UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended:

September 30, 2016

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

For the transition period from:

Commission File Number:

001-34482

VORNADO REALTY L.P.

(Exact name of registrant as specified in its charter)

Delaware		13-3925979
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

888 Seventh Avenue, New York, New York		10019
(Address of principal executive offices)		(Zip Code)

(212) 894-7000

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

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


PART I.		Financial Information:	Page Number

	Item 1.	Financial Statements:

		Consolidated Balance Sheets (Unaudited) as of
		September 30, 2016 and December 31, 2015	3

		Consolidated Statements of Income (Unaudited) for the
		Three and Nine Months Ended September 30, 2016 and 2015	4

		Consolidated Statements of Comprehensive Income (Unaudited)
		for the Three and Nine Months Ended September 30, 2016 and 2015	5

		Consolidated Statements of Changes in Equity (Unaudited) for the
		Nine Months Ended September 30, 2016 and 2015	6

		Consolidated Statements of Cash Flows (Unaudited) for the
		Nine Months Ended September 30, 2016 and 2015	8

		Notes to Consolidated Financial Statements (Unaudited)	10

		Report of Independent Registered Public Accounting Firm	34

	Item 2.	Management's Discussion and Analysis of Financial Condition
		and Results of Operations	35

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	74

	Item 4.	Controls and Procedures	74


PART II.		Other Information:

	Item 1.	Legal Proceedings	75

	Item 1A.	Risk Factors	75

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75

	Item 3.	Defaults Upon Senior Securities	75

	Item 4.	Mine Safety Disclosures	75

	Item 5.	Other Information	75

	Item 6.	Exhibits	75

SIGNATURES			76

EXHIBIT INDEX			77

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VORNADO REALTY L.P.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(Amounts in thousands, except unit amounts)			September 30, 2016		December 31, 2015
ASSETS
Real estate, at cost:
	Land		$	4,129,497	$	4,164,799
	Buildings and improvements			12,654,086		12,582,671
	Development costs and construction in progress			1,369,953		1,226,637
	Leasehold improvements and equipment			114,026		116,030
		Total		18,267,562		18,090,137
	Less accumulated depreciation and amortization			(3,430,832)		(3,418,267)
Real estate, net				14,836,730		14,671,870
Cash and cash equivalents				1,352,697		1,835,707
Restricted cash				111,941		107,799
Marketable securities				198,165		150,997
Tenant and other receivables, net of allowance for doubtful accounts of $11,171 and $11,908				94,057		98,062
Investments in partially owned entities				1,497,925		1,550,422
Real estate fund investments				519,386		574,761
Receivable arising from the straight-lining of rents, net of allowance of $2,414 and $2,751				1,027,319		931,245
Deferred leasing costs, net of accumulated amortization of $234,330 and $218,239				462,179		480,421
Identified intangible assets, net of accumulated amortization of $201,164 and $187,360				201,450		227,901
Assets related to discontinued operations				5,546		37,020
Other assets				551,974		477,088
			$	20,859,369	$	21,143,293

LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY
Mortgages payable, net			$	9,867,550	$	9,513,713
Senior unsecured notes, net				845,223		844,159
Unsecured revolving credit facilities				115,630		550,000
Unsecured term loan, net				371,835		183,138
Accounts payable and accrued expenses				461,234		443,955
Deferred revenue				301,017		346,119
Deferred compensation plan				118,359		117,475
Liabilities related to discontinued operations				3,284		12,470
Other liabilities				457,928		426,965
	Total liabilities			12,542,060		12,437,994
Commitments and contingencies				-		-
Redeemable partnership units:
	Class A units - 12,280,354 and 12,242,820 units outstanding			1,242,895		1,223,793
	Series D cumulative redeemable preferred units - 177,101 units outstanding			5,428		5,428
		Total redeemable partnership units		1,248,323		1,229,221
Equity:
	Partners' capital			8,184,868		8,417,454
	Earnings less than distributions			(1,951,411)		(1,766,780)
	Accumulated other comprehensive income			82,374		46,921
		Total Vornado Realty L.P. equity		6,315,831		6,697,595
Noncontrolling interests in consolidated subsidiaries				753,155		778,483
	Total equity			7,068,986		7,476,078
			$	20,859,369	$	21,143,293

