Investments in Partially Owned Entities

9 Months Ended

Sep. 30, 2011

Investments in Partially Owned Entities [Abstract]

6. Investments in Partially Owned Entities

Toys “R” Us (“Toys”)

As of September 30, 2011, we own 32.7% of Toys. The business of Toys is highly seasonal. Historically, Toys' fourth quarter net income accounts for more than 80% of its fiscal year net income. We account for our investment in Toys under the equity method and record our 32.7% share of Toys net income or loss on a one-quarter lag basis because Toys' fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. As of September 30, 2011, the carrying amount of our investment in Toys does not differ materially from our share of the equity in the net assets of Toys on a purchase accounting basis.

On May 28, 2010, Toys filed a registration statement, as amended, with the SEC for the offering and sale of its common stock. The offering, if completed, would result in a reduction of our percentage ownership of Toys' equity. The size of the offering and its completion are subject to market and other conditions.

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

(Amounts in thousands)						Balance as of
Balance Sheet:						July 30, 2011		October 30, 2010
	Assets					$	11,778,000	$	12,810,000
	Liabilities						9,969,000		11,317,000
	Toys “R” Us, Inc. equity						1,809,000		1,493,000

		For the Three Months Ended				For the Nine Months Ended
Income Statement:		July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
	Total revenues	$	2,648,000	$	2,565,000	$	11,256,000	$	11,030,000
	Net (loss) income attributable to Toys		(36,000)		(16,000)		227,000		292,000

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

As of September 30, 2011, we own 1,654,068 Alexander's common shares, or approximately 32.4% of Alexander's common equity. We manage, lease and develop Alexander's properties pursuant to the agreements described below which expire in March of each year and are automatically renewable. As of September 30, 2011, Alexander's owed us $43,308,000 in fees under these agreements.

As of September 30, 2011, the fair value of our investment in Alexander's, based on Alexander's September 30, 2011 closing share price of $361.02, was $597,152,000, or $406,875,000 in excess of the carrying amount on our consolidated balance sheet. As of September 30, 2011, the carrying amount of our investment in Alexander's, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander's by approximately $59,188,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander's common stock acquired over the book value of Alexander's net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander's assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander's net income. The basis difference related to the land will be recognized upon disposition of our investment.

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

(Amounts in thousands)						Balance as of
Balance Sheet:						September 30, 2011		December 31, 2010
	Assets					$	1,785,000	$	1,679,000
	Liabilities						1,427,000		1,335,000
	Noncontrolling interests						4,000		3,000
	Stockholders' equity						354,000		341,000

		For the Three Months Ended				For the Nine Months Ended
Income Statement:		September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
	Total revenues	$	65,000	$	61,000	$	190,000	$	179,000
	Net income attributable to Alexander’s		20,000		18,000		59,000		49,000

6. Investments in Partially Owned Entities – continued

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

As of September 30, 2011, we own 18,468,969 Lexington common shares, or approximately 11.7% of Lexington's common equity. We account for our investment in Lexington under the equity method because we believe we have the ability to exercise significant influence over Lexington's operating and financial policies, based on, among other factors, our representation on Lexington's Board of Trustees and the level of our ownership in Lexington as compared to other shareholders. We record our pro rata share of Lexington's net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its consolidated financial statements.

Based on Lexington's September 30, 2011 closing share price of $6.54, the fair value of our investment in Lexington was $120,787,000, or $59,472,000 in excess of the September 30, 2011 carrying amount on our consolidated balance sheet. As of September 30, 2011, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $48,861,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges recognized during 2008, partially offset by purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington's real estate (land and buildings) as compared to the carrying amounts in Lexington's consolidated financial statements. The basis difference related to the buildings is being amortized over their estimated useful lives as an adjustment to our equity in net income or loss of Lexington. This amortization is not material to our share of equity in Lexington's net income or loss. The basis difference attributable to the land will be recognized upon disposition of our investment.

