VORNADO REALTY LP DEF 14A 2005
VORNADO REALTY TRUST
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
VORNADO REALTY TRUST
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
888 Seventh Avenue
Notice of Annual Meeting of Shareholders To Be Held May 18, 2005
To our Shareholders:
The Annual Meeting of Shareholders of Vornado Realty Trust, a Maryland real estate investment trust (the Company), will be held at the Saddle Brook Marriott, Interstate 80 and the Garden State Parkway, Saddle Brook, New Jersey 07663, on Wednesday, May 18, 2005, beginning at 12:30 P.M., local time, for the following purposes:
(1) To elect four persons to the Board of Trustees of the Company. Each person elected will serve for a term of three years and until his successor is duly elected and qualified.
(2) To ratify the appointment of Deloitte & Touche LLP as the Companys independent auditors for the current year.
(3) To transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting.
The Board of Trustees of the Company has fixed the close of business on April 15, 2005 as the record date for determination of shareholders entitled to notice of and to vote at the meeting.
Please review the attached Proxy Statement and proxy card. Whether or not you plan to attend the meeting, your shares should be represented and voted. You may authorize your proxy by the Internet or by touch-tone phone as described on the proxy card. Alternatively, you may wish to sign the enclosed proxy card and return it in the accompanying envelope. You will not need to attach postage to the envelope if it is mailed in the United States. If you attend the meeting in person, you may revoke your proxy at that time and vote your own shares.
888 Seventh Avenue
Annual Meeting of Shareholders To Be Held May 18, 2005
The enclosed proxy is being solicited by the Board of Trustees (the Board) of Vornado Realty Trust, a Maryland real estate investment trust (we, our or the Company), for use at the Annual Meeting of Shareholders of the Company (the Annual Meeting) to be held on Wednesday, May 18, 2005, beginning at 12:30 P.M., local time, at the Saddle Brook Marriott, Interstate 80 and the Garden State Parkway, Saddle Brook, New Jersey 07663.
You may authorize your proxy over the Internet, by telephone or by executing and returning the enclosed proxy card. Once you authorize a proxy, you may revoke that proxy by (1) executing a later dated proxy card, (2) subsequently authorizing a proxy through the Internet or by telephone or (3) attending the Annual Meeting and voting in person. Attending the Annual Meeting without submitting a new proxy or voting in person will not automatically revoke your prior authorization of your proxy. Only the last vote of a shareholder will be counted.
The Company will pay the cost of soliciting proxies. We have hired Mackenzie Partners, Inc. to solicit proxies, for a fee not to exceed $5,000. In addition to solicitation by mail, by telephone and by Internet, arrangements may be made with brokerage houses and other custodians, nominees and fiduciaries to send proxies and proxy material to their principals and the Company may reimburse them for their expenses in so doing. If you hold shares in street name (i.e., through a bank, broker or other nominee), you will receive instructions from your nominee which you must follow in order to have your proxy authorized or you may contact your nominee directly to request these instructions.
Only shareholders of record at the close of business on April 15, 2005 are entitled to notice of and to vote at the Annual Meeting. We refer to this date as the record date. On that date there were 129,868,932 of our outstanding common shares of beneficial interest, par value $0.04 per share (the Shares). Holders of Shares as of the record date are entitled to one vote per Share on each matter properly submitted at the Annual Meeting.
If you would like to attend the Annual Meeting in person, you will need to bring an account statement or other evidence acceptable to us of ownership of your Shares as of the close of business on the record date. If you hold Shares in street name and wish to vote at the Annual Meeting, you will need to contact your nominee and obtain a proxy from your nominee and bring it to the Annual Meeting.
The holders of a majority of the outstanding Shares at the close of business on the record date, present in person or by proxy and entitled to vote, will constitute a quorum for the transaction of business at the Annual Meeting. A broker non-vote and any proxy marked withhold authority or an abstention, as applicable, will have no effect on the result of the vote but the Shares represented thereby will count for purposes of determining a quorum.
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The principal executive office of the Company is located at 888 Seventh Avenue, New York, New York 10019. The accompanying Notice of the Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy will first be mailed on or about April 27, 2005, to the Companys shareholders of record as of the close of business on April 15, 2005.
