indirectly by VRLP will be contributed or otherwise transferred to SpinCo in exchange for 100% of our outstanding common shares.

 

·                  In connection with the contribution or other transfer of properties described above, it is expected that SpinCo or certain entities that will be our subsidiaries after the separation will assume a certain amount of existing secured property-level indebtedness related to certain of our properties.  As of June 30, 2014, the portfolio had approximately $1.185 billion of total combined debt outstanding plus $84.1 million of indebtedness representing our pro rata (50%) share of indebtedness of a joint venture.

 

·                  VRLP’s Retail employees will become employees of SpinCo.

 

·                  Pursuant to the Separation Agreement, VRLP will distribute 100% of our outstanding common shares to Vornado and the other common limited partners of VRLP pro rata with respect to their ownership of common limited partnership units in VRLP as of the record date.

 

·                  Pursuant to the Separation Agreement, Vornado will distribute all of our common shares it receives from VRLP to Vornado common shareholders as of the record date on a pro rata basis.

 

·                  In addition to the Separation Agreement, we will enter into a Transition Services Agreement, a Tax Matters Agreement and an Employee Matters Agreement.

 

Immediately following the separation and distribution of SpinCo common shares by each of Vornado and VRLP, we will contribute our interest in the properties we receive from VRLP to our operating partnership, SpinCo, L.P.

 

In general, we intend to own our properties and conduct substantially all of our business through our operating partnership and its subsidiaries. The following diagram depicts our expected organizational structure upon the completion of the separation and distribution by each of Vornado and VRLP and the completion of the contribution by us of our interest in the properties we receive from VRLP to our operating partnership, SpinCo, L.P.

 

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GRAPHIC

 

Our Post-Separation Relationship with Vornado

 

We will enter into a Separation Agreement with Vornado. In addition, we will enter into various other agreements to effect the separation and provide a framework for its relationship with Vornado after the separation, such as a transition services agreement (the “Transition Services Agreement”), a tax matters agreement (the “Tax Matters Agreement”) and an employee matters agreement (the “Employee Matters Agreement”). These agreements will provide for the allocation between us and Vornado of Vornado’s assets, liabilities and obligations (including its properties, employees and tax-related assets and liabilities) attributable to periods prior to, at and after our separation from Vornado and will govern certain relationships between us and Vornado after the separation.

 

Except as expressly set forth in the Separation Agreement or in any ancillary agreement, each of Vornado, VRLP and SpinCo will be responsible for paying its own costs and expenses incurred in connection with the separation and distribution by each of Vornado and VRLP, whether before or after the distribution date, including costs and expenses relating to legal and tax counsel, financial advisors and accounting advisory work related to the separation and distribution by each of Vornado and VRLP.

 

We and Vornado will enter into a Transition Services Agreement prior to the distribution pursuant to which Vornado and its subsidiaries will provide various corporate support services to us, on an interim, transitional basis. The services to be provided may include treasury management, human resources, information technology, tax, financial reporting, SEC compliance and insurance, and possibly other matters.  We believe that the terms are comparable to those that would have been negotiated on an arm’s-length basis. The costs of these services are estimated to be $                   annually.

 

For additional information regarding the Separation Agreement and other transaction agreements, please refer to the sections entitled “Risk Factors — Risks Related to the Separation” and “Certain Relationships and Related Person Transactions.”

 

Reasons for the Separation

 

Vornado’s board of trustees believes that separating the SpinCo business and assets from the remainder of Vornado’s businesses and assets is in the best interests of Vornado for a number of reasons, including the following:

 

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·                  Create two separate, focused companies executing distinct business strategies. In addition to shopping centers, Vornado has historically invested in office properties in New York City and Washington, D.C. and Manhattan street retail properties. As a result, Vornado’s investors have had exposure to a diversified portfolio across several different real estate property categories. By separating its strip centers and malls into a focused shopping center company, investors will have the opportunity to invest into two separate platforms with dedicated and focused management teams. After the separation, Vornado does not intend to continue to operate within the retail strip center and mall sector, allowing it to focus on its office properties in New York City and Washington, D.C. and its Manhattan street retail properties.  At the time of the separation, Vornado will retain, for disposition in the near term, 20 small retail assets which do not fit SpinCo’s strategy, and the Springfield Town Center, which is under contract for disposition.

 

·                  Allow Vornado’s management to focus on its retained segments, while enabling our dedicated management to focus on SpinCo’s strip centers and malls. The separation of the SpinCo portfolio will enable Vornado’s management to focus on its New York City and Washington, D.C. portfolios, which constitute the company’s two largest business segments. Similarly, the separation of the SpinCo portfolio will allow our dedicated management to focus on creating value in the existing portfolio through leasing, remerchandising and redevelopment as well as potentially pursuing attractive acquisitions and new development opportunities. Dedicated and experienced management will allow us to expand our size, revenues, and investor appeal.

 

·                  Increase the attractiveness of Vornado’s and SpinCo’s equity to investors. Vornado typically attracts investors primarily interested in office properties in New York City and Washington, D.C. and Manhattan street retail properties given that these assets dominate its portfolio. As a stand-alone company, we will be focused on strip centers and malls, making us an attractive investment opportunity for REIT investors looking for exposure to these asset classes. We will also benefit from having the ability to use our shares as acquisition currency, which will improve our competitive positioning as we grow. After the separation, Vornado will be a platform focused on New York City and Washington, D.C. office and Manhattan street retail. The ability to provide investors with two distinct investment vehicles with distinct strategies may enhance both companies’ attractiveness to investor bases that are targeting each specific asset class.

 

·                  Allow Vornado and SpinCo to more effectively attract and retain management and key employees. Equity compensation is more effective as a motivational tool if it relates to the economic performance of the business that is the employee’s particular area of responsibility and is not affected by unrelated businesses. As part of Vornado, the strip center and mall employees were compensated with equity that was significantly affected by the performance of Vornado’s New York City and Washington, D.C. office and Manhattan street retail properties and by its other real estate and related investments. After the separation, equity compensation awarded to our employees will be affected only by the economic performance of our retail assets, thereby making it more effective in motivating, attracting and retaining key employees.

 

·                  Separate two non-synergistic businesses. The retail strip center and mall business is fundamentally different from Vornado’s New York City and Washington, D.C. operations in terms of tenant bases, geography asset management and leasing skills. There are limited synergies arising from exposure to both asset classes.

 

Vornado’s board of trustees also considered a number of potentially negative factors in evaluating the separation. Vornado’s board of trustees concluded that the potential benefits of the separation outweighed these factors. For more information, please refer to the sections entitled “The Separation — Reasons for the Separation” and “Risk Factors” included elsewhere in this information statement.

 

Corporate Information

 

SpinCo was formed as a Maryland real estate investment trust on June 18, 2014 for the purpose of holding the shopping center business of Vornado. Prior to the contribution of this business to SpinCo, which will occur prior to the distribution by each of Vornado and VRLP of SpinCo common shares, SpinCo will have no operations. The address of SpinCo’s principal executive office is 888 Seventh Avenue, New York, New York, 10019.  SpinCo’s telephone number is                   .

 

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SpinCo will also maintain a website at                   . SpinCo’s website and the information contained therein or connected thereto will not be deemed to be incorporated herein, and you should not rely on any such information in making any investment decision.

 

Reason for Furnishing this Information Statement

 

This information statement is being furnished solely to provide information to Vornado common shareholders and holders of common limited partnership units of VRLP who will receive SpinCo common shares in the distribution by each of Vornado and VRLP. It is not and is not to be construed as an inducement or encouragement to buy or sell any of SpinCo’s securities. The information contained in this information statement is believed by SpinCo to be accurate as of the date set forth on its cover. Changes may occur after that date and neither Vornado nor SpinCo will update the information except in the normal course of their respective disclosure obligations and practices.

 

Risks Associated with SpinCo’s Business and the Separation

 

An investment in our common shares is subject to a number of risks, including risks relating to the separation. The following list of risk factors is not exhaustive. Please read the information in the section captioned “Risk Factors” for a more thorough description of these and other risks.

 

·                  Real estate is a competitive business.

 

·                  We depend on leasing space to tenants on economically favorable terms and collecting rent from tenants who may not be able to pay.

 

·                  Bankruptcy or insolvency of tenants may decrease our revenues, net income and available cash.

 

·                  We depend upon our anchor tenants to attract shoppers.

 

·                  Anchor or major tenants influence the performance of certain of our properties, and decisions made by these tenants or adverse developments in the businesses of these tenants could have a negative impact on us.

 

·                  We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability to lease and/or sell real estate.

 

·                  Our properties are generally located in the Northeast and in Puerto Rico and are affected by the economic cycles and risks inherent in these areas.

 

·                  Natural disasters could have a concentrated impact on the area in which we operate and could adversely impact our results.

 

·                  We may acquire, develop or redevelop properties and these activities may create risks, including failing to complete such activities on time or within budget, competition for such activities that could increase our costs, being unable to lease newly acquired, developed or redeveloped properties at rents sufficient to cover our costs, difficulties in integrating acquisitions and weaker than expected performance.

 

·                  Substantially all of our assets will be owned by subsidiaries.  We depend on dividends and distributions from these subsidiaries. The creditors of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or other distributions to us.

 

·                  We have outstanding debt, and the amount of debt and its cost may increase and refinancing may not be available on acceptable terms.

 

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·                  We may not be able to obtain capital to make investments.

 

·                  We might fail to qualify or remain qualified as a REIT, and may be required to pay income taxes at corporate rates.

 

·                  REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan.

 

·                  If certain portions of a recently released discussion draft of tax reform legislation were introduced as legislation and enacted in their current form, the separation and distribution of SpinCo could be treated as a taxable transaction to Vornado and its shareholders.

 

·                  We have no history operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

 

·                  We are dependent on Vornado to provide services to us pursuant to the Transition Services Agreement, and it may be difficult to replace the services provided under such agreement.

 

·                  If the distribution by each of Vornado and VRLP, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, Vornado and Vornado shareholders could be subject to significant tax liabilities and SpinCo will indemnify Vornado for certain material tax obligations that could arise as addressed in the Tax Matters Agreement.

 

·                  We may not be able to engage in desirable strategic or capital-raising transactions following the separation. In addition, if we were able to engage in such transactions, we could be liable for adverse tax consequences resulting therefrom.

 

·                  Potential indemnification liabilities to Vornado pursuant to the Separation Agreement could materially adversely affect our operations.

 

·                  Vornado may not be able to transfer its interests in certain properties that are subject to certain debt arrangements, are partially owned through a joint venture or similar structure, or are leased to or from a third party due to the need to obtain the consent of third parties.

 

·                  After the separation, certain of our trustees and executive officers may have actual or potential conflicts of interest because of their previous or continuing equity interest in, or positions at, Vornado.

 

·                  Vornado will not be required to present investments to us that satisfy our investment guidelines before pursuing such opportunities on Vornado’s behalf.

 

·                  We may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect our business.

 

·                  Our agreements with Vornado in connection with the separation and distribution by each of Vornado and VRLP involve potential conflicts of interest, and may not reflect terms that would have resulted from negotiations between unaffiliated third parties.

 

·                  Vornado’s board of trustees has reserved the right, in its sole discretion, to amend, modify or abandon the separation and distribution by each of Vornado and VRLP and the related transactions at any time prior to the distribution date. In addition, the separation and distribution by each of Vornado and VRLP and related transactions are subject to the satisfaction or waiver by Vornado’s board of trustees in its sole discretion of a number of conditions. We cannot assure you that any or all of these conditions will be met.

 

·                  In connection with our separation from Vornado, Vornado will indemnify us for certain pre-distribution liabilities and liabilities related to Vornado assets. However, there can be no assurance that these indemnities will be sufficient to protect us against the full amount of such liabilities, or that Vornado’s ability to satisfy its indemnification obligation will not be impaired in the future.

 

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·                  No market currently exists for the SpinCo common shares and we cannot be certain that an active trading market for our common shares will develop or be sustained after the separation. Following the separation, our share price may fluctuate significantly.