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

(Amounts in thousands)						Balance as of
Balance Sheet:						June 30, 2011		September 30, 2010
	Assets					$	3,240,000	$	3,385,000
	Liabilities						1,910,000		2,115,000
	Noncontrolling interests						60,000		71,000
	Shareholders’ equity						1,270,000		1,199,000

		For the Three Months Ended				For the Nine Months Ended
Income Statement:		June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
	Total revenues	$	83,000	$	81,000	$	252,000	$	249,000
	Net (loss) attributable to Lexington		(44,000)		(24,000)		(49,000)		(97,000)

LNR Property LLC (“LNR”)

As of September 30, 2011, we own a 26.2% equity interest in LNR, which we acquired in July 2010. We account for our investment in LNR under the equity method and record our 26.2% share of LNR's net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to receiving LNR's consolidated financial statements.

LNR consolidates certain commercial mortgage-backed securities (“CMBS”) and Collateralized Debt Obligation (“CDO”) trusts for which it is the primary beneficiary. The assets of these trusts (primarily commercial mortgage loans), which aggregate approximately $138.5 billion as of June 30, 2011, are the sole source of repayment of the related liabilities, which are non-recourse to LNR and its equity holders, including us. Changes in the fair value of these assets each period are offset by changes in the fair value of the related liabilities through LNR's consolidated income statement. As of September 30, 2011, the carrying amount of our investment in LNR does not materially differ from our share of LNR's equity.

6. Investments in Partially Owned Entities – continued

LNR Property LLC (“LNR”) – continued

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

(Amounts in thousands)		Balance as of
Balance Sheet:		June 30, 2011		September 30, 2010
	Assets	$	139,731,000	$	143,266,000
	Liabilities		139,025,000		142,720,000
	Noncontrolling interests		43,000		37,000
	LNR equity		663,000		509,000

		For the Three Months Ended		For the Nine Months Ended
Income Statement:		June 30, 2011		June 30, 2011
	Total revenues	$	73,000	$	156,000
	Net income attributable to LNR		52,000		152,000

280 Park Avenue Joint Venture

On March 16, 2011, we formed a 50/50 joint venture with SL Green Realty Corp (“SL Green”) to own the mezzanine debt of 280 Park Avenue, a 1.2 million square foot office building located between 48th and 49th Streets in Manhattan (the “Property”). We contributed our mezzanine loan with a face amount of $73,750,000, and they contributed their mezzanine loans with a face amount of $326,250,000 to the joint venture. We equalized our interest in the joint venture with SL Green by paying them $111,250,000 in cash and assuming $15,000,000 of their debt. On May 17, 2011, as part of the recapitalization of the Property, the joint venture contributed its debt position for 99% of the common equity of a new joint venture which owns the Property. The new joint venture expects to spend $150,000,000 for re-tenanting and repositioning the Property. We account for our 49.5% equity interest in the Property under the equity method of accounting from the date of recapitalization.

Independence Plaza

On June 17, 2011, a joint venture in which we are a 51% partner invested $55,000,000 in cash (of which we contributed $35,000,000) to acquire a face amount of $150,000,000 of mezzanine loans and a $35,000,000 participation in a senior loan on Independence Plaza, a residential complex comprised of three 39-story buildings in the Tribeca submarket of Manhattan. We share control over major decisions with our joint venture partner. Accordingly, we account for our 51% interest in the joint venture under the equity method of accounting from the date of acquisition.

6. Investments in Partially Owned Entities - continued

Investments in partially owned entities as of September 30, 2011 and December 31, 2010 and income (loss) recognized from these investments for the three and nine months ended September 30, 2011 and 2010 are as follows:

					Percentage			Balance as of
(Amounts in thousands)					Ownership as of			September 30,		December 31,
Investments:					September 30, 2011			2011		2010
Toys							32.7%	$	546,258	$	447,334

Alexander’s							32.4%	$	190,277	$	186,811
Lexington							11.7%		61,315		57,270
LNR							26.2%		156,090		132,973
India real estate ventures							4%-36.5%		101,155		127,193
Partially owned office buildings⁽¹⁾							Various		452,284		181,838
Other equity method investments⁽²⁾							Various		196,205		241,587
								$	1,157,326	$	927,672

			For the Three Months Ended					For the Nine Months Ended
			September 30,					September 30,
Our Share of Net Income (Loss):			2011			2010		2011		2010
Toys – 32.7% share of:
	Equity in net (loss) income before income taxes		$	(26,773)		$	(32,574)	$	104,049	$	93,662
	Income tax benefit (expense)			15,135			27,501		(29,914)		1,914
	Equity in net (loss) income			(11,638)			(5,073)		74,135		95,576
	Interest and other income			2,334			2,516		6,659		6,733
			$	(9,304)		$	(2,557)	$	80,794	$	102,309