PROPOSAL 1: ELECTION OF TRUSTEES
Trustees Standing for Election
The Companys Board currently has nine trustees as members. On April 18, 2005, our Board, on the recommendation of our Corporate Governance and Nominating Committee, approved an increase in the number of trustees to 10 members effective immediately following the Annual Meeting. In addition, the Board nominated Ronald Targan, Robert H. Smith, Anthony W. Deering and Michael Lynne for election at our Annual Meeting to the class of trustees to serve until 2008. Messrs. Targan and Smith have previously served as trustees of the Company. Messrs. Deering and Lynne were suggested to the Corporate Governance and Nominating Committee upon the recommendation of our Chief Executive Officer, Mr. Steven Roth. Mr. Stanley Simon, a trustee with the Company and its predecessors since 1960, is retiring from the Board effective immediately following the annual meeting. The Companys organizational documents provide that the trustees of the Company are divided into three classes, as nearly equal in number as reasonably possible, as determined by the Board. One class of trustees is elected at each Annual Meeting to hold office for a term of three years and until their successors have been duly elected and qualified.
Unless otherwise directed in the proxy, each of the persons named in the enclosed proxy will vote such proxy for the election of the four nominees listed below as trustees. If any nominee at the time of election is unavailable to serve, it is intended that each of the persons named in the proxy will vote for an alternate nominee who will be nominated by our Corporate Governance and Nominating Committee and designated by the Board. Proxies may be voted only for the nominees named or such alternates. We do not currently anticipate that any nominee for trustee will be unable to serve as trustee.
Under the Companys Amended and Restated Bylaws (the Bylaws), the affirmative vote of a plurality of all the votes cast at the Annual Meeting, if a quorum is present, is sufficient to elect a trustee. Under Maryland Law, proxies marked withhold authority will be counted for the purpose of determining the presence of a quorum but will have no effect on the result of the vote. A broker non-vote will have no effect on the result of the vote.
The Board of Trustees recommends that shareholders vote FOR approval of the election of each of the nominees listed below to serve as trustee until the Annual Meeting of Shareholders in 2008 and until his respective successor has been duly elected and qualified.
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The following table lists the nominees and the other present members of the Board. All of the nominees other than Anthony W. Deering and Michael Lynne are currently members of the Board. For each such person, the table lists the age, principal occupation, position presently held with the Company, if any, and the year in which the person first became or was nominated to become a trustee of the Company or a director of its predecessor, Vornado, Inc.
Assuming each of their election as trustees, Mr. Targan is expected to be appointed to the Compensation Committee and Mr. Deering is expected to be appointed to the Audit Committee.
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BIOGRAPHIES OF OUR TRUSTEES
Mr. Targan has been the President of Malt Products Corporation of New Jersey (a producer of malt syrup) since 1962. From 1964 until July 2002, Mr. Targan was a member of the law firm of Schechner and Targan, P.A.
Mr. Smith was appointed a trustee of the Company and the Chairman of the Charles E. Smith Commercial Realty Division of the Company on January 1, 2002, the date Charles E. Smith Commercial Realty L.P. merged into a subsidiary of the Company. Previously, Mr. Smith was Co-Chief Executive Officer and Co-Chairman of the Board of Directors of Charles E. Smith Commercial Realty L.P. from October 1997 until December 2001. Mr. Smith is also a trustee of Archstone-Smith Trust (a real estate investment trust).
Mr. Deering is Chairman of Exeter Capital, LLC, a private investment firm. He previously served as Chairman of the Board and Chief Executive Officer of The Rouse Company, a large public national real estate company, which merged with General Growth Properties in November, 2004. With The Rouse Company since 1972, Mr. Deering was previously Vice President and Treasurer, Senior Vice President and Chief Financial Officer, and President and Chief Operating Officer.
Mr. Lynne is Co-Chairman and Co-Chief Executive Officer of New Line Cinema Corporation (a subsidiary of Time Warner Inc. and a motion picture company). He has served in this position since 2001. Prior to that, Mr. Lynne served as President and Chief Operating Officer of New Line Cinema since 1990.
Mr. Mandelbaum has been a member of the law firm of Mandelbaum & Mandelbaum, P.C. since 1967. Since 1968, he has been a general partner of Interstate (an owner of shopping centers and investor in securities and partnerships). Mr. Mandelbaum is also a director of Alexanders, Inc. (Alexanders) (a real estate investment trust).