 

·                  Our declaration of trust sets limits on the transfer and ownership of our shares.

 

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QUESTIONS AND ANSWERS ABOUT THE SEPARATION

 

What is SpinCo and why is Vornado separating SpinCo’s business and distributing SpinCo’s shares?

 

SpinCo, which is currently an indirect wholly-owned subsidiary of Vornado, was formed to hold the shopping center business of Vornado (which we refer to as the “SpinCo portfolio”). The separation of SpinCo from Vornado and the distribution of SpinCo common shares by each of Vornado and VRLP will enable each of SpinCo and Vornado to focus on its own operations and respond more effectively to the different needs of its businesses. SpinCo and Vornado expect that the separation will result in enhanced long-term performance of each business for the reasons discussed in the sections entitled “The Separation — Background” and “The Separation — Reasons for the Separation.”

 

 

 

What is a REIT?

 

Following the separation, SpinCo intends to qualify and elect to be taxed as a REIT under Sections 856 through 859 of the Internal Revenue Code of 1986, as amended (the “Code”), from and after SpinCo’s taxable year that includes the distribution of our common shares by each of Vornado and VRLP. As a REIT, SpinCo generally will not be subject to U.S. federal income tax on its REIT taxable income that it distributes to its shareholders. A company’s qualification as a REIT depends on its ability to meet, on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to, among other things, the sources of its gross income, the composition and values of its assets, its distribution levels and the diversity of ownership of its shares. SpinCo believes that, immediately after the separation, it will be organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that its intended manner of operation enables it to meet the requirements for qualification and taxation as a REIT. SpinCo anticipates that distributions it makes to its shareholders generally will be taxable to its shareholders as ordinary income, although a portion of the distributions may be designated by SpinCo as qualified dividend income or capital gain or may constitute a return of capital. For a more complete discussion of the U.S. federal income taxation of REITs and the tax treatment of distributions to shareholders of SpinCo, please refer to “Material U.S. Federal Income Tax Consequences.”

 

 

 

Why am I receiving this document?

 

You are receiving this document because you are either a Vornado common shareholder or a holder of VRLP common limited partnership units. If you are a Vornado common shareholder as of the close of business on                   , 2014, you are entitled to receive one SpinCo common share for every two Vornado common shares that you held at the close of business on such date. If you are a holder of VRLP common limited partnership units as of the close of business on                  , 2014, you are entitled to receive one SpinCo common share for every two VRLP common limited partnership units that you held at the close of business on such date. This document will help you understand how the separation will affect your investment in Vornado and your investment in SpinCo after the separation.

 

-14-



 

How will the separation of SpinCo from Vornado work?

 

To accomplish the separation, Vornado will distribute all of its SpinCo common shares to Vornado common shareholders on a pro rata basis. Immediately prior to such distribution by Vornado, VRLP will distribute all of the outstanding SpinCo common shares to the holders of its common limited partnership units on a pro rata basis, consisting of Vornado and the other common limited partners of VRLP.

 

 

 

What is the record date for the distribution?

 

The record date for the distribution by each of Vornado and VRLP will be the close of business on               , 2014.

 

 

 

When will the distribution occur?

 

It is expected that Vornado will distribute all of its SpinCo common shares on              , 2015 to holders of record of Vornado common shares on the record date. Immediately prior to such distribution, it is expected that all of the outstanding SpinCo common shares will be distributed by VRLP on                  , 2015 to holders of record of its common limited partnership units at the close of business on the record date.

 

 

 

What do shareholders need to do to participate in the distribution?

 

Vornado common shareholders and holders of common limited partnership units of VRLP as of the record date will not be required to take any action to receive SpinCo common shares in the distribution by either Vornado or VRLP, but you are urged to read this entire information statement carefully. No shareholder or limited partner approval of the distribution by either Vornado or VRLP is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing Vornado common shares or VRLP common limited partnership units or take any other action to receive your SpinCo common shares. Please do not send in your Vornado share certificates. The distribution will not affect the number of outstanding Vornado common shares or the number of outstanding common limited partnership units of VRLP or any rights of Vornado common shareholders or VRLP common limited partners, although it will affect the market value of each outstanding Vornado common share.

 

 

 

How will SpinCo common shares be issued?

 

You will receive SpinCo common shares through the same channels that you currently use to hold or trade Vornado common shares or common limited partnership units of VRLP, whether through a brokerage account, 401(k) plan or other channel. Receipt of SpinCo common shares will be documented for you in the same manner that you typically receive limited partner or shareholder updates, such as monthly broker statements and 401(k) statements.

 

 

 

 

 

If you own Vornado common shares as of the close of business on the record date, including shares owned in certificated form, Vornado, with the assistance of American Stock Transfer & Trust Company, LLC, the settlement and distribution agent, will electronically distribute SpinCo common shares to you or to your brokerage firm on your behalf in book-entry form. American Stock Transfer & Trust Company, LLC will mail you a book-entry account statement that reflects your SpinCo common shares, or your bank or brokerage firm will credit your account for the shares. Following the distribution, shareholders whose shares are held in book-entry form may request that their SpinCo common shares held in book-entry form be transferred to a brokerage or other account at any time, without charge.

 

-15-



 

How many SpinCo common shares will I receive in the distribution?

 

Vornado will distribute to you one SpinCo common share for every two Vornado common shares held by you as of the record date. VRLP will distribute to you one SpinCo common share for every two common limited partnership units of VRLP held by you as of the record date. Based on approximately                           Vornado common shares and approximately                        common limited partnership units of VRLP outstanding as of                    , 2014, a total of approximately                  SpinCo common shares will be distributed. For additional information on the distribution, please refer to “The Separation.”

 

 

 

Will SpinCo issue fractional shares in the distribution?

 

No. SpinCo will not issue fractional shares in the distribution. Fractional shares that Vornado common shareholders or VRLP common limited partners would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent following the distribution. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those common shareholders or common limited partners who would otherwise have been entitled to receive fractional shares, and will be taxable upon receipt for U.S. federal income tax purposes to Vornado common shareholders to the extent described under “The Separation — Material U.S. Federal Income Tax Consequences of the Distribution to U.S. Holders of Vornado Common Shares.” Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

 

 

 

What are the conditions to the distribution?

 

The distribution is subject to a number of conditions, including, among others:

 

 

 

 

 

·

The receipt of an opinion of Roberts & Holland LLP, special tax counsel to Vornado, satisfactory to the Vornado board of trustees, to the effect that the distribution by each of Vornado and VRLP, together with certain related transactions, will, with respect to SpinCo, VRLP, Vornado and the shareholders of Vornado, qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 351, 355, and 731 of the Code, including with respect to certain matters relating to these transactions that are not covered by the private letter ruling that Vornado has received from the IRS;

 

 

 

 

 

 

·

The U.S. Securities and Exchange Commission (which we refer to as the “SEC”) declaring effective the registration statement of which this information statement forms a part, and the mailing of the information statement to Vornado common shareholders and common limited partners of VRLP;

 

-16-



 

 

 

·

No order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, distribution by each of Vornado and VRLP or any of the related transactions shall be in effect;

 

 

 

 

 

 

·

The SpinCo common shares to be distributed shall have been accepted for listing on the New York Stock Exchange, subject to official notice of distribution;

 

 

 

 

 

 

·

The transfer of assets and liabilities between Vornado and SpinCo contemplated by the Separation Agreement shall have been completed, other than the transfer of those assets, if any, which are to be transferred immediately after the distribution by each of Vornado and VRLP;

 

 

 

 

 

 

·

Each of the various agreements contemplated by the Separation Agreement shall have been executed;

 

 

 

 

 

 

·

All required actions or filings with governmental authorities shall have been taken or made; and

 

 

 

 

 

 

·

No other event or development existing or having occurred that, in the judgment of Vornado’s board of trustees, in its sole discretion, makes it inadvisable to effect the separation, distribution by each of Vornado and VRLP and other related transactions.

 

 

 

 

 

Vornado and SpinCo cannot assure you that any or all of these conditions will be met. In addition, Vornado can decide at any time not to go forward with the separation. For a complete discussion of all of the conditions to the distribution, please refer to “The Separation — Conditions to the Distribution.”

 

 

 

What is the expected date of completion of the separation?

 

The completion and timing of the separation are dependent upon a number of conditions. It is expected that Vornado will distribute its SpinCo common shares on                 , 2015 to the holders of record of Vornado common shares at the close of business on the record date. It is expected that, on the same date, immediately prior to such distribution by Vornado, all of the outstanding SpinCo common shares will be distributed by VRLP to holders of record of VRLP common limited partnership units at the close of business on the record date. However, no assurance can be provided as to the timing of the separation or that all conditions to the separation will be met.

 

-17-



 

Can Vornado decide to cancel the distribution of SpinCo common shares by each of Vornado and VRLP, even if all the conditions have been met?

 

Yes. The distribution by each of Vornado and VRLP is subject to the satisfaction or waiver of certain conditions. Please refer to “The Separation — Conditions to the Distribution.” Until the distribution by VRLP has occurred, Vornado has the right to terminate such distribution, even if all of the conditions are satisfied.

 

 

 

What if I want to sell my Vornado common shares or my SpinCo common shares?

 

You should consult with your financial advisors, such as your stockbroker, bank or tax advisor.

 

 

 

What is “regular-way” and “ex-distribution” trading of Vornado common shares?

 

Beginning on or shortly before the record date and continuing up to and through the distribution date, it is expected that there will be two markets in Vornado common shares: a “regular-way” market and an “ex-distribution” market. Vornado common shares that trade in the “regular-way” market will trade with an entitlement to SpinCo common shares distributed pursuant to the distribution by Vornado. Shares that trade in the “ex-distribution” market will trade without an entitlement to SpinCo common shares distributed pursuant to the distribution by Vornado.

 

 

 

 

 

If you decide to sell any Vornado common shares before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Vornado common shares with or without your entitlement to SpinCo common shares pursuant to the distribution by Vornado.

 

 

 

Where will I be able to trade SpinCo common shares?

 

SpinCo intends to apply to list its common shares on the New York Stock Exchange under the symbol “                        .” SpinCo anticipates that trading in its common shares will begin on a “when-issued” basis on or shortly before the record date and will continue up to and through the distribution date and that “regular-way” trading in SpinCo common shares will begin on the first trading day following the completion of the separation. If trading begins on a “when-issued” basis, you may purchase or sell SpinCo common shares up to and through the distribution date, but your transaction will not settle until after the distribution date. SpinCo cannot predict the trading prices for its common shares before, on or after the distribution date.

 

 

 

What will happen to the listing of Vornado shares?

 

Vornado’s common shares will continue to trade on the NYSE after the distribution under the symbol “VNO.”

 

 

 

Will the number of Vornado common shares or common limited partnership units of VRLP that I own change as a result of the distribution?

 

No. The number of Vornado common shares or common limited partnership units of VRLP that you own will not change as a result of the distribution.

 

 

 

Will the distribution affect the market price of my Vornado shares?

 

Yes. As a result of the distribution, Vornado expects the trading price of Vornado common shares immediately following the distribution to be lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the portfolio held by SpinCo. Furthermore, until the market has fully analyzed the value of Vornado without the SpinCo portfolio, the trading price of Vornado common shares may fluctuate. Vornado believes that, over time following the separation, assuming the same market conditions and the realization of the expected benefits of the separation, the Vornado common shares and the SpinCo common shares should have a higher aggregate market value as compared to what the market value of Vornado common shares would be if the separation did not occur. There can be no assurance, however, that such a higher aggregate market value will be achieved. It is possible that, after the separation, the combined equity value of Vornado and SpinCo will be less than Vornado’s equity value before the separation.

 

-18-



 

What are the material U.S. federal income tax consequences of the separation and the distribution?

 

Vornado has received a private letter ruling from the IRS to the effect that the distribution by each of Vornado and VRLP, together with certain related transactions, will, with respect to SpinCo, VRLP, Vornado and the shareholders of Vornado, qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 351 and 355 of the Code.  It is a condition to the completion of the separation that Vornado obtain an opinion of Roberts & Holland LLP, special tax counsel to Vornado, satisfactory to the Vornado board of trustees, to the effect that the distribution by each of Vornado and VRLP, together with certain related transactions, will, with respect to SpinCo, VRLP, Vornado and the shareholders of Vornado, qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 351, 355, and 731 of the Code, including with respect to certain matters relating to these transactions that are not covered by the private letter ruling from the IRS.

