Alexander’s

As of December 31, 2017, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, develop and lease Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of December 31, 2017 and 2016, Alexander’s owed us an aggregate of $2,490,000 and $1,070,000, respectively, pursuant to such agreements.

As of December 31, 2017 the market value (“fair value” pursuant to ASC Topic 820, Fair Value Measurements ("ASC 820")) of our investment in Alexander’s, based on Alexander’s December 31, 2017 closing share price of $395.85, was $654,763,000, or $528,363,000 in excess of the carrying amount on our consolidated balance sheet. As of December 31, 2017, 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 $39,367,000. 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.

On June 1, 2017, Alexander’s completed a $500,000,000 refinancing of the office portion of 731 Lexington Avenue. The interest-only loan is at LIBOR plus 0.90% (2.38% at December 31, 2017) and matures in June 2020 with four one-year extension options. In connection therewith, Alexander’s purchased an interest rate cap with a notional amount of $500,000,000 that caps LIBOR at a rate of 6.00%. The property was previously encumbered by a $300,000,000 interest-only mortgage at LIBOR plus 0.95% which was scheduled to mature in March 2021.

Management, Development, Leasing and Other Agreements

We receive an annual fee for managing Alexander’s and all of its properties equal to the sum of (i) $2,800,000, (ii) 2% of the gross revenue from the Rego Park II Shopping Center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue, and (iv) $306,000, escalating at 3% per annum, for managing the common area of 731 Lexington Avenue. In addition, we are entitled to a development fee of 6% of development costs, as defined.

We provide Alexander’s with leasing services for a fee of 3% of rent for the first ten years of a lease term, 2% of rent for the eleventh through twentieth year of a lease term and 1% of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by Alexander’s tenants. In the event third-party real estate brokers are used, our fee increases by 1% and we are responsible for the fees to the third-parties. We are also entitled to a commission upon the sale of any of Alexander’s assets equal to 3% of gross proceeds, as defined, for asset sales less than $50,000,000, and 1% of gross proceeds, as defined, for asset sales of $50,000,000 or more.

Building Maintenance Services (“BMS”), our wholly-owned subsidiary, supervises (i) cleaning, engineering and security services at Alexander’s 731 Lexington Avenue property and (ii) security services at Alexander’s Rego Park I, Rego Park II properties and The Alexander apartment tower. During the years ended December 31, 2017, 2016 and 2015, we recognized $2,678,000, $2,583,000 and $2,221,000 of income, respectively, for these services.


5.	Investments in Partially Owned Entities – continued

Urban Edge Properties (“UE”) (NYSE: UE)

As of December 31, 2017, we own 5,717,184 UE operating partnership units, representing a 4.5% ownership interest in UE. We account for our investment in UE under the equity method and record our share of UE’s net income or loss on a one-quarter lag basis. In 2017 and 2016, we provided UE with information technology support. UE is providing us with leasing and property management services for (i) certain small retail properties that we plan to sell, and (ii) our affiliate, Alexander’s, Rego Park retail assets. As of December 31, 2017, the fair value of our investment in UE, based on UE’s December 31, 2017 closing share price of $25.49, was $145,731,000, or $99,579,000 in excess of the carrying amount on our consolidated balance sheet.

In 2017, UE issued approximately 20,250,000 operating partnership units related to property acquisitions and public offerings of its common stock. As a result, our ownership interest in UE decreased to 4.5% from 5.4%. In accordance with ASC 323-10-40-1, we account for a unit issuance by an equity method investee as if we had sold a proportionate share of our investment. Accordingly, in 2017, we recorded $21,100,000 of net gains in connection with these issuances which are included in “income (loss) from partially owned entities” on our consolidated statements of income.

Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI)

As of December 31, 2017, we own 6,250,000 PREIT operating partnership units, representing an 8.0% interest in PREIT. We account for our investment in PREIT under the equity method and record our share of PREIT’s net income or loss on a one-quarter lag basis.

Based on PREIT's September 29, 2017 quarter ended closing share price of $10.49, the market value ("fair value" pursuant to ASC 820) of our investment in PREIT was $65,563,000 or $44,465,000 below our carrying amount as of September 30, 2017. We concluded that our investment in PREIT was "other-than-temporarily" impaired and recorded a $44,465,000 non-cash impairment loss on our consolidated statements of income. Our conclusion was based on a sustained trading value of PREIT stock below our carrying amount and our inability to forecast a recovery in the near-term.

As of December 31, 2017, the fair value of our investment in PREIT, based on PREIT’s December 31, 2017 closing share price of $11.89, was $74,313,000, or $7,741,000 in excess of the carrying amount on our consolidated balance sheet. As of December 31, 2017, the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $34,205,000. The majority of this basis difference resulted from the excess of the fair value of the PREIT operating units received over our share of the book value of PREIT’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of PREIT’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 PREIT’s net loss. The basis difference related to the land will be recognized upon disposition of our investment.