See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(Amounts in thousands, except per unit amounts)		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,
		2016		2015		2016		2015
REVENUES:
	Property rentals	$	523,998	$	526,337	$	1,570,668	$	1,541,454
	Tenant expense reimbursements		71,425		67,098		191,841		196,234
	Fee and other income		37,774		34,161		105,433		112,998
Total revenues			633,197		627,596		1,867,942		1,850,686
EXPENSES:
	Operating		260,826		256,561		762,313		753,744
	Depreciation and amortization		138,968		141,920		423,238		402,999
	General and administrative		40,442		36,157		134,710		133,838
	Impairment loss and acquisition and transaction related costs		3,808		1,518		171,994		7,560
Total expenses			444,044		436,156		1,492,255		1,298,141
Operating income			189,153		191,440		375,687		552,545
Income (loss) from partially owned entities			4,127		(325)		529		(8,709)
Income from real estate fund investments			1,077		1,665		28,750		52,122
Interest and other investment income, net			6,508		3,160		20,262		19,618
Interest and debt expense			(98,365)		(95,344)		(304,430)		(279,110)
Net gain on disposition of wholly owned
	and partially owned assets		-		103,037		160,225		104,897
Income before income taxes			102,500		203,633		281,023		441,363
Income tax (expense) benefit			(4,865)		(2,856)		(9,805)		84,245
Income from continuing operations			97,635		200,777		271,218		525,608
Income from discontinued operations			2,969		34,463		6,160		50,278
Net income			100,604		235,240		277,378		575,886
Less net income attributable to noncontrolling interests in
	consolidated subsidiaries		(3,658)		(3,302)		(26,361)		(38,370)
Net income attributable to Vornado Realty L.P.			96,946		231,938		251,017		537,516
Preferred unit distributions			(19,096)		(20,412)		(59,920)		(60,322)
Preferred unit issuance costs (Series J redemption)			(7,408)		-		(7,408)		-
NET INCOME attributable to Class A unitholders		$	70,442	$	211,526	$	183,689	$	477,194


INCOME PER CLASS A UNIT - BASIC:
	Income from continuing operations, net	$	0.33	$	0.88	$	0.88	$	2.13
	Income from discontinued operations, net		0.02		0.17		0.03		0.25
	Net income per Class A unit	$	0.35	$	1.05	$	0.91	$	2.38
	Weighted average units outstanding		200,458		199,609		200,300		199,111

INCOME PER CLASS A UNIT - DILUTED:
	Income from continuing operations, net	$	0.33	$	0.88	$	0.87	$	2.11
	Income from discontinued operations, net		0.02		0.17		0.03		0.25
	Net income per Class A unit	$	0.35	$	1.05	$	0.90	$	2.36
	Weighted average units outstanding		202,141		201,273		201,932		200,980

DISTRIBUTIONS PER CLASS A UNIT		$	0.63	$	0.63	$	1.89	$	1.89


See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)


(Amounts in thousands)			For the Three Months Ended				For the Nine Months Ended
			September 30,				September 30,
			2016		2015		2016		2015
Net income			$	100,604	$	235,240	$	277,378	$	575,886
Other comprehensive income (loss):
	Increase (reduction) in unrealized net gain on
		available-for-sale securities		3,685		(7,064)		42,798		(53,396)
	Pro rata share of other comprehensive loss of
		nonconsolidated subsidiaries		(915)		(114)		(1,537)		(1,148)
	Increase (reduction) in value of interest rate swaps and other			7,689		(289)		(3,482)		1,788
Comprehensive income				111,063		227,773		315,157		523,130
Less comprehensive income attributable to noncontrolling interests
	in consolidated subsidiaries			(3,658)		(3,302)		(26,361)		(38,370)
Comprehensive income attributable to Vornado Realty L.P.			$	107,405	$	224,471	$	288,796	$	484,760


See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)