 

You should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local tax laws, as well as foreign tax laws, which may result in the distribution being taxable to you. For more information regarding the private letter ruling and the tax opinion and certain U.S. federal income tax consequences of the separation, please refer to the discussion under “The Separation — Material U.S. Federal Income Tax Consequences of the Distribution to U.S. Holders of Vornado Common Shares” and “— Material U.S. Federal Income Tax Consequences of the Distribution to U.S. Holders of VRLP Common Limited Partnership Units.”

 

 

 

What will SpinCo’s relationship be with Vornado following the separation?

 

We will enter into a Separation Agreement with Vornado. In addition, SpinCo will enter into various other agreements to effect the separation and provide a framework for its relationship with Vornado after the separation, such as a Transition Services Agreement, a Tax Matters Agreement and an Employee Matters Agreement. These agreements will provide for the allocation between SpinCo and Vornado of Vornado’s assets, liabilities and obligations (including its properties, employees and tax-related assets and liabilities) attributable to periods prior to, at and after our separation from Vornado and will govern certain relationships between SpinCo and Vornado after the separation.

 

-19-



 

 

 

For additional information regarding the Separation Agreement and other transaction agreements, please refer to the sections entitled “Risk Factors — Risks Related to the Separation” and “Certain Relationships and Related Person Transactions.”

 

 

 

Who will manage SpinCo after the separation?

 

Jeffrey S. Olson will be SpinCo’s Chairman of the Board of Trustees and Chief Executive Officer and Robert Minutoli will be SpinCo’s Chief Operating Officer after the separation. SpinCo’s management team will include experienced members of Vornado’s existing strip center and mall management team which has detailed historical knowledge of our properties. For more information regarding SpinCo’s management please refer to “Management.”

 

 

 

 

Are there risks associated with owning SpinCo common shares?

 

Yes. Ownership of SpinCo common shares is subject to both general and specific risks relating to SpinCo’s business, the industry in which it operates, its ongoing contractual relationships with Vornado and its status as a separate, publicly traded company. Ownership of SpinCo common shares is also subject to risks relating to the separation. These risks are described in the “Risk Factors” section of this information statement beginning on page 26. You are encouraged to read that section carefully.

 

 

 

 

Does SpinCo plan to pay dividends?

 

We intend to make regular quarterly distributions whereby we expect to distribute 100% of our REIT taxable income to our shareholders out of assets legally available therefor.

 

 

 

 

 

To qualify as a REIT, we must distribute to our shareholders an amount at least equal to:

 

 

 

 

 

(i)             90% of our REIT taxable income, determined before the deduction for dividends paid and excluding any net capital gain (which does not necessarily equal net income as calculated in accordance with GAAP); plus

 

 

 

 

 

(ii)          90% of the excess of our net income from foreclosure property over the tax imposed on such income by the Code; less

 

 

 

 

 

(iii)       Any excess non-cash income (as determined under the Code). Please refer to “Material U.S. Federal Income Tax Consequences.”

 

 

 

 

 

Although SpinCo currently expects that it will pay a regular cash dividend, the declaration and payment of any dividends in the future by SpinCo will be subject to the sole discretion of its board of trustees and will depend upon many factors. Please refer to “Dividend Policy.”

 

 

 

Who will be the distribution agent, transfer agent and registrar for the SpinCo common shares?

 

The distribution agent, transfer agent and registrar for the SpinCo common shares will be American Stock Transfer & Trust Company, LLC. For questions relating to the transfer or mechanics of the share distribution, you should contact:

 

-20-



 

 

 

American Stock Transfer & Trust Company, LLC,

6201 15th Avenue

Brooklyn, NY 11219.

www.amstock.com/shareholder/sh_general_info.asp

 

 

 

Where can I find more information about Vornado and SpinCo?

 

Before the distribution by each of Vornado and VRLP, if you have any questions, you should contact:

 

 

 

 

 

Vornado Realty Trust

210 Route 4 East

Paramus, New Jersey 07652

Attention: Investor Relations

(201) 587-1000

vno.com/investor-relations/stock-info

 

 

 

 

 

After the distribution by each of Vornado and VRLP, SpinCo shareholders who have any questions relating to SpinCo should contact SpinCo at:

 

 

 

 

 

SpinCo

888 Seventh Avenue

New York, New York 10019

Attention: Investor Relations

 

 

 

 

 

The SpinCo investor website will be operational as of                        .

 

-21-



 

SUMMARY HISTORICAL COMBINED FINANCIAL DATA

 

The following table sets forth the selected historical combined financial and other data of our business, which was carved-out from the financial information of Vornado, as described below. We were formed for the purpose of holding certain assets and assuming certain liabilities of Vornado. Prior to the effective date of the Form 10 registration statement, of which this information statement forms a part, and the completion of the distribution by each of Vornado and VRLP, we did not conduct any business and did not have any material assets or liabilities. The selected historical financial data set forth below as of December 31, 2013, 2012 and 2011 and for the years ended December 31, 2013, 2012 and 2011 has been derived from our audited combined financial statements, which are included elsewhere in this information statement. The income statement data for each of the six months ended June 30, 2014 and 2013 and the balance sheet data as of June 30, 2014 have been derived from our unaudited interim combined financial statements included elsewhere in this information statement. Our unaudited interim combined financial statements as of June 30, 2014 and for the six months ended June 30, 2014 were prepared on the same basis as our audited combined financial statements as of December 31, 2013 and 2012 and for each of the years ended December 31, 2013, 2012 and 2011 and, in the opinion of management, include all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly our financial position and results of operations for these periods. The interim results of operations are not necessarily indicative of operations for a full fiscal year.

 

The accompanying combined financial statements include the accounts of Vornado’s 80 strip center properties, four malls and a warehouse park, all of which are under common control of Vornado. The assets and liabilities in these combined financial statements have been carved-out of Vornado’s books and records at their historical carrying amounts. All significant intercompany transactions have been eliminated.

 

The historical financial results for the carved-out properties reflect charges for certain corporate costs which we believe are reasonable.  These charges were based on either actual costs incurred or a proportion of costs estimated to be applicable to SpinCo based on an analysis of key metrics including total revenues, real estate assets, leasable square feet and operating income.  Such costs do not necessarily reflect what the actual costs would have been if SpinCo were operating as a separate stand-alone public company.  These charges are discussed further in Note 4 Related Party Transactions in our audited combined financial statements included elsewhere in this information statement.

 

The accompanying combined financial statements have been prepared on a carve-out basis in accordance with accounting principles generally accepted in the United States (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenues and expenses during the reporting periods. Actual results could differ from these estimates.

 

Subsequent to the transfer of properties to SpinCo and the distribution of SpinCo’s common shares to the holders of the common limited partnership units of VRLP, and the subsequent distribution by Vornado of the SpinCo common shares it receives from VRLP to Vornado’s common shareholders, SpinCo expects to operate in a manner intended to enable it to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. Since Vornado operates as a REIT and distributes 100% of taxable income to its shareholders, no provision for Federal income taxes has been made in the accompanying combined financial statements.  Our two Puerto Rico malls are subject to income taxes which are based on estimated taxable income and which are included in income tax expense in the combined statements of income.  The carved-out properties are also subject to certain other taxes, including state and local taxes and franchise taxes which are included in general and administrative expenses in the combined statements of income.

 

Presentation of earnings per share information is not applicable in these carved-out combined financial statements, since these assets and liabilities are owned by Vornado.

 

SpinCo plans to aggregate all of its properties into one reportable segment because all of these properties have similar economic characteristics and SpinCo will provide similar products and services to similar types of retail tenants.

 

-22-



 

 

 

(Unaudited)
As of
June 30,

 

(Audited)
As of December 31,

 

 

 

2014

 

2013

 

2012

 

2011

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,755,296

 

$

1,770,109

 

$

1,878,227

 

$

1,899,478

 

Real estate, at cost

 

1,991,374

 

1,984,172

 

2,045,258

 

2,028,940

 

Accumulated depreciation and amortization

 

 444,693

 

421,756

 

436,137

 

391,547

 

Mortgages payable

 

1,185,296

 

1,200,762

 

1,251,234

 

1,275,441

 

Noncontrolling interest in consolidated subsidiary

 

330

 

319

 

298

 

285

 

Vornado equity

 

367,496

 

359,048

 

408,638

 

385,891

 

 

 

 

 

 

(Unaudited)
Six Months Ended
June 30,

 

(Audited)
Year Ended December 31,

 

 

 

2014

 

2013

 

2013

 

2012

 

2011

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

 $

161,503

 

 $

212,256

(1)

 

 $

366,816

(1)

 

 $

307,988

 

 

 $

303,051

 

 

Operating income

 

62,951

 

123,963

(1)

 

168,306

(1)(2)

 

125,800

(3)

 

144,425

(4)

 

Net income (loss) attributable to noncontrolling interest in consolidated subsidiary

 

11

 

10

 

 

21

 

 

13

 

 

(3

)

 

Net income attributable to Vornado

 

36,386

 

95,871

(1)

 

112,504

(1)(2)

 

72,129

(3)

 

90,550

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provided by operating activities

 

52,608

 

159,446

(5)

 

244,983

(5)

 

112,060

 

 

102,840

 

 

Used in investing activities

 

6,056

 

12,162

 

 

27,013

 

 

32,886

 

 

41,456

 

 

Used in financing activities

 

45,893

 

146,506

 

 

217,092

 

 

77,081

 

 

61,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI(6)

 

100,869

 

159,588

(1)

 

258,902

(1)

 

199,288

 

 

212,298

(4)

 

Comparable NOI(6)

 

100,869

 

99,489

 

 

198,803

 

 

193,371

 

 

187,835

 

 

FFO(7)

 

65,207

 

122,589

(1)

 

188,261

(1)

 

133,884

 

 

144,129

(4)

 

Comparable FFO(7)

 

65,207

 

62,490

 

 

128,162

 

 

125,195

 

 

119,666

 

 

 


(1)          Includes $59,599 of income pursuant to a settlement agreement with Stop & Shop.

(2)          Includes a real estate impairment loss of $19,000.

(3)          Includes a real estate impairment loss of $6,000.

(4)          Includes $19,463 for the reversal of an allowance for doubtful accounts as a result of the favorable outcome of Vornado’s litigation with Stop & Shop.

(5)          Includes $124,000 of cash received from Stop & Shop pursuant to the settlement agreement.

(6)          Net operating income (“NOI”) and comparable NOI do not represent income from operations as defined by GAAP. We use NOI and comparable NOI as supplemental measures of our operating performance.  For definitions of NOI and comparable NOI, as well as an important discussion of their uses and inherent limitations, please refer to “Net Operating Income” below.

(7)          Funds from operations (“FFO”) and comparable FFO do not represent cash flow from operations as defined by GAAP and may not be reflective of our operating performance due to changes in our capital structure in connection with the separation and distribution.  We use FFO and comparable FFO as supplemental measures of our operating performance.  For a definition of FFO and comparable FFO, as well as a discussion of their uses and inherent limitations, please refer to “Funds From Operations” below.

 

-23-



 

Net Operating Income

 

NOI and comparable NOI are supplemental non-GAAP measures that aid in the assessment of the unlevered performance of our properties and portfolio as it relates to the total return on assets.  The most directly comparable GAAP financial measure is operating income.  We calculate NOI by adjusting GAAP operating income to add back depreciation and amortization expense, general and administrative expenses, real estate impairment losses and non-cash ground rent expense, and deduct non-cash rental income resulting from the straight-lining of rents and amortization of acquired below market leases net of above market leases.  We believe NOI and Comparable NOI are meaningful non-GAAP financial measures because real estate acquisitions and dispositions are evaluated based on, among other considerations, property NOI applied to market capitalization rates.  We utilize these measures to make investment and capital allocation decisions and to compare the unlevered performance of our properties to our peers. NOI and comparable NOI should not be considered substitutes for operating income or net income and may not be comparable to similarly titled measures employed by others.