Alexander’s – 32.4% share of:
	Equity in net income		$	6,437		$	5,612	$	18,507	$	14,309
	Management, leasing and development fees			2,170			1,945		6,749		6,774
				8,607			7,557		25,256		21,083

Lexington – 11.7% share in 2011 and 13.8% share
	in 2010 of equity in net (loss) income⁽³⁾			(617)			(2,301)		10,209		3,316

LNR – 26.2% share of equity in net income (acquired in
	July 2010)⁽⁴⁾			13,656			-		39,913		-

India real estate ventures – 4% to 36.5% range in our
	share of equity in net (loss) income			(690)			(195)		(692)		2,062

Partially owned office buildings⁽⁵⁾				(6,839)			86		(13,829)		1,864

Other equity method investments				(565)			(7,143)		(4,618)		(14,525)
			$	13,552		$	(1,996)	$	56,239	$	13,800
___________________________________
(1)		Includes interests in 330 Madison Avenue (25%), One Park Avenue (30.3%), 280 Park Avenue (49.5%), 825 Seventh Avenue (50%), Warner Building and 1101 17th Street (55%), Fairfax Square (20%), Rosslyn Plaza (46%) and West 57th Street properties (50%).

(2)		Includes interests in Monmouth Mall, Verde Realty Operating Partnership, 85 10th Avenue Associates and others.

(3)		Includes net gains of $9,760 and $5,998 in the nine months ended September 30, 2011 and 2010, respectively, resulting from Lexington's stock issuances.

(4)		The nine months ended September 30, 2011 includes $6,020 for our share of net gains from asset sales and $8,977 for our share of a tax settlement gain.

(5)		The nine months ended September 30, 2011 includes $9,022 for our share of expense, primarily for straight-line rent reserves and the write-off of tenant improvements in connection with a tenant's bankruptcy at the Warner Building.

6. Investments in Partially Owned Entities – continued

Below is a summary of the debt of our partially owned entities as of September 30, 2011 and December 31, 2010, none of which is recourse to us.

				Interest	100% of
				Rate at	Partially Owned Entities’ Debt at
(Amounts in thousands)				September 30,	September 30,		December 31,
			Maturity	2011	2011		2010
Toys (32.7% interest) (as of July 30, 2011 and October 30, 2010,
respectively):
	Senior unsecured notes (Face value – $950,000)		07/17	10.75%	$	929,773	$	928,045
	Senior unsecured notes (Face value – $725,000)		12/17	8.50%		716,325		715,577
	$700 million secured term loan facility		09/16	6.00%		685,595		689,757
	Senior U.K. real estate facility		04/13	5.02%		573,207		561,559
	$400 million secured term loan facility		05/18	5.25%		396,082		-
	7.875% senior notes (Face value – $400,000)		04/13	9.50%		390,135		386,167
	7.375% senior secured notes (Face value – $350,000)		09/16	7.38%		358,147		350,000
	7.375% senior notes (Face value – $400,000)		10/18	9.99%		347,238		343,528
	Japan bank loans		03/12-02/16	1.85%-2.85%		194,376		180,500
	Spanish real estate facility		02/13	4.51%		183,857		179,511
	$1.85 billion credit facility		08/15	2.91%		173,000		519,810
	Japan borrowings		06/12-06/13	0.98%		108,149		141,360
	Junior U.K. real estate facility		04/13	6.81%-7.84%		99,850		98,266
	French real estate facility		02/13	4.51%		88,696		86,599
	European and Australian asset-based revolving credit facility		03/16	2.89%		32,852		25,767
	8.750% debentures (Face value – $21,600)		09/21	9.17%		21,080		21,054
	7.625% bonds (Face value – $500,000)		n/a	n/a		-		495,943
	Other		Various	Various		170,806		156,853
					$	5,469,168	$	5,880,296

Alexander’s (32.4% interest):
	731 Lexington Avenue mortgage note payable, collateralized by
		the office space	02/14	5.33%	$	342,928	$	351,751
	731 Lexington Avenue mortgage note payable, collateralized by
		the retail space	07/15	4.93%		320,000		320,000
	Rego Park construction loan payable		12/11	1.42%		277,200		277,200
	Kings Plaza Regional Shopping Center mortgage note payable ⁽¹⁾		06/16	2.04%		250,000		151,214
	Rego Park mortgage note payable		03/12	0.75%		78,246		78,246
	Paramus mortgage note payable⁽²⁾		10/11	5.92%		68,000		68,000
					$	1,336,374	$	1,246,411

