Investments in Partially Owned Entities

Alexander’s

As of December 31, 2018, 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, 2018 and 2017, Alexander’s owed us an aggregate of $708,000 and $2,490,000, respectively, pursuant to such agreements.

As of December 31, 2018 the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s December 31, 2018 closing share price of $304.74, was $504,061,000, or $396,078,000 in excess of the carrying amount on our consolidated balance sheet. As of December 31, 2018, 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 $39,046,000. 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.

Alexander's paid $3,971,000 of Transfer Tax upon the November 2012 sale of its Kings Plaza Regional Shopping Center located in Brooklyn, New York. Alexander's accrued $23,797,000 of potential additional Transfer Tax and related interest based on the precedent established by the Tax Tribunal's decision regarding One Park Avenue (see Note 5 - Real Estate Fund Investments for details) during the first quarter of 2018 which was subsequently paid on April 5, 2018 in order to preserve Alexander's rights to continue litigation and stop accrual of interest, of which our 32.4% share is $7,708,000 and is included in “income from partially owned entities” on our consolidated statements of income for the year ended December 31, 2018.

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) $315,000, 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, 2018, 2017 and 2016, we recognized $2,705,000, $2,678,000 and $2,583,000 of income, respectively, for these services.


7.	Investments in Partially Owned Entities – continued

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

As of December 31, 2018, 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 2018, 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, (ii) our affiliate, Alexander’s, Rego Park retail assets and (iii) Interstate Properties ("Interstate") retail assets. As of December 31, 2018, the fair value of our investment in UE, based on UE’s December 31, 2018 closing share price of $16.62, was $95,020,000, or $49,676,000 in excess of the carrying amount on our consolidated balance sheet.

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

As of December 31, 2018, we own 6,250,000 PREIT operating partnership units, representing a 7.9% 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.

As of December 31, 2018, the fair value of our investment in PREIT, based on PREIT’s December 31, 2018 closing share price of $5.94, was $37,125,000, or $22,366,000 below the carrying amount on our consolidated balance sheet. As of December 31, 2018, the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $35,744,000. 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.

Independence Plaza

We have a 50.1% economic interest in a joint venture that owns Independence Plaza, a three-building 1,327 unit residential complex in the Tribeca submarket of Manhattan. The joint venture paid $1,730,000 of Transfer Tax upon its acquisition of the property in December 2012. The joint venture accrued $13,103,000 of potential additional Transfer Tax and related interest based on the precedent established by the Tax Tribunal's decision regarding One Park Avenue (see Note 5 - Real Estate Fund Investments for details) during the first quarter of 2018, which was subsequently paid on April 5, 2018, in order to preserve the joint venture's rights to continue litigation and stop accrual of interest. Because we consolidate the entity that incurred the potential additional Transfer Tax, $13,103,000 of expense is included in “transaction related costs, impairment loss and other” and $6,538,000 is allocated to “noncontrolling interests in consolidated subsidiaries” on our consolidated statements of income.

On June 11, 2018, the joint venture completed a $675,000,000 refinancing of Independence Plaza. The seven-year interest-only loan matures in July 2025 and has a fixed rate of 4.25%. Our share of net proceeds, after repayment of the existing 3.48% $550,000,000 mortgage and closing costs, was $55,618,000.

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

On September 18, 2017, Toys filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. In the second quarter of 2018, Toys ceased U.S. operations. On February 1, 2019, the plan of reorganization for Toys "R" Us, Inc., in which we owned a 32.5% interest, was declared effective, and our stock in Toys was canceled. At December 31, 2018 and 2017, we carried our Toys investment at zero. The canceling of our stock in Toys will result in approximately a $420,000,000 capital loss deduction for tax purposes in 2019 (which if not offset by capital gains will result in a capital loss carry over available for five years).


7.	Investments in Partially Owned Entities – continued

666 Fifth Avenue Office Condominium

On August 3, 2018, we completed the sale of our 49.5% interests in the 666 Fifth Avenue Office Condominium. We received net proceeds of $120,000,000 and recognized a financial statement gain of $134,032,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. The gain for tax purposes was approximately $254,000,000. We continue to own all of the 666 Fifth Avenue Retail Condominium encompassing the Uniqlo, Tissot and Hollister stores with 125 linear feet of frontage on Fifth Avenue between 52nd and 53rd Street.

Concurrently with the sale of our interests, the existing mortgage loan on the property was repaid and we received net proceeds of $55,244,000 for the participation we held in the mortgage loan. We recognized a financial statement gain of $7,308,000, which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.