Moynihan Office Building

In September 2016, our 50.1% joint venture with the Related Companies (“Related”) was designated by Empire State Development (“ESD”), an entity of New York State, to redevelop the historic Farley Post Office building. The building will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space. On June 15, 2017, the joint venture closed a 99-year, triple-net lease with ESD for the commercial space at the Moynihan Office Building and made a $230,000,000 upfront contribution, of which our share is $115,230,000, towards the construction of the train hall. The lease calls for annual rent payments of $5,000,000 plus payments in lieu of real estate taxes. Simultaneously, the joint venture completed a $271,000,000 loan facility, of which $210,269,000 is outstanding at December 31, 2017. The interest-only loan is at LIBOR plus 3.25% (4.64% at December 31, 2017) and matures in June 2019 with two one-year extension options.

The joint venture has also entered into a development agreement with ESD and a design-build contract with Skanska Moynihan Train Hall Builders. Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture’s obligations. Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB.


5.	Investments in Partially Owned Entities – continued

Mezzanine Loan – New York

On May 9, 2017, a $150,000,000 mezzanine loan owned by a joint venture in which we had a 33.3% ownership interest was repaid at its maturity and we received our $50,000,000 share. The mezzanine loan earned interest at LIBOR plus 9.42%.

Sterling Suffolk Racecourse, LLC (“Suffolk Downs JV”)

On May 26, 2017, Suffolk Downs JV, a joint venture in which we have a 21.2% equity interest, sold the property comprising the Suffolk Downs racetrack in East Boston, Massachusetts (“Suffolk Downs”) for $155,000,000, which resulted in net proceeds and a net gain to us of $15,314,000. In addition, we were repaid $29,318,000 of principal and $6,129,000 of accrued interest on our debt investments in Suffolk Downs JV, resulting in a net gain of $11,373,000.

330 Madison Avenue

On July 19, 2017, the joint venture, in which we have a 25.0% interest, completed a $500,000,000 refinancing of 330 Madison Avenue, an 845,000 square foot Manhattan office building. The seven-year interest-only loan matures in August 2024 and has a fixed rate of 3.43%. Our share of net proceeds, after repayment of the existing $150,000,000 LIBOR plus 1.30% mortgage and closing costs, was approximately $85,000,000.

280 Park Avenue

On August 23, 2017, the joint venture, in which we have a 50.0% interest, completed a $1.2 billion refinancing of 280 Park Avenue, a 1,250,000 square foot Manhattan office building. The loan is interest-only at LIBOR plus 1.73% (3.16% at December 31, 2017) and matures in September 2019 with five one-year extension options. Our share of net proceeds, after repayment of the existing $900,000,000 LIBOR plus 2.00% mortgage and closing costs, was approximately $140,000,000.

Toys "R" Us, Inc. ("Toys")

We own 32.5% of Toys. On September 18, 2017, Toys filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. We carry our Toys investment at zero. Further, we do not hold any debt of Toys and do not guarantee any of Toys’ obligations. For income tax purposes, we carry our investment in Toys at approximately $420,000,000 which could result in a tax deduction in future periods.

50 West 57th Street

On December 13, 2017, the joint venture, in which we have a 50.0% interest, completed a $20,000,000 refinancing of 50 West 57th Street, an 81,000 square foot Manhattan office building. The loan is interest-only at LIBOR plus 1.60% (3.06% at December 31, 2017) and matures in December 2022. The new loan replaced the existing $20,000,000 mortgage which had a fixed rate of 3.50%.

India Real Estate Ventures

During 2017, India Property Fund, in which we had a 36.5% interest, sold its investments. Our share of the aggregate sales price was approximately $23,895,000 which resulted in a financial statement loss of $533,000. In addition, on December 28, 2017, we sold our 25% interest in TCG Urban Infrastructure Holdings Private Limited for $18,742,000 which resulted in a financial statement gain of $1,885,000, which substantially completes the disposition of our investments in India.


5.	Investments in Partially Owned Entities – continued

Below is a schedule summarizing our investments in partially owned entities.



(Amounts in thousands)	Percentage Ownership at December 31, 2017	As of December 31,
	Percentage Ownership at December 31, 2017	2017			2016
Investments:
Partially owned office buildings/land⁽¹⁾	Various	$	504,393		$	681,265
Alexander’s	32.4%	126,400			129,324
PREIT	8.0%	66,572			122,883
UE	4.5%	46,152			24,523
Other investments⁽²⁾	Various	313,312			420,259
		$	1,056,829		$	1,378,254

330 Madison Avenue⁽³⁾	25.0%	$	(53,999	)	$	—
7 West 34th Street⁽⁴⁾	53.0%	(47,369		)	(43,022		)
		$	(101,368	)	$	(43,022	)

________________________________________


(1)	Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 330 Madison Avenue (in 2016 only - see (3) below), 512 West 22nd Street, 85 Tenth Avenue, 61 Ninth Avenue and others.