Dr. West is Dean Emeritus of the Leonard N. Stern School of Business at New York University. He was a professor there from September 1984 until September 1995 and Dean from September 1984 until August 1993. Prior thereto, Dr. West was Dean of the Amos Tuck School of Business Administration at Dartmouth College. Dr. West is also a director of Alexanders, Bowne & Co., Inc. (a commercial printing company) and 20 investment companies managed by Merrill Lynch Investment Managers.
Mr. Kogod was appointed a trustee of the Company on January 1, 2002, the date Charles E. Smith Commercial Realty L.P. merged into a subsidiary of the Company. Previously, Mr. Kogod was Co-Chief Executive Officer and Co-Chairman of the Board of Directors of Charles E. Smith Commercial Realty L.P. from October 1997 through December 2001. Mr. Kogod is also a trustee of Archstone-Smith Trust.
Mr. Roth has been Chairman of the Board and Chief Executive Officer of the Company since May 1989 and Chairman of the Executive Committee of the Board since April 1980. Since 1968, he has been a general partner of Interstate and, more recently, he has been its Managing General Partner. In March 1995, he became Chief Executive Officer of Alexanders. Mr. Roth is also a director and Chairman of the Board of Alexanders.
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Mr. Fascitelli has been the President and a trustee of the Company since December 1996. From December 1992 to December 1996, Mr. Fascitelli was a partner at Goldman Sachs & Co. (an investment banking firm) in charge of its real estate practice and was a vice president prior thereto. He is also a director and the President of Alexanders.
Mr. Wight has been a general partner of Interstate since 1968. Mr. Wight is also a director of Alexanders.
RELATIONSHIPS AMONG OUR TRUSTEES
Mr. Smith and Mr. Kogod are brothers-in-law. The Company is not aware of any other family relationships among any trustees or executive officers of the Company or persons nominated or chosen by the Company to become trustees or executive officers.
In connection with the January 1, 2002 merger of Charles E. Smith Commercial Realty L.P. into a subsidiary of the Company, Mr. Roth, Mr. Fascitelli and Interstate, who collectively beneficially own, as of April 15, 2005, 21,739,844 Shares representing 16.74% of the outstanding Shares, entered into an agreement with Mr. Smith, Mr. Kogod and Charles E. Smith Commercial Realty L.L.C. pursuant to which they are obligated to vote all Shares which they own (or over which they exercise voting control) in favor of the election of Mr. Smith and Mr. Kogod (or their permitted designees) to the Board until the earlier to occur of (i) January 1, 2008 or (ii) the date on which, under the terms of the agreement for the above merger, none of Mr. Smith, Mr. Kogod or their respective designees is entitled to be nominated for election to the Board. Under the terms of the merger agreement, upon the death of Mr. Smith, the Smith family will no longer have the right to designate a nominee for election to the Board, and upon the death of Mr. Kogod, the Kogod family will no longer have the right to designate a nominee for election to the Board. In the event of the deaths of both Mr. Smith and Mr. Kogod, the Smith and Kogod families will have the right, jointly, to appoint one designee approved by the Company to complete any unexpired term and to be nominated for election as a trustee for the remaining period that Mr. Smith and Mr. Kogod would have been entitled to be nominated for election to the Board. Furthermore, if the members of the Smith family or the Kogod family and their permitted transferees beneficially own less than 75% in number of the Vornado Realty L.P. Class A Units issued to such family in the merger, the Company will no longer be obligated to provide Mr. Smith or Mr. Kogod, respectively, or their designees, the rights described above. Upon the termination of such rights, the obligations of Mr. Roth, Mr. Fascitelli and Interstate under the voting agreement will terminate.
Messrs. Roth, Wight and Mandelbaum are each general partners of Interstate. Since 1992, Vornado has managed all the operations of Interstate for a fee as described in greater detail under Certain Relationships and Related Transactions Transactions Involving Interstate Properties.
The Company has been continuously listed on the NYSE since January 1962 and is subject to the NYSEs Corporate Governance Standards.
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The Board has determined that Messrs. Deering, Lynne, Mandelbaum, Targan and Wight and Dr. West are independent under the Corporate Governance Rules of the NYSE making six out of the 10 of the Companys trustees independent assuming the election of the trustees nominated. The Board reached its conclusion after considering all applicable relationships between or among such trustees and the Company or management of the Company. These relationships are described in the sections of this proxy statement entitled Relationships Among Our Trustees and Certain Relationships and Related Transactions. Among other factors considered by the Board in making its determinations regarding independence was the Boards determination that these trustees met all the bright-line requirements of the NYSE Corporate Governance Rules as well as the categorical standards adopted by the Board in the Companys Corporate Governance Guidelines.