 

The following table reconciles operating income to NOI and comparable NOI for the six months ended June 30, 2014 and 2013 and for each of the last three years.

 

 

 

 

 

(Unaudited)
Six Months Ended
June 30,

 

(Audited)
Year Ended December 31,

 

 

 

2014

 

2013

 

2013

 

2012

 

2011

 

 

 

(Amounts in thousands)

 

Operating income

 

 $

62,951

 

 $

123,963

 

 $

168,306

 

 $

125,800

 

 $

144,425

 

Depreciation and amortization

 

27,390

 

25,402

 

54,043

 

52,960

 

50,981

 

General and administrative

 

14,120

 

14,087

 

26,448

 

27,955

 

28,351

 

Real estate impairment losses

 

--

 

--

 

19,000

 

6,000

 

 

Subtotal

 

104,461

 

163,452

 

267,797

 

212,715

 

223,757

 

Less: non-cash rental income

 

(4,658)

 

(5,221)

 

(11,408)

 

(15,873)

 

(14,431)

 

Add: non-cash ground rent expense

 

1,066

 

1,357

 

2,513

 

2,446

 

2,972

 

NOI

 

100,869

 

159,588

 

258,902

 

199,288

 

212,298

 

Non-comparable items:

 

 

 

 

 

 

 

 

 

 

 

Settlement income from Stop & Shop(1)

 

 

(59,599)

 

(59,599)

 

 

 

Income recognized pursuant to Stop & Shop Guarantee which was terminated upon settlement in February 2013(1)

 

 

(500)

 

(500)

 

(5,917)

 

(5,000)

 

Reversal of allowance for doubtful accounts in connection with the Stop & Shop settlement(1)

 

 

 

 

 

(19,463)

 

Subtotal adjustments

 

 

(60,099)

 

(60,099)

 

(5,917)

 

(24,463)

 

Comparable NOI

 

 $

100,869

 

 $

99,489

 

 $

198,803

 

 $

193,371

 

 $

187,835

 

 


(1)          See Note 11 – Stop & Shop Settlement, in the notes to the audited combined financial statements and Note 8 – Stop & Shop Settlement in the notes to the unaudited combined interim financial statements for further details.

 

.

 

-24-



 

Funds From Operations

 

We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition.  NAREIT defines FFO as GAAP net income adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, real property depreciation and amortization expense, extraordinary items and other specified non-cash items.  We believe FFO and comparable FFO are meaningful non-GAAP financial measures useful in comparing our levered operating performance both internally from period to period and among our peers because these non-GAAP measures exclude net gains on sales of depreciable real estate, real estate impairment losses, and real property depreciation and amortization expense which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions.  FFO and comparable FFO do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure.  FFO and comparable FFO may not be comparable to similarly titled measures employed by others.

 

The following table reconciles net income attributable to Vornado to FFO and comparable FFO for the six months ended June 30, 2014 and 2013 and for each of the last three years.

 

 

 

 

(Unaudited)
Six Months Ended June 30,

 

(Audited)
Year Ended December 31,

 

 

 

2014

 

2013

 

2013

 

2012

 

2011

 

 

 

(Amounts in thousands)

 

Net income attributable to Vornado

 

$

36,386

 

$

95,871

 

$

112,504

 

$

72,129

 

$

90,550

 

Depreciation and amortization of real property

 

28,821

 

26,718

 

56,757

 

55,755

 

53,579

 

Real estate impairment losses

 

 

 

19,000

 

6,000

 

 

FFO

 

65,207

 

122,589

 

188,261

 

133,884

 

144,129

 

Non-comparable items:

 

 

 

 

 

 

 

 

 

 

 

Settlement income from Stop & Shop(1)

 

 

(59,599)

 

(59,599)

 

 

 

Income recognized pursuant to Stop & Shop Guarantee which was terminated upon settlement in 2013(1)

 

 

(500)

 

(500)

 

(5,917)

 

(5,000)

 

Accelerated amortization of acquired below market lease intangible liabilities

 

 

 

 

(2,772)

 

 

Reversal of allowance for doubtful accounts in connection with the Stop & Shop settlement(1)

 

 

 

 

 

(19,463)

 

Subtotal adjustments

 

 

(60,099)

 

(60,099)

 

(8,689)

 

(24,463)

 

Comparable FFO

 

$

65,207

 

$

62,490

 

$

128,162

 

$

125,195

 

$

119,666

 

 


(1)          See Note 11 – Stop & Shop Settlement, in the notes to the audited combined financial statements and Note 8 – Stop & Shop Settlement in the notes to the unaudited combined interim financial statements for further details.

 

-25-



 

RISK FACTORS

 

You should carefully consider the following risks and other information in this information statement in evaluating our company and our common shares. Any of the following risks could materially and adversely affect our business, results of operations and financial condition. These risks have been separated into three groups: Risks Related to Our Business and Operations and to Our Status as a REIT, Risks Related to the Separation, and Risks Related to Our Common Shares.

 

RISKS RELATED TO OUR BUSINESS AND OPERATIONS AND TO OUR STATUS AS A REIT

 

Material factors that may adversely affect our business and operations are summarized below. The risks and uncertainties described herein may not be the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. See “Forward-Looking Statements” contained herein.

 

Real Estate Investments’ Value and Income Fluctuate Due to Various Factors.

 

The value of real estate fluctuates depending on conditions in the general economy and the real estate business. These conditions may also adversely impact our revenues and cash flows.

 

The factors that affect the value of our real estate include, among other things:

 

·                  national, regional and local economic conditions;

 

·                  competition from other available space;

 

·                  local conditions such as an oversupply of space or a reduction in demand for real estate in the area;

 

·                  how well we manage our properties;

 

·                  changes in market rental rates;

 

·                  the timing and costs associated with property improvements and rentals;

 

·                  whether we are able to pass all or portions of any increases in operating costs through to tenants;

 

·                  changes in real estate taxes and other expenses;

 

·                  whether tenants and users such as customers and shoppers consider a property attractive;

 

·                  the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;

 

·                  availability of financing on acceptable terms or at all;

 

·                  inflation or deflation;

 

·                  fluctuations in interest rates;

 

·                  our ability to obtain adequate insurance;

 

·                  changes in zoning laws and taxation;

 

·                  government regulation;

 

·                  consequences of any armed conflict involving, or terrorist attack against, the United States or individual acts of violence in public spaces, including retail centers;

 

·                  potential liability under environmental or other laws or regulations;

 

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·                  natural disasters;

 

·                  general competitive factors; and

 

·                  climate changes.

 

The rents we receive and the occupancy levels at our properties may decline as a result of adverse changes in any of these factors. If our rental revenues and/or occupancy levels decline, we generally would expect to have less cash available to pay our indebtedness and for distribution to our shareholders. In addition, some of our major expenses, including mortgage payments, real estate taxes and maintenance costs generally do not decline when the related rents decline.

 

Capital markets and economic conditions can materially affect our liquidity, financial condition and results of operations, as well as the value of our debt and equity securities.

 

There are many factors that can affect the value of our equity securities and any debt securities we may issue in the future, including the state of the capital markets and economy. Demand for office and retail space may decline nationwide as it did in 2008 and 2009, due to the economic downturn, bankruptcies, downsizing, layoffs and cost cutting. Government action or inaction may adversely affect the state of the capital markets. The cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads may adversely affect our liquidity and financial condition, including our results of operations, and the liquidity and financial condition of our tenants. Our inability or the inability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs may materially affect our financial condition and results of operations and the value of our equity securities and any debt securities we may issue in the future.

 

We are subject to risks that affect the general retail environment.

 

Our properties are in the retail shopping center real estate market. This means that we are subject to factors that affect the retail environment generally, including the level of consumer spending and consumer confidence, unemployment rates, the threat of terrorism and increasing competition from discount retailers, outlet malls, retail websites and catalog companies. These factors could adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in our shopping centers.

 

Real estate is a competitive business.

 

We compete with a large number of property owners and developers, some of which may be willing to accept lower returns on their investments than we are. Principal factors of competition include rents charged, attractiveness of location, the quality of the property and breadth and quality of services provided. Our success depends upon, among other factors, trends affecting national 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.

 

We depend on leasing space to tenants on economically favorable terms and collecting rent from tenants who may not be able to pay.

 

Our financial results depend significantly on leasing space in our properties to tenants on economically favorable terms. In addition, because a majority of our income is derived from renting real property, our income, funds available to pay indebtedness and funds available for distribution to shareholders will decrease if certain of our tenants cannot pay their rent or if we are not able to maintain our occupancy levels on favorable terms. If a tenant does not pay its rent, we might not be able to enforce our rights as landlord without delays and might incur substantial legal and other costs. During periods of economic adversity, there may be an increase in the number of tenants that cannot pay their rent and an increase in vacancy rates.

 

Bankruptcy or insolvency of tenants may decrease our revenues, net income and available cash.

 

From time to time, some of our tenants have declared bankruptcy, and other tenants may declare bankruptcy or become insolvent in the future. In the case of our shopping centers, the bankruptcy or insolvency of a major tenant could cause us to have difficulty leasing the remainder of the affected property. Our leases generally do not contain restrictions designed to ensure the creditworthiness of our tenants. As a result, the bankruptcy or insolvency of a major tenant could result in a lower level of net income and funds available to pay our indebtedness or make distributions to shareholders.

 

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We depend upon our anchor tenants to attract shoppers.

 

Our shopping centers are typically anchored by well-known department stores and other tenants who generate shopping traffic at the mall or shopping center. The value of our properties would be adversely affected if tenants or anchors failed to meet their contractual obligations, sought concessions in order to continue operations or ceased their operations, including as a result of bankruptcy. If the sales of stores operating in our properties were to decline significantly due to economic conditions, closing of anchors or for other reasons, tenants may be unable to pay their minimum rents or expense recovery charges. In the event of a default by a tenant or anchor, we may experience delays and costs in enforcing our rights as landlord.

 

We derive a significant portion of our revenues from four of our properties.

 

As of December 31, 2013, four of our properties in the aggregate generated in excess of 25% of our total gross annual base minimum rental revenues.  The occurrence of events that have a negative impact on one or more of these properties, such as an economic downturn in the surrounding area or a natural disaster that damages one or more of the properties, would have a much larger adverse effect on our revenues than a corresponding occurrence affecting a less significant property.  If the revenues generated by one or more of these properties were to decline substantially, our financial condition could be negatively impacted in a material fashion.

 

Anchor or major tenants influence the performance of certain of our properties, and decisions made by these tenants or adverse developments in the businesses of these tenants could have a negative impact on us.

 

Some of our properties, such as our Springfield, MA and Carlstadt, NJ properties, have anchor or major tenants that occupy all or a significant portion of a center’s total leasable area, pay all or a significant portion of a property’s total rent and, if not the sole tenant in a property, contribute to the success of other tenants by drawing customers to a property. If an anchor tenant closes, such closure could adversely affect the property even if the tenant continues to pay rent due to the loss of the anchor tenant’s drawing power.  Additionally, closure of an anchor tenant could result in lease terminations by, or reductions in rent from, other tenants if the other tenants’ leases have “co-tenancy” clauses that permit cancellation or rent reduction if an anchor tenant closes. Retailer consolidation, store rationalization, competition from internet sales and general economic conditions may decrease the number of tenants available to fill available anchor tenant spaces.  As a result, in the event one or more anchor tenants were to leave one or more of our centers, we cannot be sure that we would be able to quickly re-lease the vacant space on equivalent terms or at all. In addition, we may not be able to recover costs owed us by the closed tenant.  In certain cases, co-tenancy issues can arise solely from the loss of one or more non-anchor tenants and some anchor and non-anchor tenants may be able to terminate their leases if they do not achieve defined sales levels. Any of these developments could have a negative impact on our financial condition and results of operations.

 

We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control.