(Amounts in thousands)															Non-
													Accumulated		controlling
							Class A Units				Earnings		Other		Interests in
			Preferred Units				Owned by Vornado				Less Than		Comprehensive		Consolidated		Total
			Units		Amount		Units		Amount		Distributions		Income		Subsidiaries		Equity
Balance, December 31, 2015				52,677	$	1,276,954		188,577	$	7,140,500	$	(1,766,780)	$	46,921	$	778,483	$	7,476,078
Net income attributable to Vornado Realty L.P.				-		-		-		-		251,017		-		-		251,017
Net income attributable to redeemable
	partnership units			-		-		-		-		(11,410)		-				(11,410)
Net income attributable to noncontrolling
	interests in consolidated subsidiaries			-		-		-		-		-		-		26,361		26,361
Distributions to Vornado				-		-		-		-		(356,863)		-		-		(356,863)
Distributions to preferred unitholders				-		-		-		-		(59,774)		-		-		(59,774)
Redemption of Series J
	preferred units			(9,850)		(238,842)		-		-		(7,408)		-		-		(246,250)
Class A Units issued to Vornado:
	Upon redemption of redeemable Class A
		units, at redemption value		-		-		293		28,126		-		-		-		28,126
	Under Vornado's employees' share option plan			-		-		106		5,940		-		-		-		5,940
	Under Vornado's dividend reinvestment plan			-		-		12		1,080		-		-		-		1,080
Contributions:
	Other			-		-		-		-		-		-		19,699		19,699
Distributions:
	Real estate fund investments			-		-		-		-		-		-		(59,843)		(59,843)
	Other			-		-		-		-		-		-		(11,631)		(11,631)
Deferred compensation units and options				-		-		7		1,371		(186)		-		-		1,185
Increase in unrealized net gain on
	available-for-sale securities			-		-		-		-		-		42,798		-		42,798
Pro rata share of other comprehensive loss
	of nonconsolidated subsidiaries			-		-		-		-		-		(1,537)		-		(1,537)
Reduction in value of interest rate swaps				-		-		-		-		-		(3,482)		-		(3,482)
Adjustments to carry redeemable Class A
	units at redemption value			-		-		-		(30,260)		-		-		-		(30,260)
Redeemable partnership units' share of the above
	adjustments			-		-		-		-		-		(2,326)		-		(2,326)
Other				-		(1)		(1)		-		(7)		-		86		78
Balance, September 30, 2016				42,827	$	1,038,111		188,994	$	7,146,757	$	(1,951,411)	$	82,374	$	753,155	$	7,068,986


See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
(UNAUDITED)


(Amounts in thousands)															Non-
													Accumulated		controlling
							Class A Units				Earnings		Other		Interests in
			Preferred Units				Owned by Vornado				Less Than		Comprehensive		Consolidated		Total
			Units		Amount		Units		Amount		Distributions		Income		Subsidiaries		Equity
Balance, December 31, 2014				52,679	$	1,277,026		187,887	$	6,880,518	$	(1,505,385)	$	93,267	$	743,956	$	7,489,382
Net income attributable to Vornado Realty L.P.				-		-		-		-		537,516		-		-		537,516
Net income attributable to redeemable
	partnership units			-		-		-		-		(28,189)		-		-		(28,189)
Net income attributable to noncontrolling
	interests in consolidated subsidiaries			-		-		-		-		-		-		38,370		38,370
Distribution of Urban Edge Properties				-		-		-		-		(464,262)		-		(341)		(464,603)
Distributions to Vornado				-		-		-		-		(355,945)		-		-		(355,945)
Distributions to preferred unitholders				-		-		-		-		(60,213)		-		-		(60,213)
Class A Units issued to Vornado:
	Upon redemption of redeemable Class A
		units, at redemption value		-		-		437		46,693		-		-		-		46,693
	Under Vornado's employees' share option plan			-		-		198		14,205		(2,579)		-		-		11,626
	Under Vornado's dividend reinvestment plan			-		-		11		1,068		-		-		-		1,068
Contributions:
	Real estate fund investments			-		-		-		-		-		-		51,725		51,725
Distributions:
	Real estate fund investments			-		-		-		-		-		-		(70,875)		(70,875)
	Other			-		-		-		-		-		-		(397)		(397)
Conversion of Series A preferred units
	to Class A units			(1)		(41)		2		41		-		-		-		-
Deferred compensation units
	and options			-		-		6		2,047		(359)		-		-		1,688
Reduction in unrealized net gain
	on available-for-sale securities			-		-		-		-		-		(53,396)		-		(53,396)
Pro rata share of other comprehensive loss
	of nonconsolidated subsidiaries			-		-		-		-		-		(1,148)		-		(1,148)
Increase in value of interest rate swap				-		-		-		-		-		1,783		-		1,783
Adjustments to carry redeemable Class A
	units at redemption value			-		-		-		295,713		-		-		-		295,713
Redeemable noncontrolling interests' share of
	the above adjustments			-		-		-		-		-		3,082		-		3,082
Other				-		-		-		-		700		5		(84)		621
Balance, September 30, 2015				52,678	$	1,276,985		188,541	$	7,240,285	$	(1,878,716)	$	43,593	$	762,354	$	7,444,501