As part of its commitment to good corporate governance, the Board of Trustees has adopted the following committee charters and policies:
The Company has made available on its website (www.vno.com) copies of these charters, guidelines and policies and included copies of each as an attachment to our proxy statement for our 2004 Annual Meeting. We will post any future changes to these charters, guidelines and policies to the Companys website and may not otherwise publicly file such changes. Our regular filings with the Securities and Exchange Commission (SEC) and our trustees and executive officers filings under Section 16(a) of the Securities Exchange Act of 1934 are also available on the Companys website.
COMMITTEES OF THE BOARD OF TRUSTEES
The Board has an Executive Committee, an Audit Committee, a Compensation Committee, and a Corporate Governance and Nominating Committee. Other than the Executive Committee, each committee is comprised solely of independent trustees.
The Board held 14 meetings during 2004. Each trustee attended at least 75% of the combined total of the meetings of the Board and all committees on which he served during 2004.
In addition to full meetings of the Board, non-management trustees met two times in sessions without members of management present. During these meetings, the independent trustees selected their own presiding member. The Company does not have a policy with regard to trustees attendance at Annual Meetings of Shareholders. All of the Companys trustees were present at the 2004 Annual Meeting of Shareholders.
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The Executive Committee possesses and may exercise certain powers of the Board in the management of the business and affairs of the Company. During 2004, the Executive Committee consisted of five members, Messrs. Roth, Fascitelli, Simon, Smith and Wight. Mr. Roth is the Chairman of the Executive Committee. The Executive Committee did not meet in 2004. With the retirement of Mr. Simon, the size of the Executive Committee is expected to be reduced to four members.
The Board has adopted a written Audit Committee Charter, which sets forth the membership requirements of the Audit Committee, among other matters. The Board has determined that all existing and proposed Audit Committee members meet the NYSE and SEC standards for independence and the NYSE standards for financial literacy. In addition, at all times at least one member of the Audit Committee meets the NYSE standards for financial management expertise.
The Board has determined that Dr. West is an audit committee financial expert, as defined by SEC Regulation S-K, and thus, has at least one such individual serving on its Audit Committee. The Board reached this conclusion based on his relevant experience, as described above under Trustees Standing for Election.
The Audit Committees purposes are to (i) assist the Board in its oversight of (a) the integrity of the Companys financial statements, (b) the Companys compliance with legal and regulatory requirements, (c) the independent auditors qualifications and independence, and (d) the performance of the independent auditors and the Companys internal audit function; and (ii) prepare an Audit Committee report as required by the SEC for inclusion in the Companys annual proxy statement. The function of the Audit Committee is oversight. The management of the Company is responsible for the preparation, presentation and integrity of the Companys financial statements and for the effectiveness of internal control over financial reporting. Management is responsible for maintaining appropriate accounting and financial reporting principles and policies and internal controls and procedures that provide for compliance with accounting standards and applicable laws and regulations. The independent auditors are responsible for planning and carrying out a proper audit of the Companys annual financial statements, reviews of the Companys quarterly financial statements prior to the filing of each Quarterly Report on Form 10-Q, annually auditing managements assessment of the effectiveness of internal control over financial reporting and other procedures. The Audit Committee, which held five meetings during 2004, consisted of three members in 2004, Dr. West and Messrs. Simon and Targan. Assuming his election to the Board, Mr. Deering is expected to be appointed to replace Mr. Simon upon Mr. Simons retirement from the Board. Dr. West is the Chairman of the Audit Committee. Persons interested in contacting our Audit Committee members with regard to accounting, auditing or financial concerns will find information on how to do so on our website (www.vno.com).
The Compensation Committee is responsible for establishing the terms of the compensation of the executive officers and the granting of awards under the Companys 2002 Omnibus Share Plan. The Committee, which held one meeting (and acted twice by written consent) during 2004, consisted during 2004 of two members, Mr. Simon and Dr. West. Mr. Simon was the
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Chairman of the Compensation Committee. It is expected that Mr. Targan will be appointed to replace Mr. Simon and that Dr. West will serve as Chairman of the Compensation Committee. All existing and proposed members of the Compensation Committee are independent. The Board has adopted a written Compensation Committee Charter.