Lexington (11.7% interest) (as of June 30, 2011 and
September 30, 2010, respectively):
	Mortgage loans collateralized by Lexington’s real estate		2011-2037	5.80%	$	1,728,515	$	1,927,729

LNR (26.2% interest) (as of June 30, 2011 and
September 30, 2010):
	Mortgage notes payable		2011-2043	4.75%	$	331,411	$	508,547
	Liabilities of consolidated CMBS and CDO trusts		n/a	5.30%		138,541,030		142,001,333
					$	138,872,441	$	142,509,880


(1)		On June 10, 2011, Alexander's completed a $250,000 refinancing of this loan. The five-year interest only loan is at LIBOR plus 1.70%.
(2)		On October 5, 2011, this loan, which was scheduled to mature in October 2011, was refinanced for the same amount. The new seven-year interest only loan has a fixed rate of 2.90%.

6. Investments in Partially Owned Entities - continued

				Interest	100% of
				Rate at	Partially Owned Entities’ Debt at
(Amounts in thousands)				September 30,	September 30,		December 31,
			Maturity	2011	2011		2010
Partially owned office buildings:
	280 Park Avenue (49.5% interest) mortgage notes payable
		(Face value - $740,000 at 6.37%)	06/16	3.93%	$	818,564	$	n/a
	One Park Avenue (30.3% interest) mortgage note payable		03/16	5.00%		250,000		n/a
	Warner Building (55% interest) mortgage note payable		05/16	6.26%		292,700		292,700
	330 Madison Avenue (25% interest) mortgage note payable		06/15	1.77%		150,000		150,000
	Kaempfer Properties (2.5% and 5.0% interests in two partnerships)
		mortgage notes payable, collateralized by the partnerships’ real estate	11/11-12/11	5.86%		137,460		139,337
	Fairfax Square (20% interest) mortgage note payable		12/14	7.00%		71,176		71,764
	Rosslyn Plaza (46% interest) mortgage note payable		12/11	1.22%		56,680		56,680
	330 West 34th Street (34.8% interest) mortgage note payable,
		collateralized by land	07/22	5.71%		50,150		50,150
	West 57th Street (50% interest) mortgage note payable		02/14	4.94%		22,060		22,922
	825 Seventh Avenue (50% interest) mortgage note payable		10/14	8.07%		20,205		20,565

India Real Estate Ventures:
	TCG Urban Infrastructure Holdings (25% interest) mortgage notes
		payable, collateralized by the entity’s real estate	2011-2022	11.81%		238,957		196,319

Other:
	Verde Realty Operating Partnership (8.3% interest) mortgage notes
		payable, collateralized by the partnerships’ real estate	2013-2025	6.18%		353,346		581,086
	Green Courte Real Estate Partners, LLC (8.3% interest) (as of
		June 30, 2011 and September 30, 2010), mortgage notes
		payable, collateralized by the partnerships’ real estate	2011-2018	5.57%		294,292		296,991
	Monmouth Mall (50% interest) mortgage note payable		02/14-09/15	5.35%		171,755		164,474
	Wells/Kinzie Garage (50% interest) mortgage note payable		12/17	5.00%		14,856		15,022
	Orleans Hubbard Garage (50% interest) mortgage note payable		12/17	5.00%		9,403		9,508
	Waterfront Station (2.5% interest)		n/a	n/a		-		217,106
	Other		Various	4.61%		663,162		418,339

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $39,802,179,000 and $40,443,346,000 as of September 30, 2011 and December 31, 2010, respectively. Excluding our pro rata share of LNR's liabilities related to consolidated CMBS and CDO trusts which are non-recourse to LNR and its equity holders, including us, our pro rata share of partially owned entities debt is $3,540,451,000 and $3,275,917,000 at September 30, 2011 and December 31, 2010, respectively.

- Definition

The entire disclosure for equity investment, or group of investments, for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20 percent of the voting stock and the investment is accounted for using the equity method, and the reasons why it is.

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