See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(Amounts in thousands)			For the Nine Months Ended September 30,
			2016		2015
Cash Flows from Operating Activities:
Net income			$	277,378	$	575,886
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization (including amortization of deferred financing costs)			446,040		420,494
	Real estate impairment losses			161,165		256
	Net gain on disposition of wholly owned and partially owned assets			(160,225)		(104,897)
	Straight-lining of rental income			(118,798)		(108,529)
	Return of capital from real estate fund investments			71,888		91,036
	Distributions of income from partially owned entities			58,692		51,650
	Amortization of below-market leases, net			(41,676)		(45,918)
	Other non-cash adjustments			33,971		35,190
	Net realized and unrealized gains on real estate fund investments			(16,513)		(38,781)
	Net gains on sale of real estate and other			(5,074)		(65,396)
	Equity in net (income) loss of partially owned entities			(529)		7,961
	Reversal of allowance for deferred tax assets			-		(90,030)
	Changes in operating assets and liabilities:
		Real estate fund investments		-		(95,010)
		Tenant and other receivables, net		(578)		1,892
		Prepaid assets		(71,068)		(77,899)
		Other assets		(50,938)		(92,413)
		Accounts payable and accrued expenses		6,530		(5,799)
		Other liabilities		(16,018)		(16,168)
Net cash provided by operating activities				574,247		443,525

Cash Flows from Investing Activities:
	Development costs and construction in progress			(426,641)		(339,586)
	Additions to real estate			(261,971)		(207,845)
	Proceeds from sales of real estate and related investments			138,034		375,850
	Investments in partially owned entities			(112,797)		(144,890)
	Distributions of capital from partially owned entities			100,997		31,822
	Acquisitions of real estate and other			(46,801)		(388,565)
	Net deconsolidation of 7 West 34th Street			(42,000)		-
	Restricted cash			(24,796)		201,895
	Investments in loans receivable and other			(11,700)		(25,845)
	Purchases of marketable securities			(4,379)		-
	Proceeds from sales and repayments of mortgage and mezzanine loans receivable and other			33		16,781
Net cash used in investing activities				(692,021)		(480,383)

See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)

(Amounts in thousands)				For the Nine Months Ended September 30,
				2016		2015
Cash Flows from Financing Activities:
	Proceeds from borrowings			$	2,000,604	$	2,876,460
	Repayments of borrowings				(1,591,554)		(2,539,677)
	Distributions to Vornado				(356,863)		(355,945)
	Redemption of preferred units				(246,250)		-
	Distributions to redeemable security holders and noncontrolling interests
		in consolidated subsidiaries			(95,055)		(93,738)
	Distributions to preferred unitholders				(64,006)		(60,213)
	Debt issuance and other costs				(30,846)		(37,467)
	Contributions from noncontrolling interests in consolidated subsidiaries				11,900		51,725
	Proceeds received from exercise of Vornado stock options				7,020		15,273
	Repurchase of Class A units related to equity compensation agreements and related
		tax withholdings and other			(186)		(4,900)
	Cash included in the spin-off of Urban Edge Properties				-		(225,000)
Net cash used in financing activities					(365,236)		(373,482)
Net decrease in cash and cash equivalents					(483,010)		(410,340)
Cash and cash equivalents at beginning of period					1,835,707		1,198,477
Cash and cash equivalents at end of period				$	1,352,697	$	788,137


Supplemental Disclosure of Cash Flow Information:
	Cash payments for interest, excluding capitalized interest of $21,297 and $40,924			$	275,979	$	256,254
	Cash payments for income taxes			$	7,602	$	7,640