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



(Amounts in thousands)	Percentage Ownership at December 31, 2018	As of December 31,
	Percentage Ownership at December 31, 2018	2018			2017
Investments:
Partially owned office buildings/land⁽¹⁾	Various	$	499,005		$	504,393
Alexander’s	32.4%	107,983			126,400
PREIT	7.9%	59,491			66,572
UE	4.5%	45,344			46,152
Other investments⁽²⁾	Various	146,290			313,312
		$	858,113		$	1,056,829

330 Madison Avenue⁽³⁾	25.0%	$	(58,117	)	$	(53,999	)
7 West 34th Street⁽⁴⁾	53.0%	(51,579		)	(47,369		)
		$	(109,696	)	$	(101,368	)

________________________________________


(1)	Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 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, Farley Office and Retail Building (in 2017 only) and others. On October 30, 2018, we increased our ownership interest in the joint venture which owns the Farley Office and Retail Building to 95.0% when we acquired a 44.9% additional ownership interest. Accordingly, beginning October 30, 2018 we consolidated the accounts of the joint venture (see page 124 for details).


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


(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.


7.	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, 2018	As of December 31,
	Percentage Ownership at December 31, 2018	2018			2017			2016
Our share of net income (loss):
Alexander's (see page 127 for details):
Equity in net income⁽¹⁾	32.4%	$	10,485		$	25,820		$	27,470
Management, leasing and development fees		4,560			6,033			6,770
		15,045			31,853			34,240

UE (see page 128 for details):
Equity in net income⁽²⁾	4.5%	4,227			26,658			5,003
Management fees		233			670			836
		4,460			27,328			5,839

Partially owned office buildings⁽³⁾	Various	(3,085		)	2,109			5,773

PREIT (see page 128 for details)⁽⁴⁾	7.9%	(3,015		)	(53,325		)	(5,213		)

Other investments⁽⁵⁾	Various	(4,256		)	7,235			128,309

		$	9,149		$	15,200		$	168,948

____________________

(1)

2018 includes (i) our $7,708 share of Alexander's potential additional Transfer Tax, (ii) our $3,882 share of expense related to the decrease in fair value of marketable securities held by Alexander’s, (iii) our $1,085 share of a non-cash straight-line rent write-off adjustment related to Sears Roebuck and Co. which filed for Chapter 11 bankruptcy relief and (iv) our $518 share of Alexander’s litigation expense due to a settlement.


(2)	2017 includes $21,100 of net gains resulting from UE operating partnership unit issuances.


(3)	Includes interests in 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. 2018 includes our $4,978 share of potential additional Transfer Tax related to the March 2011 acquisition of One Park Avenue (see Note 5 - Real Estate Fund Investments).


(4)	2017 includes a $44,465 non-cash impairment loss.

(5)

Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 666 Fifth Avenue Office Condominium (sold on August 3, 2018) and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 for our share of a net gain on the sale of Suffolk Downs and $11,373 for the net gain on repayment of our debt investments in Suffolk Downs JV. In 2018, 2017 and 2016, we recognized net losses of $4,873, $25,414, and $41,532, 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.


7.	Investments in Partially Owned Entities – continued

Below is a summary of the debt of our partially owned entities as of December 31, 2018 and 2017.



(Amounts in thousands)	Percentage Ownership at December 31, 2018	Maturity	Interest Rate at December 31, 2018	100% Partially Owned Entities’ Debt at December 31,⁽¹⁾
	Percentage Ownership at December 31, 2018	Maturity	Interest Rate at December 31, 2018	2018		2017
Partially owned office buildings⁽²⁾:
Mortgages payable	Various	2019-2026	4.18%	$	3,985,855	$	3,934,894

PREIT:
Mortgages payable	7.9%	2020-2025	3.81%	1,642,408		1,586,045

UE:
Mortgages payable	4.5%	2021-2034	4.09%	1,563,375		1,415,806

Alexander's:
Mortgages payable	32.4%	2021-2025	3.67%	1,170,544		1,252,440

Other⁽³⁾:
Mortgages payable and other	Various	2019-2025	4.57%	1,358,706		8,601,383

________________________________________


(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, Rosslyn Plaza, Fashion Centre Mall/Washington Tower, 50-70 West 93rd Street, Toys, 666 Fifth Avenue Office Condominium (sold on August 3, 2018), Farley Office and Retail Building (in 2017 only) and others. On October 30, 2018, we increased our ownership interest in the joint venture which owns the Farley Office and Retail Building to 95.0% when we acquired a 44.9% additional ownership interest. Accordingly, beginning October 30, 2018 we consolidated the accounts of the joint venture (see page 124 for details).

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $2,682,865,000 and $5,288,276,000 as of December 31, 2018 and 2017, 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 Alexander’s, as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016.



(Amounts in thousands)	Balance as of December 31,
	2018		2017
Balance Sheet:
Assets	$	13,258,000	$	24,812,000
Liabilities	10,456,000		22,739,000
Noncontrolling interests	139,000		140,000
Equity	2,663,000		1,933,000



(Amounts in thousands)	For the Year Ended December 31,
	2018		2017			2016
Income Statement:
Total revenue	$	1,798,000	$	12,991,000		$	13,600,000
Net loss	52,000		(542,000		)	(65,000		)