 

Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”) from conducting business or engaging in transactions in the United States. Our leases, loans and other agreements may require us to comply with OFAC requirements. If a tenant or other party with whom we conduct business is placed on the OFAC list we may be required to terminate the lease or other agreement. Any such termination could result in a loss of revenue or otherwise negatively affect our financial results and cash flows.

 

Our business and operations would suffer in the event of system failures.

 

Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions.

 

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The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

 

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. We have implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.

 

We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability to lease and/or sell real estate.

 

Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment including air and water quality, hazardous or toxic substances and health and safety. Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property. The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination. These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused such release. The presence of contamination or the failure to remediate contamination may impair our ability to sell or lease real estate or to borrow using the real estate as collateral. Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air. The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (PCBs) are also regulated by federal and state laws. We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals. We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or related claims arising out of environmental contamination or human exposure at or from our properties.

 

Most of our properties have been subjected to varying degrees of environmental assessment at various times. To date, these environmental assessments have not revealed any environmental condition material to our business. However, identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, human exposure to contamination or changes in cleanup or compliance requirements could result in significant costs to us.

 

Some of our potential losses may not be covered by insurance.

 

Vornado maintains general liability insurance with limits of $300,000,000 per occurrence and all-risk property and rental value insurance coverage with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as floods and earthquakes on each of Vornado’s properties.  Vornado also maintains coverage for terrorist acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2014.  Insurance premiums are charged directly to each of the retail properties.  SpinCo intends to obtain appropriate insurance coverage on its own and coverages may differ from those noted above.  Also, the resulting insurance premiums may differ materially from amounts included in the accompanying combined financial statements. SpinCo will be responsible for deductibles and losses in excess of insurance coverage, which could be material.

 

-29-



 

Regarding coverage for acts of terrorism, SpinCo will continue to monitor the state of the insurance market and the scope and costs of coverage, but cannot anticipate what coverage will be available on commercially reasonable terms in the future.

 

SpinCo’s mortgage loans are non-recourse and contain customary covenants requiring adequate insurance coverage.  Although we believe that we currently 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.  If lenders insist on greater coverage than SpinCo is able to obtain, it could adversely affect the ability to finance or refinance the properties.

 

Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs.

 

The Americans with Disabilities Act (“ADA”) generally requires that public buildings, including our properties, meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants and/or legal fees to their counsel. If, under the ADA, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to shareholders.

 

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.

 

Our Investments Are Concentrated In The Northeast And Puerto Rico. Circumstances Affecting These Areas Generally Could Adversely Affect Our Business.

 

Our properties are generally located in the Northeast and in Puerto Rico and are affected by the economic cycles and risks inherent in these areas.

 

Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact this market in either the short- or long-term. Declines in the economy or declines in the real estate market in this area could hurt our financial performance and the value of our properties. In addition to the factors affecting the national economic condition generally, the factors affecting economic conditions in this area include:

 

·                  financial performance and productivity of the media, advertising, financial, technology, retail, insurance and real estate industries;

 

·                  unemployment levels;

 

·                  business layoffs or downsizing;

 

·                  industry slowdowns;

 

·                  relocations of businesses;

 

·                  changing demographics;

 

·                  increased telecommuting and use of alternative work places;

 

·                  infrastructure quality; and

 

·                  any oversupply of, or reduced demand for, real estate.

 

-30-



 

It is impossible for us to assess the future effects of trends in the economic and investment climates in the Northeast and Puerto Rico, and more generally of the United States, on the real estate market in these areas. Local, national or global economic downturns, would negatively affect our business and profitability.

 

Natural Disasters could have a concentrated impact on the area in which we operate and could adversely impact our results.

 

Our retail properties are generally located in the Northeast and in Puerto Rico and since they are concentrated along the Eastern Seaboard, natural disasters, including hurricanes, could have an impact. Potentially adverse consequences of “global warming” could similarly have an impact on our properties. As a result, we could become subject to significant losses and/or repair costs which may or may not be fully covered by insurance and to the risk of business interruption. The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results.

 

We May Acquire Or Sell Assets Or Develop Properties. Our Failure Or Inability To Consummate These Transactions Or Manage These Transactions Could Adversely Affect Our Operations And Financial Results.

 

We may acquire, develop or redevelop properties and these activities may create risks, including failing to complete such activities on time or within budget, competition for such activities that could increase our costs, being unable to lease newly acquired, developed or redeveloped properties at rents sufficient to cover our costs, difficulties in integrating acquisitions and weaker than expected performance.

 

We may acquire, develop or redevelop properties when we believe that an acquisition, development or redevelopment project is consistent with our business strategy. We may not, however, succeed in consummating desired acquisitions or in completing developments or redevelopments on time or within budget. In addition, we may face competition in pursuing acquisition, development or redevelopment opportunities that could increase our costs. When we do pursue a project or acquisition, we may not succeed in leasing newly developed, redeveloped or acquired properties at rents sufficient to cover costs of acquisition, development or redevelopment and operations. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management’s attention. Acquisitions or developments in new markets or types of properties where we do not have the same level of market knowledge may result in weaker than anticipated performance. We may abandon acquisition, development or redevelopment opportunities that we have begun pursuing and consequently fail to recover expenses already incurred and have devoted management time to a matter not consummated.

 

It may be difficult to buy and sell real estate quickly, which may limit our flexibility.

 

Real estate investments are relatively difficult to buy and sell quickly. Consequently, we may have limited ability to vary our portfolio promptly in response to changes in economic or other conditions. Moreover, our ability to buy, sell, or finance real estate assets may be adversely affected during periods of uncertainty or unfavorable conditions in the credit markets as we, or potential buyers of our assets, may experience difficulty in obtaining financing.

 

Our Organizational And Financial Structure Gives Rise To Operational And Financial Risks.

 

Substantially all of our assets will be owned by subsidiaries. We depend on dividends and distributions from these subsidiaries. The creditors of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or other distributions to us.

 

Substantially all of our properties and assets are held through wholly-owned subsidiaries. We depend on cash distributions from our subsidiaries for substantially all of our cash flow. The creditors of each of our subsidiaries are entitled to payment of that subsidiary’s obligations to them when due and payable before that subsidiary may make distributions or dividends to us. Thus, our ability to pay dividends, if any, to our security holders depends on our subsidiaries’ ability to first satisfy their obligations to their creditors and our ability to satisfy our obligations, if any, to our creditors.

 

In addition, our participation in any distribution of the assets of any of our subsidiaries upon the liquidation, reorganization or insolvency of the subsidiary, is only after the claims of the creditors, including trade creditors, and preferred security holders, if any, of the applicable direct or indirect subsidiaries are satisfied.

 

-31-



 

Our existing financing documents contain covenants and restrictions that may adversely affect our financial condition and our acquisition and development activities.

 

The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. Our unsecured indebtedness and debt that we may obtain in the future may contain customary restrictions, requirements and other limitations on our ability to incur indebtedness, including covenants that limit our ability to incur debt based upon the level of our ratio of total debt to total assets, our ratio of secured debt to total assets, our ratio of earnings before interest, tax, depreciation and amortization (EBITDA) to interest expense, and fixed charges, and that require us to maintain a certain level of unencumbered assets to unsecured debt. Our ability to borrow is subject to compliance with these and other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument, and we may then be required to repay such debt with capital from other sources or give possession of a secured property to the lender. Under those circumstances, other sources of capital may not be available to us, or may be available only on unattractive terms.

 

We have outstanding debt, and the amount of debt and its cost may increase and refinancing may not be available on acceptable terms.

 

As of December 31, 2013, total combined debt outstanding was $1.2 billion. For the year ended December 31, 2013, our scheduled cash payments for principal and interest were $69.4 million. As of June 30, 2014, the portfolio had approximately $1.185 billion of total combined debt outstanding plus $84.1 million of indebtedness representing our pro rata (50%) share of indebtedness of a joint venture.  We may incur additional debt in the future which may increase the risk of default which could adversely affect our financial condition and results of operations. In addition, in a rising interest rate environment, the cost of refinancing our existing debt and any new debt or market rate security or instrument may increase. Continued uncertainty in the equity and credit markets may negatively impact our ability to obtain financing on reasonable terms or at all, which may negatively affect our ability to refinance our debt.

 

We may not be able to obtain capital to make investments.

 

We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the Code for a REIT is that it distributes at least 90% of its taxable income, excluding net capital gains, to its shareholders. There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof. Our access to debt or equity financing depends on the willingness of third parties to lend or make equity investments and on conditions in the capital markets generally. Although we believe that we will be able to finance any investments we may wish to make in the foreseeable future, there can be no assurance that new financing will be available or available on acceptable terms.  For information about our available sources of funds, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and the notes to the consolidated financial statements in this information statement.

 

SpinCo may fail to qualify or remain qualified as a REIT and may be required to pay income taxes at corporate rates.

 

Although we believe that we will remain organized and will continue to operate so as to qualify as a REIT for federal income tax purposes, we may fail to remain so qualified. Qualifications are governed by highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial or administrative interpretations and depend on various facts and circumstances that are not entirely within our control.  In addition, legislation, new regulations, administrative interpretations or court decisions may significantly change the relevant tax laws and/or the federal income tax consequences of qualifying as a REIT.  If, with respect to any taxable year, we fail to maintain our qualification as a REIT and do not qualify under statutory relief provisions, we could not deduct distributions to shareholders in computing our taxable income and would have to pay federal income tax on our taxable income at regular corporate rates. The federal income tax payable would include any applicable alternative minimum tax. If we had to pay federal income tax, the amount of money available to distribute to shareholders and pay our indebtedness would be reduced for the year or years involved, and we would no longer be required to make distributions to shareholders.  In addition, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost, unless we were entitled to relief under the relevant statutory provisions.

 

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REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan.

 

In order for us to qualify to be taxed as a REIT, and assuming that certain other requirements are also satisfied, we generally must distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, to our shareholders each year, so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT, but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to distribute 100% of our REIT taxable income to our shareholders out of assets legally available therefor.

 

From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves, or required debt or amortization payments. If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices, distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, or make taxable distributions of our shares or debt securities to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. Further, amounts distributed will not be available to fund investment activities. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our shares. Any restrictions on our ability to incur additional indebtedness or make certain distributions could preclude us from meeting the 90% distribution requirement. Decreases in funds from operations due to unfinanced expenditures for acquisitions of properties or increases in the number of shares outstanding without commensurate increases in funds from operations each would adversely affect our ability to maintain distributions to our shareholders. Consequently, there can be no assurance that we will be able to make distributions at the anticipated distribution rate or any other rate. Please refer to “Dividend Policy.”

 

If certain portions of a recently released discussion draft of tax reform legislation were introduced as legislation and enacted in their current form, the separation and distribution of SpinCo could be treated as a taxable transaction to Vornado and its shareholders.

 

On February 26, 2014, House Ways and Means Committee Chairman Dave Camp (R-MI) released a discussion draft of tax reform legislation (the “Discussion Draft”). Among the proposals in the Discussion Draft is a provision that would prohibit REITs from conducting tax-free spin-offs under Section 355 of the Code. The Discussion Draft provides that this prohibition would be effective for distributions made on or after February 26, 2014. However, under a transition rule, the prohibition will not apply to REITs that make distributions pursuant to an agreement that was binding on February 26, 2014 and at all times thereafter. It is unclear whether the Discussion Draft will be introduced as legislation or enacted and, if so and in either case, in what form. On April 11, 2014 Vornado publicly announced its plan to spin off its strip centers and malls in a tax-free transaction. Vornado and SpinCo had not yet entered into binding agreements as of February 26, 2014. If the Discussion Draft were to be introduced as legislation and enacted into law in its present form and it was later determined by the IRS or the courts that the law would have retroactive effect to the date it was first proposed for discussion, the distribution and separation of SpinCo from Vornado would be treated as a taxable transaction to Vornado and its shareholders.