Non-Cash Investing and Financing Activities:
	Write-off of fully depreciated assets			$	(283,496)	$	(127,788)
	Accrued capital expenditures included in accounts payable and accrued expenses				129,704		95,535
	Change in unrealized net gain on securities available-for-sale				42,798		(53,396)
	Adjustments to carry redeemable Class A units at redemption value				(30,260)		295,713
	Decrease in assets and liabilities resulting from the deconsolidation of investments
		that were previously consolidated
			Real estate, net		(122,047)		-
			Mortgages payable, net		(290,418)		-
	Non-cash distribution of Urban Edge Properties:
			Assets		-		1,722,263
			Liabilities		-		(1,482,660)
			Equity		-		(239,603)
	Transfer of interest in real estate to Pennsylvania Real Estate Investment Trust				-		(145,313)
	Class A units in connection with acquisition				-		80,000
	Financing assumed in acquisitions				-		62,000
	Like-kind exchange of real estate:
			Acquisitions		46,698		80,269
			Dispositions		(29,639)		(213,621)


See notes to consolidated financial statements (unaudited).

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization

Vornado Realty L.P. (the “Operating Partnership” and/or the “Company”) is a Delaware limited partnership. Vornado Realty Trust (“Vornado”) is the sole general partner of, and owned approximately 93.7% of the common limited partnership interest in, the Operating Partnership at September 30, 2016. All references to “we,” “us,” “our,” the “Company” and “Operating Partnership” refer to Vornado Realty L.P. and its consolidated subsidiaries.

2. Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado Realty L.P. and its consolidated subsidiaries. All inter-company amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2015, as filed with the SEC.

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the operating results for the full year.

3. Recently Issued Accounting Literature

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update ("ASU 2014-09") establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. In August 2015, the FASB issued an update (“ASU 2015-14”) to ASC 606, Deferral of the Effective Date, which defers the adoption of ASU 2014-09 to interim and annual reporting periods in fiscal years that begin after December 15, 2017. In March 2016, the FASB issued an update (“ASU 2016-08”) to ASC 606, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard pursuant to ASU 2014-09. In April 2016, the FASB issued an update (“ASU 2016-10”) to ASC 606, Identifying Performance Obligations and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in ASU 2014-09. In May 2016, the FASB issued an update (“ASU 2016-12”) to ASC 606, Narrow-Scope Improvements and Practical Expedients, which amends certain aspects of the new revenue recognition standard pursuant to ASU 2014-09. We are currently evaluating the impact of the adoption of these ASUs on our consolidated financial statements.

In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has ended, as a performance condition that affects vesting. ASU 2014-12 is effective for interim and annual reporting periods in fiscal years that began after December 15, 2015. The adoption of this update as of January 1, 2016, did not have any impact on our consolidated financial statements.

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

3. Recently Issued Accounting Literature - continued

In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810, Consolidation. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The adoption of this update on January 1, 2016 resulted in the identification of additional VIEs, but did not have an impact on our consolidated financial statements other than additional disclosures (see Note 14 - Variable Interest Entities).

In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial Liabilities to ASC Topic 825, Financial Instruments. ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are currently evaluating the impact of the adoption of ASU 2016-01 on our consolidated financial statements.

In February 2016, the FASB issued (“ASU 2016-02”) Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In March 2016, the FASB issued an update (“ASU 2016-09”) Improvements to Employee Share-Based Payment Accounting to ASC 718. ASU 2016-09 amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.

In August 2016, the FASB issued an update (“ASU 2016-15”) Classification of Certain Cash Receipts and Cash Payments to ASC Topic 230, Statement of Cash Flows. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The adoption of this update is not expected to have a significant impact on our consolidated financial statements.

4. Acquisitions

On May 20, 2016, we contributed $19,650,000 for a 50.0% equity interest in a joint venture that will develop 606 Broadway, a 33,000 square foot office and retail building, located on Houston Street in Manhattan. The development cost of this project is estimated to be approximately $104,000,000. At closing, the joint venture obtained a $65,000,000 construction loan, of which approximately $22,500,000 was outstanding at September 30, 2016. The loan, which bears interest at LIBOR plus 3.00% (3.52% at September 30, 2016), matures in May 2019 with two one-year extension options. Because this joint venture is a VIE and we determined we are the primary beneficiary, we consolidate the accounts of this joint venture from the date of our investment.

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

5. Real Estate Fund Investments

We are the general partner and investment manager of Vornado Capital Partners Real Estate Fund (the “Fund”), which has an eight-year term and a three-year investment period that ended in July 2013. The Fund is accounted for under ASC 946, Financial Services – Investment Companies (“ASC 946”) and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings. We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.