(2)	Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, Moynihan Office Building, Toys (which has a carrying amount of zero), 666 Fifth Avenue Office Condominium and others.


(3)	Our negative basis resulted from a refinancing distribution and is included in "other liabilities" on our consolidated balance sheets (in 2017 only).


(4)	Our negative basis results from a deferred gain from the sale of a 47.0% ownership interest in the property on May 27, 2016 and is included in "other liabilities" on our consolidated balance sheets.


5.	Investments in Partially Owned Entities – continued

Below is a schedule of net income (loss) from partially owned entities.



(Amounts in thousands)	Percentage Ownership at December 31, 2017	As of December 31,
	Percentage Ownership at December 31, 2017	2017			2016			2015
Our Share of Net Income (Loss):
PREIT (see page 126 for details):
Non-cash impairment loss	8.0%	$	(44,465	)	$	—		$	—
Equity in net loss		(8,860		)	(5,213		)	(7,450		)
		(53,325		)	(5,213		)	(7,450		)

Alexander's (see page 125 for details):
Equity in net income	32.4%	25,820			27,470			24,209
Management, leasing and development fees		6,033			6,770			6,869
		31,853			34,240			31,078

UE (see page 126 for details):
Net gain resulting from UE operating partnership unit issuances	4.5%	21,100			—			—
Equity in net income		5,558			5,003			2,430
Management fees		670			836			1,964
		27,328			5,839			4,394

Partially owned office buildings⁽¹⁾	Various	2,020			5,773			19,808

Other investments⁽²⁾	Various	7,324			128,309			(57,777		)

		$	15,200		$	168,948		$	(9,947	)

____________________


(1)	Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street (in 2017 and 2016 only), 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue (in 2017 only) and others. In 2015, we recognized our $12,800 share of a write-off of a below-market lease liability related to a tenant vacating at 650 Madison Avenue.

(2)

Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 85 Tenth Avenue (in 2016 and 2015 only), 666 Fifth Avenue Office Condominium, India real estate ventures and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 representing our share of a net gain on the sale of Suffolk Downs and $11,373 representing the net gain on repayment of our debt investments in Suffolk Downs JV (see page 127 for details). In 2017, 2016 and 2015, we recognized net losses of $25,414, $41,532 and $37,495, respectively, from our 666 Fifth Avenue Office Condominium joint venture as a result of our share of depreciation expense. In 2016, the owner of 85 Tenth Avenue completed a 10-year, 4.55% $625,000 refinancing of the property and we received net proceeds of $191,779 in repayment of our existing loans and preferred equity investments. We recognized $160,843 of income and no tax gain as a result of this transaction. In 2016 and 2015, we recognized $13,962 and $14,806, respectively, of non-cash impairment losses related to India real estate ventures.


5.	Investments in Partially Owned Entities – continued

Below is a summary of the debt of our partially owned entities as of December 31, 2017 and 2016.



(Amounts in thousands)	Percentage Ownership at December 31, 2017	Maturity	Interest Rate at December 31, 2017	100% Partially Owned Entities’ Debt at December 31, ⁽¹⁾
	Percentage Ownership at December 31, 2017	Maturity	Interest Rate at December 31, 2017	2017	2016
Partially owned office buildings⁽²⁾:
Mortgages payable	Various	2019-2026	3.76%	3,934,894	3,227,053

PREIT:
Mortgages payable	8.0%	2018-2025	3.61%	1,586,045	1,747,543

UE:
Mortgages payable	4.5%	2018-2034	4.11%	1,415,806	1,209,994

Alexander's:
Mortgages payable	32.4%	2018-2024	2.61%	1,252,440	1,056,147

Other⁽³⁾:
Mortgages payable and other	Various	2018-2023	7.73%	8,601,383	8,540,710

________________________________________


(1)	All amounts are non-recourse to us except the $300,000 mortgage loan on 7 West 34th Street which we guaranteed in connection with the sale of a 47.0% equity interest in May 2016.


(2)	Includes 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue and others.


(3)	Includes Independence Plaza, Fashion Centre Mall/Washington Tower, 50-70 West 93rd Street, Toys, 666 Fifth Avenue Office Condominium, Moynihan Office Building and others.

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $5,288,276,000 and $4,895,497,000 as of December 31, 2017 and 2016, respectively.

Summary of Condensed Combined Financial Information

The following is a summary of condensed combined financial information for all of our partially owned entities, including Toys and Alexander’s, as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015.



(Amounts in thousands)	Balance as of December 31,
	2017		2016
Balance Sheet:
Assets	$	24,812,000	$	24,926,000
Liabilities	22,739,000		21,357,000
Noncontrolling interests	140,000		265,000
Equity	1,933,000		3,304,000



(Amounts in thousands)	For the Year Ended December 31,
	2017			2016			2015
Income Statement:
Total revenue	$	12,991,000		$	13,600,000		$	13,423,000
Net loss	(542,000		)	(65,000		)	(224,000		)