 

RISKS RELATED TO THE SEPARATION

 

We have no history operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

 

The historical information about us in this information statement refers to our business as operated by and integrated with Vornado. Our historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of Vornado. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future. Factors which could cause our results to differ from those reflected in such historical and pro forma financial information and which may adversely impact our ability to receive similar results in the future may include, but are not limited to, the following:

 

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·                  Prior to the separation, our business has been operated by Vornado as part of its broader corporate organization, rather than as an independent company. Vornado performed various corporate functions for us, such as accounting, information technology and finance. Following the separation, Vornado will provide some of these functions to us, as described in “Certain Relationships and Related Person Transactions.” Our historical and pro forma financial results reflect allocations of corporate expenses from Vornado for such functions and are likely to be less than the expenses we would have incurred had we operated as a separate, publicly traded company. We will need to make significant investments to replicate or outsource from other providers certain facilities, systems, infrastructure and personnel to which we will no longer have access after our separation from Vornado. Developing our ability to operate without access to Vornado’s current operational and administrative infrastructure will be costly and may prove difficult. We may not be able to operate our business efficiently or at comparable costs, and our profitability may decline;

 

·                  Currently, our business is integrated with the other businesses of Vornado, and we are able to use Vornado’s size and purchasing power in procuring various goods and services and shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. For example, we have historically been able to take advantage of Vornado’s purchasing power in technology and services, including information technology, marketing, insurance, treasury services, property support and the procurement of goods. Although we will enter into certain transition and other separation-related agreements with Vornado, these arrangements may not fully capture the benefits we have enjoyed as a result of being integrated with Vornado and may result in us paying higher charges than in the past for these services. In addition, services provided to us under the Transition Services Agreement will generally only be provided for approximately 24 months, and this may not be sufficient to meet our needs. As a separate, independent company, we may be unable to obtain goods and services at the prices and terms obtained prior to the separation, which could decrease our overall profitability. As a separate, independent company, we may also not be as successful in negotiating favorable tax treatments and credits with governmental entities. Likewise, it may be more difficult for us to attract and retain desired tenants. This could have an adverse effect on our business, results of operations and financial condition following the completion of the separation;

 

·                  Generally, our working capital requirements and capital for our general corporate purposes, including acquisitions, research and development, and capital expenditures, have historically been satisfied as part of the corporation-wide cash management policies of Vornado. Following the separation, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may not be on terms as favorable to those obtained by Vornado, and the cost of capital for our business may be higher than Vornado’s cost of capital prior to the separation;

 

·                  As a public company, we will become subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and will be required to prepare our financial statements according to the rules and regulations required by the SEC. Complying with these requirements could result in significant costs to us and require us to divert substantial resources, including management time, from other activities.

 

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as an independent company. For additional information about the past financial performance of our business and the basis of presentation of the historical combined financial statements and the unaudited pro forma combined financial statements of our business, please refer to “Unaudited Pro Forma Combined Financial Statements,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes included elsewhere in this information statement.

 

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We are dependent on Vornado to provide services to us pursuant to the Transition Services Agreement, and it may be difficult to replace the services provided under such agreement.

 

Historically, we have relied on the financial, administrative and other support functions of Vornado to operate our business and we will continue to rely on Vornado for these and other vital services on a transitional basis pursuant to the Transition Services Agreement that we expect to enter into with Vornado. See “Certain Relationships and Related Person Transactions — Transition Services Agreement.”  In addition, it may be difficult for us to replace the services provided by Vornado under the Transition Services Agreement, and the terms of any agreements to replace such services may be less favorable to us.  Any failure by Vornado in the performance of such services, or any failure on our part to successfully transition these services away from Vornado by the expiration of the Transition Services Agreement, could materially harm our business and financial performance.

 

If the distribution by each of Vornado and VRLP, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, Vornado and Vornado shareholders could be subject to significant tax liabilities and SpinCo will indemnify Vornado for certain material tax obligations that could arise as addressed in the Tax Matters Agreement.

 

Vornado has received a private letter ruling from the IRS to the effect that the distribution of SpinCo common shares by each of Vornado and VRLP, together with certain related transactions, will, with respect to SpinCo, VRLP, Vornado and the shareholders of Vornado, qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 351 and 355 of the Code.  It is a condition to the completion of the separation that Vornado obtain an opinion of Roberts & Holland LLP, special tax counsel to Vornado, satisfactory to the Vornado board of trustees, to the effect that the distribution of SpinCo common shares by each of Vornado and VRLP, together with certain related transactions, will, with respect to SpinCo, VRLP, Vornado and the shareholders of Vornado, qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 351, 355, and 731 of the Code, including with respect to certain matters relating to these transactions that are not covered by the private letter ruling from the IRS. The private letter ruling is, and the opinion of Roberts & Holland LLP will be, based on, among other things, certain facts and assumptions, as well as certain representations, statements and undertakings of Vornado and SpinCo (including those relating to the past and future conduct of Vornado and SpinCo). If any of these representations, statements or undertakings are, or become, inaccurate or incomplete, or if Vornado or SpinCo breach any of their respective covenants in the separation documents, the private letter ruling from the IRS and the opinion of Roberts & Holland LLP may be invalid and the conclusions reached therein could be jeopardized. In such case, the IRS could assert that the distribution of SpinCo common shares by each of Vornado and VRLP, together with certain related transactions, should be treated as a taxable transaction. The opinion of Roberts & Holland LLP will not be binding on the IRS or the courts.

 

If the distribution, together with certain related transactions, failed to qualify for tax-free treatment, in general, Vornado would recognize taxable gain as if it had sold the SpinCo common shares in a taxable sale for its fair market value and Vornado shareholders who receive SpinCo common shares in the distribution could be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares. For more information, please refer to “The Separation — Material U.S. Federal Income Tax Consequences of the Distribution to U.S. Holders of Vornado Common Shares.”

 

Under the Tax Matters Agreement that SpinCo will enter into with Vornado, SpinCo may be required to indemnify Vornado against any additional taxes resulting from (i) an acquisition of all or a portion of the equity securities or assets of SpinCo, whether by merger or otherwise, (ii) other actions or failures to act by SpinCo, or (iii) any of SpinCo’s representations or undertakings being incorrect or violated. For a more detailed discussion, please refer to “Certain Relationships and Related Person Transactions — Tax Matters Agreement.”

 

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We may not be able to engage in desirable strategic or capital-raising transactions following the separation. In addition, if we were able to engage in such transactions, we could be liable for adverse tax consequences resulting therefrom.

 

To preserve the tax-free treatment of the separation, for the two-year period following the separation, SpinCo will be prohibited, except in specific circumstances, from: (i) entering into any transaction pursuant to which all or a portion of SpinCo’s shares would be acquired, whether by merger or otherwise, (ii) issuing equity securities beyond certain thresholds and except in certain circumscribed manners, (iii) repurchasing SpinCo common shares, (iv) ceasing to actively conduct certain of its businesses, or (v) taking or failing to take any other action that prevents the distribution and certain related transactions from being tax-free.

 

These restrictions may limit SpinCo’s ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of SpinCo’s business. For more information, please refer to “The Separation — Material U.S. Federal Income Tax Consequences of the Distribution to U.S. Holders of Vornado Common Shares” and “Certain Relationships and Related Person Transactions — Tax Matters Agreement.”

 

Potential indemnification liabilities to Vornado pursuant to the Separation Agreement could materially adversely affect our operations.

 

The Separation Agreement with Vornado provides for, among other things, the principal corporate transactions required to effect the separation, certain conditions to the separation and distribution and provisions governing our relationship with Vornado with respect to and following the separation and distribution. Among other things, the Separation Agreement provides for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the separation and distribution, as well as those obligations of Vornado that we will assume pursuant to the Separation Agreement. If we are required to indemnify Vornado under the circumstances set forth in this agreement, we may be subject to substantial liabilities. For a description of this agreement, please refer to “Certain Relationships and Related Person Transactions — The Separation Agreement.”

 

Vornado may not be able to transfer its interests in certain properties that are subject to certain debt arrangements, are partially owned through a joint venture or similar structure, or are leased to or from a third party due to the need to obtain the consent of third parties.

 

Certain covenants and other restrictions contained in agreements governing indebtedness secured by certain of our properties and the co-owned or leased nature of some of our properties may require Vornado to obtain lender, co-venturer, or landlord or tenant consent in order to transfer such properties to us prior to completion of the separation. There is no assurance that Vornado will be able to obtain these consents on terms that it determines to be reasonable, or at all. Failure to obtain these consents could require Vornado to retain such properties, which could have a material adverse effect on our business, results of operations and financial condition.

 

After the separation, certain of our trustees and executive officers may have actual or potential conflicts of interest because of their previous or continuing equity interest in, or positions at, Vornado.

 

We expect that some of our trustees and executive officers will be persons who are or have been employees of Vornado. Because of their current or former positions with Vornado, certain of our expected trustees and executive officers may own Vornado common shares or other equity awards. Following the separation, even though our board of trustees will consist of a majority of trustees who are independent, we expect that some of our executive officers and some of our trustees will continue to have a financial interest in Vornado common shares. In addition, one of our trustees will continue serving on the board of trustees of Vornado. Continued ownership of Vornado common shares, or service as a trustee at both companies, could create, or appear to create, potential conflicts of interest.

 

Vornado will not be required to present investments to us that satisfy our investment guidelines before pursuing such opportunities on Vornado’s behalf.

 

Our agreements with Vornado will not require Vornado to present to us investment opportunities that satisfy our investment guidelines before Vornado pursues such opportunities. While Vornado does not intend to continue to operate within the strip shopping center and mall sector after the separation, should it choose to do so Vornado will be free to direct investment opportunities away from SpinCo, and we may be unable to compete with Vornado in pursuing such opportunities.

 

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We may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect our business.

 

We may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed due to a variety of circumstances, not all of which may be under our control. The separation is expected to provide the following benefits, among others: (i) a distinct investment identity allowing investors to evaluate our merits, performance and future prospects as an independent company; (ii) more efficient allocation of capital for both Vornado and for us; and (iii) direct access by us to the capital markets.

 

We may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (i) the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business; (ii) following the separation, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of Vornado; (iii) following the separation, our business will be less diversified than Vornado’s business prior to the separation; and (iv) the other actions required to separate our business from that of Vornado could disrupt our operations. If we fail to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, our business, financial conditions and results of operations could be materially adversely affected.

 

Our agreements with Vornado in connection with the separation and distribution involve potential conflicts of interest, and may not reflect terms that would have resulted from negotiations between unaffiliated third parties.

 

Because the separation and distribution involves the division of certain of Vornado’s existing businesses into two independent companies, we expect to enter into certain agreements with Vornado to provide a framework for our relationship with Vornado following the separation and distribution, including the Separation Agreement, a Transition Services Agreement, a Tax Matters Agreement and an Employee Matters Agreement. The terms of these agreements between Vornado and us will be determined while we are still an indirect wholly-owned subsidiary of Vornado and will be determined by persons who are at the time employees, officers or trustees of Vornado or its subsidiaries and, accordingly, have a conflict of interest. For example, during the period in which the terms of those agreements will be prepared, we will not have a board of trustees that will be independent of Vornado. As a result, the terms of those agreements are not the result of arm’s-length negotiations between unaffiliated third parties. However, payments made in connection with such agreements will be on terms intended to reflect terms arrived at by parties negotiating at arm’s-length. Arm’s-length negotiations between Vornado and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. See “Certain Relationships and Related Person Transactions.”

 

No vote of Vornado shareholders is required in connection with the separation and distribution.

 

No vote of Vornado shareholders is required in connection with the separation and distribution. Accordingly, if this transaction occurs and you do not want to receive our common shares in the distribution, your only recourse will be to divest yourself of your Vornado common shares prior to the record date for the distribution.

 

Vornado’s board of trustees has reserved the right, in its sole discretion, to amend, modify or abandon the separation and distribution and the related transactions at any time prior to the distribution date. In addition, the separation and distribution and related transactions are subject to the satisfaction or waiver by Vornado’s board of trustees in its sole discretion of a number of conditions. We cannot assure you that any or all of these conditions will be met.