We are also the general partner and investment manager of Crowne Plaza Times Square Hotel Co-Investment (the “Co-Investment”), which owns the 24.7% interest in the Crowne Plaza Times Square Hotel not owned by the Fund. The Co-Investment is also accounted for under ASC 946. We consolidate the accounts of the Co-Investment into our consolidated financial statements, retaining the fair value basis of accounting.

At September 30, 2016, we had six real estate fund investments with an aggregate fair value of $519,386,000, or $210,451,000 in excess of cost, and had remaining unfunded commitments of $117,907,000, of which our share was $34,422,000. Below is a summary of income from the Fund and the Co-Investment for the three and nine months ended September 30, 2016 and 2015.

(Amounts in thousands)		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,
		2016		2015		2016		2015
Net investment income		$	5,841	$	5,116	$	12,237	$	13,716
Net unrealized (losses) gains on held investments			(4,764)		(2,544)		16,091		37,001
Net realized (losses) gains on exited investments			-		(907)		14,676		24,684
Previously recorded unrealized gain on exited investment			-		-		(14,254)		(23,279)
Income from real estate fund investments			1,077		1,665		28,750		52,122
Less income attributable to noncontrolling interests			(270)		(42)		(15,088)		(29,453)
Income from real estate fund investments
	attributable to Vornado Realty L.P.⁽¹⁾	$	807	$	1,623	$	13,662	$	22,669


(1)	Excludes management, leasing and development fees of $804 and $678 for the three months ended September 30, 2016 and 2015, respectively, and $2,499 and $2,015 for the nine months ended September 30, 2016 and 2015, respectively, which are included as a component of "fee and other income" in our consolidated statements of income.

6. Marketable Securities

Below is a summary of our marketable securities portfolio as of September 30, 2016 and December 31, 2015.

(Amounts in thousands)		As of September 30, 2016						As of December 31, 2015
				GAAP		Unrealized				GAAP		Unrealized
		Fair Value		Cost		Gain		Fair Value		Cost		Gain
Equity securities:
	Lexington Realty Trust	$	190,230	$	72,549	$	117,681	$	147,752	$	72,549	$	75,203
	Other		7,935		4,379		3,556		3,245		-		3,245
		$	198,165	$	76,928	$	121,237	$	150,997	$	72,549	$	78,448

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

7. Investments in Partially Owned Entities

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

As of September 30, 2016, we own 1,654,068 Alexander’s common shares, representing a 32.4% interest in Alexander’s. We account for our investment in Alexander’s under the equity method. We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable.

As of September 30, 2016, 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 September 30, 2016 closing share price of $419.60, was $694,047,000, or $563,562,000 in excess of the carrying amount on our consolidated balance sheet. As of September 30, 2016, 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 $39,778,000. 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.

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

As of September 30, 2016, we own 5,717,184 UE operating partnership units, representing a 5.4% 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. During 2015, we provided transition services to UE, primarily for information technology, human resources, tax and financial planning. In 2016, we continue to provide UE 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 September 30, 2016, the fair value of our investment in UE, based on UE’s September 30, 2016 closing share price of $28.14, was $160,882,000, or $135,065,000 in excess of the carrying amount on our consolidated balance sheet.

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

As of September 30, 2016, 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. As of September 30, 2016, the fair value of our investment in PREIT, based on PREIT’s September 30, 2016 closing share price of $23.03, was $143,938,000, or $19,638,000 in excess of the carrying amount on our consolidated balance sheet. As of September 30, 2016, the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $66,596,000. 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.

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

7. Investments in Partially Owned Entities – continued

One Park Avenue

On March 7, 2016, the joint venture, in which we have a 55% ownership interest, completed a $300,000,000 refinancing of One Park Avenue, a 947,000 square foot Manhattan office building. The loan matures in March 2021 and is interest only at LIBOR plus 1.75% (2.28% at September 30, 2016). The property was previously encumbered by a 4.995%, $250,000,000 mortgage which matured in March 2016.

Mezzanine Loan – New York

On March 17, 2016, we entered into a joint venture, in which we own a 33.3% interest, which owns a $146,004,000 mezzanine loan. The interest rate is LIBOR plus 8.875% (9.38% at September 30, 2016) and the debt matures in November 2016, with two three-month extension options. At September 30, 2016, the joint venture has a $3,996,000 remaining commitment, of which our share is $1,332,000. The joint venture’s investment is subordinate to $350,000,000 of third party debt. We account for our investment in the joint venture under the equity method.