Corporate Governance and Nominating Committee
The members of the Corporate Governance and Nominating Committee are Mr. Wight, who chairs the committee, Mr. Mandelbaum and Dr. West. Each of the committee members is independent. The committees responsibilities include the selection of potential candidates for the Board and the development and annual review of our governance principles. It will also annually review trustee compensation and benefits, and oversee annual self-evaluations of the Board and its committees. The committee also makes recommendations to the Board concerning the structure and membership of the other Board committees as well as management succession plans. The committee selects and evaluates candidates for the Board in accordance with the criteria set out in the Companys Corporate Governance Guidelines and pursuant to the Corporate Governance and Nominating Committee Charter. The committee is then responsible for recommending to the full Board a slate of candidates for trustee positions for the full Boards approval. Generally, candidates for a position as a member of the Board are suggested by existing Board members; however, the Corporate Governance and Nominating Committee will consider shareholder recommendations for candidates for the Board sent to the Corporate Governance and Nominating Committee, c/o Alan J. Rice, Secretary, Vornado Realty Trust, 888 Seventh Avenue, New York, New York 10019.
* * * * *
Persons wishing to contact the independent members of the Board should call (866) 537-4644. A recording of each phone call to this number will be sent to one independent member of the Board who sits on the Audit Committee as well as to a member of management who may respond to any such call if the caller provides a return number. This means of contact should not be used for solicitations or communications with the Company of a general nature. Information on how to contact the Company generally is available on our website (www.vno.com).
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PRINCIPAL SECURITY HOLDERS
The following table lists the number of Shares and Units as of April 15, 2005, beneficially owned by (i) each person who holds more than a 5% interest in the Company or the Operating Partnership (other than the Company), (ii) trustees of the Company, (iii) the executive officers of the Company defined as Covered Executives in Executive Compensation below, and (iv) the trustees and all executive officers of the Company as a group. Units are Class A units of limited partnership interest and other classes of units convertible into Class A units of limited partnership interest (collectively, Units) in Vornado Realty L.P., a Delaware limited partnership (the Operating Partnership).
*Less than 1%.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our trustees and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership of, and transactions in, certain classes of our equity securities with the SEC. Such trustees, executive officers and 10% shareholders are also required to furnish us with copies of all Section 16(a) reports they file.
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Based solely on a review of the Forms 3, 4 and 5, and any amendments thereto, furnished to us, and on written representations from certain reporting persons, we believe that the only filing deficiencies under Section 16(a) by our trustees, executive officers and 10% shareholders in the year ended December 31, 2004 are as follows :
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Trustees, composed of the undersigned independent trustees, operates pursuant to a written charter adopted in 2004 and is responsible for establishing the terms of the compensation of the Companys executive officers and the granting of awards under the Companys 2002 Omnibus Share Plan.
The Compensation Committee seeks to attract, motivate and retain the Companys executive officers, including the Chief Executive Officer, through competitive compensation arrangements that provide strong financial incentives for the executive officers to maximize shareholder value and reinforce the alignment of management and shareholder interests. The Compensation Committee reviews executive compensation annually to ensure that the arrangements remain competitive and reflect the Companys performance.
Certain of the Companys executive officers have employment agreements that provide for a minimum base salary and other compensation arrangements. See Executive CompensationEmployment Contracts below for a summary of the terms of certain of these agreements. Employment agreements are reviewed and approved by the Compensation Committee prior to their execution. Increases for 2004 for the compensation of Mr. Sandeep Mathrani result from the negotiation of a new employment agreement. The Chief Executive Officer does not have an employment agreement with the Company.
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Management presents recommendations for compensation for all executive officers to the Compensation Committee. The Compensation Committee exercises its independent discretion in reviewing and approving executive officer compensation both individually and in the aggregate. Final compensation determinations for the past year are generally made based upon final financial results and performance for such year. From time to time, the Compensation Committee or management may seek the advice of compensation consultants that is presented to the Compensation Committee.
Compensation generally has three primary components: base salary, incentive bonus and long-term equity compensation.
Base salaries for executive officers, including the Chief Executive Officer, are based on (i) the responsibilities of the position, (ii) the individuals performance and perceived ability to influence the Companys financial performance in the short and long-term and (iii) an evaluation of salaries for similar positions in companies of similar size, complexity and businesses as the Company.