 

The Vornado board of trustees has reserved the right, in its sole discretion, to amend, modify or abandon the separation and distribution and the related transactions at any time prior to the distribution date. This means that Vornado may cancel or delay the planned separation and distribution of our common shares if at any time the board of trustees of Vornado determines that it is not in the best interests of Vornado. If Vornado’s board of trustees makes a decision to cancel the separation, shareholders of Vornado will not receive any distribution of our common shares and Vornado will be under no obligation whatsoever to its shareholders to distribute such common shares. In addition, the separation and distribution and related transactions are subject to the satisfaction or waiver by Vornado’s board of trustees in its sole discretion of a number of conditions. We cannot assure you that any or all of these conditions will be met.

 

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In connection with our separation from Vornado, Vornado will indemnify us for certain pre-distribution liabilities and liabilities related to Vornado assets. However, there can be no assurance that these indemnities will be sufficient to protect us against the full amount of such liabilities, or that Vornado’s ability to satisfy its indemnification obligation will not be impaired in the future.

 

Pursuant to the Separation Agreement, Vornado will agree to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that Vornado agrees to retain, and there can be no assurance that Vornado will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Vornado any amounts for which we are held liable, such indemnification may be insufficient to fully offset the financial impact of such liabilities and/or we may be temporarily required to bear these losses while seeking recovery from Vornado.

 

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and share price.

 

As a public company, we will become subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and will be required to prepare our financial statements according to the rules and regulations required by the SEC. In addition, the Exchange Act requires that we file annual, quarterly and current reports. Our failure to prepare and disclose this information in a timely manner or to otherwise comply with applicable law could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing.

 

In addition, the Sarbanes-Oxley Act requires that we, among other things, establish and maintain effective internal controls and procedures for financial reporting and disclosure purposes. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm will not be able to certify as to the effectiveness of our internal control over financial reporting.

 

Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis, or may cause our company to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in our company and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm report a material weakness in our internal control over financial reporting. This could materially adversely affect our company by, for example, leading to a decline in our share price and impairing our ability to raise additional capital.

 

Substantial sales of our common shares may occur in connection with the distribution, which could cause our share price to decline.

 

The shares that Vornado intends to distribute to its shareholders generally may be sold immediately in the public market. Upon completion of the distribution, we expect that we will have an aggregate of approximately                    common shares issued and outstanding, based on the number of outstanding Vornado common shares and common limited partnership units of VRLP as of the record date. These shares will be freely tradable without restriction or further registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”), unless the shares are owned by one of our “affiliates,” as that term is defined in Rule 405 under the Securities Act.

 

Although we have no actual knowledge of any plan or intention on the part of any 5% or greater shareholder to sell our common shares following the distribution, it is possible that some Vornado shareholders, including possibly some of our large shareholders, will sell our common shares that they receive in the distribution. For example, Vornado shareholders may sell our common shares because our business profile or market capitalization as an independent company does not fit their investment objectives or because our common shares are not included in certain indices after the distribution. A portion of Vornado’s shares is held by index funds tied to the Standard & Poor’s 500 Index or other indices, and if we are not included in these indices at the time of the distribution, these index funds may be required to sell our common shares. The sales of significant amounts of our common shares, or the perception in the market that this will occur, may result in the lowering of the market price of our common shares.

 

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RISKS RELATED TO OUR COMMON SHARES

 

No market currently exists for the SpinCo common shares and we cannot be certain that an active trading market for our common shares will develop or be sustained after the separation. Following the separation, our share price may fluctuate significantly.

 

A public market for our common shares does not currently exist. We anticipate that on or prior to the record date for the distribution, trading of our common shares will begin on a “when-issued” basis and will continue through the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for our common shares after the separation. Nor can we predict the prices at which our common shares may trade after the separation. Similarly, we cannot predict the effect of the separation on the trading prices of our common shares or whether the combined market value of our common shares and Vornado’s common shares will be less than, equal to, or greater than the market value of Vornado’s common shares prior to the separation. The market price of our common shares may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

 

·                  our financial condition and performance;

 

·                  the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;

 

·                  actual or anticipated quarterly fluctuations in our operating results and financial condition;

 

·                  our dividend policy;

 

·                  the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income securities;

 

·                  uncertainty and volatility in the equity and credit markets;

 

·                  fluctuations in interest rates;

 

·                  changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;

 

·                  failure to meet analysts’ revenue or earnings estimates;

 

·                  speculation in the press or investment community;

 

·                  strategic actions by us or our competitors, such as acquisitions or restructurings;

 

·                  the extent of institutional investor interest in us;

 

·                  the extent of short-selling of our common shares and the shares of our competitors;

 

·                  fluctuations in the stock price and operating results of our competitors;

 

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·                  general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related companies;

 

·                  domestic and international economic factors unrelated to our performance; and

 

·                  all other risk factors addressed elsewhere in this information statement.

 

In addition, when the market price of a company’s common shares drops significantly, shareholders often institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.

 

We cannot guarantee the timing, amount, or payment of dividends on our common shares.

 

Although we expect to pay regular cash dividends following the separation, the timing, declaration, amount and payment of future dividends to shareholders will fall within the discretion of our board of trustees. Our board of trustees’ decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, limitations under our financing arrangements, industry practice, legal requirements, regulatory constraints, and other factors that it deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and access capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividend if we commence paying dividends. For more information, please refer to “Dividend Policy.”

 

Your percentage of ownership in our company may be diluted in the future.

 

In the future, your percentage ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise.  We also anticipate granting compensatory equity awards to our trustees, officers, employees, advisors and consultants who will provide services to us after the distribution. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common shares.

 

In addition, our declaration of trust will authorize us to issue, without the approval of our shareholders, one or more classes or series of preferred shares having such designation, voting powers, preferences, rights and other terms, including preferences over our common shares respecting dividends and distributions, as our board of trustees generally may determine. The terms of one or more classes or series of preferred shares could dilute the voting power or reduce the value of our common shares. For example, we could grant the holders of preferred shares the right to elect some number of our trustees in all events or on the occurrence of specified events, or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred shares could affect the residual value of the common shares. Please refer to “Description of SpinCo’s Shares of Beneficial Interest.”

 

OUR DECLARATION OF TRUST AND APPLICABLE LAW MAY HINDER ANY ATTEMPT TO ACQUIRE US.

 

Our declaration of trust sets limits on the ownership of our shares.

 

Generally, for SpinCo to maintain its qualification as a REIT under the Code, not more than 50% in value of the outstanding shares of beneficial interest of SpinCo may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of SpinCo’s taxable year. The Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities. Under SpinCo’s declaration of trust, no person may own more than 9.8% of the outstanding common shares, or 9.8% of the outstanding preferred shares of any class or series, with some exceptions for persons approved by SpinCo’s board of trustees. These restrictions on transferability and ownership may delay, deter or prevent a change in control of SpinCo or other transaction that might involve a premium price or otherwise be in the best interest of the shareholders.

 

Maryland law contains provisions that may reduce the likelihood of certain takeover transactions.

 

Maryland imposes conditions and restrictions on certain “business combinations” (including, among other transactions, a merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance of equity securities) between a Maryland real estate investment trust and certain persons who beneficially own at least 10% of the trust’s shares (an “interested shareholder”). Unless approved in advance by the board of trustees of the trust, or otherwise exempted by the statute, such a business combination is prohibited for a period of five years after the most recent date on which the interested shareholder became an interested shareholder. After such five-year period, a business combination with an interested shareholder must be: (a) recommended by the board of trustees of the trust, and (b) approved by the affirmative vote of at least (i) 80% of the corporation’s outstanding shares entitled to vote and (ii) two-thirds of the corporation’s outstanding shares entitled to vote which are not held by the interested shareholder with whom the business combination is to be effected, unless, among other things, the corporation’s common shareholders receive a “fair price” (as defined by the statute) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for his or her shares.

 

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In approving a transaction, the board of trustees may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board. The business combination provisions of Maryland law may have the effect of delaying, deferring or preventing a change in control of SpinCo or other transaction that might involve a premium price or otherwise be in the best interest of our shareholders. The business combination statute may discourage others from trying to acquire control of SpinCo and increase the difficulty of consummating any offer.

 

Until the 2017 annual meeting of shareholders, SpinCo will have a classified board of trustees and that may reduce the likelihood of certain takeover transactions.

 

SpinCo’s board of trustees is currently divided into three classes of trustees. The initial terms of the first, second and third classes will expire at the first, second and third annual meetings of shareholders, respectively, held following the separation.  Initially, shareholders will elect only one class of trustees each year. Shareholders will elect successors to trustees of the first class for a two-year term and successors to trustees of the second class for a one-year term, in each case upon the expiration of the terms of the initial trustees of each class.  Commencing with the 2017 annual meeting of shareholders, each trustee shall be elected annually for a term of one year and shall hold office until the next succeeding annual meeting and until a successor is duly elected and qualifies. There is no cumulative voting in the election of trustees.  Until the 2017 annual meeting of the shareholders following the separation, SpinCo’s board will be classified, which may reduce the possibility of a tender offer or an attempt to change control of SpinCo, even though a tender offer or change in control might be in the best interest of SpinCo’s shareholders.

 

We may issue additional shares in a manner that could adversely affect the likelihood of certain takeover transactions.

 

SpinCo’s declaration of trust and bylaws authorize the board of trustees, without shareholder approval, to:

 

·                  cause SpinCo to issue additional authorized but unissued common or preferred shares;

 

·                  classify or reclassify, in one or more classes or series, any unissued common or preferred shares;

 

·                  set the preferences, rights and other terms of any classified or reclassified shares that SpinCo issues; and

 

·                  amend SpinCo’s Declaration of Trust to increase the number of shares of beneficial interest that SpinCo may issue.

 

The board of trustees could establish a class or series of common or preferred shares whose terms could delay, deter or prevent a change in control of SpinCo or other transaction that might involve a premium price or otherwise be in the best interest of SpinCo’s shareholders, although the board of trustees does not now intend to establish a class or series of common or preferred shares of this kind. SpinCo’s declaration of trust and bylaws contain other provisions that may delay, deter or prevent a change in control of SpinCo or other transaction that might involve a premium price or otherwise be in the best interest of our shareholders.

 

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We may change our policies without obtaining the approval of our shareholders.

 

Our operating and financial policies, including our policies with respect to acquisitions of real estate or other companies, growth, operations, indebtedness, capitalization and dividends, are exclusively determined by our board of trustees. Accordingly, our shareholders do not control these policies.

 

-42-



 

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

 

Certain statements contained herein 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 future 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 information statement. In particular, information included under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “The Separation” contains forward-looking statements. 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 a discussion of factors that could materially affect the outcome of our forward-looking statements, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in this information statement.

 

You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this information statement 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 information statement.

 

-43-



 

DIVIDEND POLICY

 

We are a newly formed company that has not commenced operations, and as a result, we have not paid any distributions as of the date of this information statement. We expect to distribute 100% of our REIT taxable income to our shareholders out of assets legally available therefor.

 

To qualify as a REIT, we must distribute to our shareholders an amount at least equal to:

 

(i)            90% of our REIT taxable income, determined before the deduction for dividends paid and excluding any net capital gain (which does not necessarily equal net income as calculated in accordance with GAAP); plus

 

(ii)           90% of the excess of our net income from foreclosure property over the tax imposed on such income by the Code; less

 

(iii)        Any excess non-cash income (as determined under the Code). Please refer to “Material U.S. Federal Income Tax Consequences.”

 

We cannot assure you that our distribution policy will remain the same in the future, or that any estimated distributions will be made or sustained. Distributions made by us will be authorized by our board of trustees, in its sole discretion, and declared by us out of legally available funds, and will be dependent upon a number of factors, including restrictions under applicable law, actual and projected financial condition, liquidity, funds from operations and results of operations, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, the annual REIT distribution requirements and such other factors as our board of trustees deems relevant. For more information regarding risk factors that could materially and adversely affect our ability to make distributions, please refer to “Risk Factors.”