The Warner Building

On May 6, 2016, the joint venture, in which we have a 55% ownership interest, completed a $273,000,000 refinancing of The Warner Building, a 621,000 square foot Washington, DC office building. The loan matures in June 2023, has a fixed rate of 3.65%, is interest only for the first two years and amortizes based on a 30-year schedule beginning in year three. The property was previously encumbered by a 6.26%, $293,000,000 mortgage which matured in May 2016.

280 Park Avenue

On May 11, 2016, the joint venture, in which we have a 50% ownership interest, completed a $900,000,000 refinancing of 280 Park Avenue, a 1,250,000 square foot Manhattan office building. The three-year loan with four one-year extensions is interest only at LIBOR plus 2.00% (2.51% at September 30, 2016). The property was previously encumbered by a 6.35%, $721,000,000 mortgage which was scheduled to mature in June 2016.

7 West 34th Street

On May 16, 2016, we completed a $300,000,000 recourse financing of 7 West 34th Street, a 477,000 square foot Manhattan office building leased to Amazon. The ten-year loan is interest only at a fixed rate of 3.65% and matures in June 2026. Subsequently, on May 27, 2016, we sold a 47% ownership interest in this property and retained the remaining 53% interest. This transaction was based on a property value of approximately $561,000,000 or $1,176 per square foot. We received net proceeds of $127,382,000 from the sale and realized a net gain of $203,324,000, of which $159,511,000 was recognized in the second quarter and is included in “net gain on disposition of wholly owned and partially owned assets” in our consolidated statements of income. The remaining net gain of $43,813,000 has been deferred until our guarantee of payment of loan principal and interest is removed or the loan is repaid. We realized a net tax gain of $90,017,000. We continue to manage and lease the property. We share control over major decisions with our joint venture partner. Accordingly, this property is accounted for under the equity method from the date of sale.

50-70 West 93rd Street

On August 3, 2016, the joint venture, in which we have 49.9% ownership interest, completed an $80,000,000 refinancing of 50-70 West 93rd Street, a 326 unit Manhattan residential complex. The three-year loan with two one-year extensions is interest only at LIBOR plus 1.70% (2.22% at September 30, 2016). The property was previously encumbered by a $44,980,000 first mortgage at LIBOR plus 1.90% and an $18,481,000 second mortgage at LIBOR plus 1.65%, which were scheduled to mature in September 2016.

VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

7. Investments in Partially Owned Entities – continued

Below are schedules summarizing our investments in, and income (loss) from, partially owned entities.

(Amounts in thousands)		Percentage
		Ownership at		Balance as of
		September 30, 2016		September 30, 2016		December 31, 2015
Investments:
	Partially owned office buildings⁽¹⁾		Various	$	811,062	$	909,782
	Alexander’s		32.4%		130,485		133,568
	PREIT		8.0%		124,300		133,375
	India real estate ventures		4.1%-36.5%		44,671		48,310
	UE		5.4%		25,817		25,351
	Other investments⁽²⁾		Various		361,590		300,036
				$	1,497,925	$	1,550,422

	7 West 34th Street⁽³⁾		53.0%	$	(41,439)	$	-


(1)	Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West 22nd Street and others.
(2)	Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street, Toys "R" Us, Inc. (which has a carrying amount of zero) and others.
(3)	Our negative basis results from a $43,813 deferred gain from the sale of a 47.0% ownership interest in the property and is included in "other liabilities" on our consolidated balance sheet.

(Amounts in thousands)			Percentage		For the Three Months Ended				For the Nine Months Ended
			Ownership at		September 30,				September 30,
			September 30, 2016		2016		2015		2016		2015
Our Share of Net Income (Loss):
	Alexander's (see page 13 for details):
		Equity in net income		32.4%	$	6,891	$	5,716	$	20,640	$	16,757
		Management, leasing and development fees				1,894		1,828		5,307		5,801
						8,785		7,544		25,947		22,558
	UE (see page 13 for details):
		Equity in net earnings		5.4%		1,949		934		3,896		1,338
		Management fees				209		466		627		1,550

VORNADO REALTY LP 10-Q