 

Our distributions may be funded from a variety of sources. In particular, we expect that initially our distributions may exceed our net income under GAAP because of non-cash expenses, principally depreciation and amortization expense, included in net income. To the extent that our cash available for distribution is less than 100% of our taxable income, we may consider various means to cover any such shortfall, including borrowing, selling certain of our assets or using a portion of the net proceeds we receive from future offerings of equity, equity-related or debt securities or declaring taxable share dividends. In addition, our declaration of trust allows us to issue shares of preferred equity that could have a preference on distributions, and if we do, the distribution preference on the preferred equity could limit our ability to make distributions to the holders of our common shares.

 

For a discussion of the tax treatment of distributions to holders of our common shares, please refer to “Material U.S. Federal Income Tax Consequences.”

 

-44-



 

CAPITALIZATION

 

The following table sets forth SpinCo’s capitalization as of June 30, 2014 on an unaudited historical basis and on a pro forma basis to give effect to the pro forma adjustments included in SpinCo’s unaudited pro forma financial information. The information below is not necessarily indicative of what SpinCo’s capitalization would have been had the separation, distribution by each of Vornado and VRLP and related transactions been completed as of June 30, 2014. In addition, it is not indicative of SpinCo’s future capitalization. This table should be read in conjunction with “Unaudited Pro Forma Combined Financial Statements,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and SpinCo’s audited combined financial statements and notes and unaudited combined interim financial statements and notes included elsewhere in this information statement.

 

 

 

 

 

As of June 30, 2014

(in thousands)

 

Actual

 

Pro Forma
Adjustments

 

Pro Forma

 

Cash and cash equivalents

 

$

5,882

 

 

$

 

 

 

$

 

 

Mortgages

 

$

1,185,296

 

 

$

 

 

 

$

 

 

Total debt

 

1,185,296

 

 

 

 

 

 

 

Vornado equity

 

367,496

 

 

 

 

 

 

 

Noncontrolling interest in consolidated subsidiary

 

330

 

 

 

 

 

 

 

Total Capitalization

 

$

1,553,122

 

 

$

 

 

 

$

 

 

 

-45-



 

SELECTED HISTORICAL COMBINED FINANCIAL DATA

 

The following table sets forth the selected historical combined financial and other data of our business, which was carved-out from the financial information of Vornado, as described below. We were formed for the purpose of holding certain assets and assuming certain liabilities of Vornado. Prior to the effective date of the Form 10 registration statement, of which this information statement forms a part, and the completion of the distribution of our common shares by each of Vornado and VRLP, we did not conduct any business and did not have any material assets or liabilities. The selected historical financial data set forth below as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 has been derived from our audited combined financial statements, which are included elsewhere in this information statement. The selected historical combined financial data as of December 31, 2011, 2010 and 2009 and for the years ended December 31, 2010 and 2009 has been derived from our unaudited combined financial statements, which are not included in this information statement. The income statement data for each of the six months ended June 30, 2014 and 2013 and the balance sheet data as of June 30, 2014 have been derived from our unaudited interim combined financial statements included elsewhere in this information statement. Our unaudited interim combined financial statements as of June 30, 2014 and for the six months ended June 30, 2014 were prepared on the same basis as our audited combined financial statements as of December 31, 2013 and 2012 and for each of the years ended December 31, 2013, 2012 and 2011 and, in the opinion of management, include all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly our financial position and results of operations for these periods. The interim results of operations are not necessarily indicative of operations for a full fiscal year.

 

The historical results set forth below do not indicate results expected for any future periods. The selected financial data set forth below are qualified in their entirety by, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined financial statements and related notes thereto included elsewhere in this information statement.

 

The following tables set forth selected financial and operating data.  This data may not be comparable to, or indicative of, future operating results.

 

 

 

(Unaudited)
As of
June 30,

 

(Audited)
As of December 31,

 

 

 

2014

 

2013

 

2012

 

2011

 

2010

 

2009

 

 

 

(Amounts in thousands)

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,755,296

 

$

1,770,109

 

$

1,878,227

 

$

1,899,478

 

$

1,880,496

 

$

1,869,623

 

Real estate, at cost

 

1,991,374

 

1,984,172

 

2,045,258

 

2,028,940

 

1,993,247

 

1,964,663

 

Accumulated depreciation and amortization

 

444,693

 

421,756

 

436,137

 

391,547

 

346,926

 

305,706

 

Mortgages payable

 

1,185,296

 

1,200,762

 

1,251,234

 

1,275,441

 

1,235,332

 

600,355

 

Noncontrolling interest in consolidated subsidiary

 

330

 

319

 

298

 

285

 

288

 

292

 

Vornado equity

 

367,496

 

359,048

 

408,638

 

385,891

 

392,108

 

1,020,114

 

 

-46-



 

 

 

(Unaudited)
Six Months Ended
 June 30,

 

(Audited)
Year Ended December 31,

 

 

2014

 

2013

 

2013

 

2012

 

2011

 

2010

 

2009

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

161,503

 

$

212,256

(1)

$

366,816

(1)

$

307,988

 

$

303,051

 

$

301,154

 

$

282,302

 

Operating income

 

62,951

 

123,963

(1)

168,306

(1)(2)

125,800

(3)

144,425

(4)

121,955

 

117,438

 

Net income (loss) attributable to noncontrolling interests

 

11

 

10

 

21

 

13

 

(3

)

(4

)

(1

)

Net income attributable to Vornado

 

36,386

 

95,871

(1)

112,504

(1)(2)

72,129

(3)

90,550

(4)

86,334

 

62,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provided by operating activities

 

52,608

 

159,446

(5)

244,983

(5)

112,060

 

102,840

 

132,913

 

86,803

 

Used in investing activities

 

6,056

 

12,162

 

27,013

 

32,886

 

41,456

 

39,089

 

110,282

 

Used in (provided by) financing activities

 

45,893

 

146,506

 

217,092

 

77,081

 

61,350

 

93,131

 

(24,091

)

 


(1)          Includes $59,599 of income pursuant to a settlement agreement with Stop & Shop.

(2)          Includes a real estate impairment loss of $19,000.

(3)          Includes a real estate impairment loss of $6,000.

(4)          Includes $19,463 for the reversal of an allowance for doubtful accounts as a result of the favorable outcome of Vornado’s litigation with Stop & Shop.

(5)          Includes $124,000 of cash received from Stop & Shop pursuant to the settlement agreement.

 

-47-



 

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

The following unaudited pro forma combined financial statements have been prepared by adjusting the historical combined financial statements to reflect the separation of SpinCo from Vornado as described elsewhere in this information statement.  The unaudited pro forma combined balance sheet gives effect to the transaction as if it had occurred on June 30, 2014.  The unaudited pro forma combined statements of income give effect to the transaction as if it had occurred on January 1, 2013.  All significant pro forma adjustments and underlying assumptions are described in the notes to the unaudited pro forma combined financial statements.

 

The unaudited pro forma adjustments include the following:

 

·                  The contribution from Vornado to SpinCo of the assets and liabilities that comprise SpinCo’s business;

 

·                  The issuance of approximately                   million of our common shares on the distribution date based upon the number of Vornado common shares and VRLP common limited partnership units outstanding on                   , 2014 and a distribution ratio of one SpinCo common share for every two Vornado common shares in the distribution by Vornado and one SpinCo common share for every two common limited partnership units of VRLP in the distribution by VRLP;

 

·                  The anticipated post-separation capital structure which includes $                  of working capital from Vornado;

 

·                  The effect of a Transition Services Agreement between SpinCo and Vornado; and

 

·                  The leasing of office space from Vornado.

 

The unaudited pro forma combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or financial results that would have actually been reported had the transaction occurred on January 1, 2013 or June 30, 2014, as applicable, nor is it indicative of our future financial position or financial results.

 

Our combined financial statements were carved-out from the financial information of Vornado. Our historical financial results reflect charges for certain corporate expenses which include, but are not limited to, costs related to human resources, security, payroll and benefits, legal, corporate communications, information services and restructuring and reorganization. Costs of the services that were allocated or charged to us were based on either actual costs incurred or a proportion of costs estimated to be applicable to us based on a number of factors, most significantly, our percentage of Vornado’s adjusted revenue and the number of properties. We believe these charges are reasonable; however, these results may not reflect what our expenses would have been had we been operating as a separate stand-alone public company. No pro forma adjustments have been made to our financial statements to reflect the additional costs and expenses described in this paragraph because they are projected amounts based on judgmental estimates and, as such, are not includable as pro forma adjustments in accordance with the requirements of Rule 11-02 of Regulation S-X. We estimate that our corporate general and administrative expenses will be approximately $                  million to $                  million higher than that reflected in the pro forma combined financial statements as a result of additional costs required to function as an independent publicly traded company. These costs include, but are not limited to, additional compensation costs with respect to new and existing positions, board of trustees’ fees and expenses, trustees’ and officers’ insurance, incremental audit and tax fees, and depreciation and amortization related to information technology infrastructure investments.

 

The unaudited pro forma combined financial statements should be read in conjunction with the combined financial statements and related notes thereto contained elsewhere in this information statement.

 

-48-



 

Vornado SpinCo

Unaudited Combined Balance Sheet

As of June 30, 2014

(Amounts in thousands)

 

ASSETS

 

Historical

 

Adjustments

 

Notes

 

Pro Forma

 

Real estate, at cost:

 

 

 

 

 

 

 

 

 

 

Land

 

$

372,019

 

 

$

 

 

 

 

$

 

 

Buildings and improvements

 

1,608,177

 

 

 

 

 

 

 

 

Construction in progress

 

7,135

 

 

 

 

 

 

 

 

Leasehold improvements and equipment

 

4,043

 

 

 

 

 

 

 

 

Total

 

1,991,374

 

 

 

 

 

 

 

 

Accumulated depreciation and amortization

 

(444,693

)

 

 

 

 

 

 

 

Real estate, net

 

1,546,681

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

5,882

 

 

 

 

 

 

 

 

Restricted cash

 

9,491

 

 

 

 

 

 

 

 

Tenant and other receivables, net of allowance for doubtful accounts of $2,779

 

10,007

 

 

 

 

 

 

 

 

Receivable arising from the straight-lining of rents

 

88,624

 

 

 

 

 

 

 

 

Identified intangible assets, net of accumulated amortization of $24,622

 

48,574

 

 

 

 

 

 

 

 

Deferred leasing costs, net of accumulated amortization of $12,669

 

19,414

 

 

 

 

 

 

 

 

Deferred financing costs, net of accumulated amortization of $5,933

 

8,842

 

 

 

 

 

 

 

 

Investment in unconsolidated joint venture

 

6,407

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

11,374

 

 

 

 

 

 

 

 

 

 

$

1,755,296

 

 

$

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

Mortgages payable

 

$

1,185,296

 

 

$

 

 

 

 

$

 

 

Identified intangible liabilities, net of accumulated amortization of $ 

 

165,616

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

25,367

 

 

 

 

 

 

 

 

Other liabilities

 

11,191

 

 

 

 

 

 

 

 

Total liabilities

 

1,387,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado equity

 

367,496

 

 

 

 

 

 

 

 

Noncontrolling interest in consolidated subsidiary

 

330

 

 

 

 

 

 

 

 

Total equity  

 

367,826

 

 

 

 

 

 

 

 

 

 

$

1,755,296

 

 

$

 

 

 

 

$

 

 

 

-49-



 

Vornado SpinCo

Unaudited Combined Statement of Income

For the Year Ended December 31, 2013

(Amounts in thousands)

 

 

 

Historical

 

Adjustments

 

Notes

 

Pro Forma

 

REVENUE

 

 

 

 

 

 

 

 

 

 

Property rentals

 

$

231,020

 

 

$

 

 

 

 

$

 

 

Tenant expense reimbursements

 

73,627

 

 

 

 

 

 

 

 

Income from Stop & Shop settlement

 

59,599

 

 

 

 

 

 

 

 

Other income

 

2,570

 

 

 

 

 

 

 

 

Total revenue

 

366,816

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

54,043

 

 

 

 

 

 

 

 

Real estate taxes

 

46,961

 

 

 

 

 

 

 

 

Property operating

 

39,538

 

 

 

 

 

 

 

 

General and administrative

 

26,448

 

 

 

 

 

 

 

 

Real estate impairment losses

 

19,000