Incentive bonuses are structured to further motivate executive officers, including the Chief Executive Officer, by establishing a relationship between the bonuses and the performance of the Company and the executive officer. Bonuses are typically determined based on (i) specific objective measures of the Companys performance such as funds from operations and total shareholder return, (ii) specific objective measures of the individuals performance such as the ability to meet established financial budgets and (iii) subjective measures of performance such as positioning the Company for short- and long-term growth through acquisitions, development and leasing activities. In determining the incentive bonuses for 2004, the Compensation Committee considered, in particular, the following factors: total return to shareholders during 2004 of approximately 46%, strong operating results, and other factors the Committee deemed appropriate. In particular, the Committee determined it appropriate to award significant one-time cash bonuses to four division heads in recognition of their contribution to the increase in shareholder value attributable to the success of the 731 Lexington Avenue development owned by Alexanders, Inc. The cash bonus awarded to Mr. Roth is discussed below.
Long-term Equity Compensation
The Compensation Committee believes that the interests of the Companys shareholders and executive officers, including the Chief Executive Officer, will be aligned if executive officers are given the opportunity to own the Companys Shares through substantial option and restricted share awards that are granted on a fixed share basis without adjusting the number of shares granted to offset changes in the Companys stock price. The Compensation Committee bases these awards on the same criteria used to determine base salary but may allocate any increases disproportionately to cash or equity compensation. These awards are a significant part of executive officer compensation packages and are granted annually.
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Chief Executive Officers Compensation
Mr. Roths base salary of $1,000,000 was established in March 2001. The Compensation Committee believes that Mr. Roths base salary is consistent with the base salaries of other chief executive officers of companies of similar size and complexity.
Mr. Roths incentive bonus for 2004 was $2,000,000. He also received in February 2005 a grant with respect to 2004 of 11,500 restricted shares and options to acquire 115,550 common shares with an exercise price of $71.275 (the average of the high and low market price on the date of the grant). The incentive bonus amount and restricted share and option award were based on an evaluation of those factors previously described and were approved by the Compensation Committee. Mr. Roths total cash compensation in 2004 was $3,000,000. This compares to total cash compensation in 2003 of $2,000,000. His 50% increase in cash compensation in 2004 from 2003 appropriately reflects his and the Companys performance in 2004, measured both objectively and subjectively, and the Companys strategic growth position at December 31, 2004.
Policy Regarding Section 162(m)
Section 162(m) of the Internal Revenue Code (Section 162(m)) provides that, in general, publicly traded companies may not deduct, in any taxable year, compensation in excess of $1,000,000 paid to the companys chief executive officer and four other most highly compensated executive officers as of the end of any fiscal year which is not performance based, as defined in Section 162(m). The Compensation Committee believes that it is in the best interests of the Company and its shareholders to comply with the limitations of Section 162(m) to the extent practicable and consistent with retaining, attracting and motivating the Companys executive officers. Accordingly, to maintain flexibility in compensating executive officers in a manner designed to promote the goals of the Company and its shareholders, the Compensation Committee has not adopted a policy that all executive compensation must be deductible. The deferred payments made to Mr. Fascitelli pursuant to his employment agreements and certain other compensation to the Companys Chief Executive Officer and the four other most highly compensated executive officers do not meet the requirements of Section 162(m) and will thus be subject to the $1,000,000 limitation when paid.
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The following graph compares the performance of the Companys Shares with the performance of the Standard & Poors 500 Index (the S&P 500 Index) and the National Association of Real Estate Investment Trusts (NAREIT) All Equity Index (excluding health care real estate investment trusts), a peer group index. The graph assumes that $100 was invested on December 31, 1999 in each of the Shares, the S&P 500 Index and the NAREIT All Equity Index and that all dividends were reinvested without the payment of any commissions. THERE CAN BE NO ASSURANCE THAT THE PERFORMANCE OF THE COMPANYS SHARES WILL CONTINUE IN LINE WITH THE SAME OR SIMILAR TRENDS DEPICTED IN THE GRAPH BELOW.
Comparison of Five-Year Cumulative Return
(1) Excluding health care real estate investment trusts
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The following table sets forth the compensation for the Companys Chief Executive Officer and the four other most highly compensated executive officers in 2004 and for each of the two preceding fiscal years (the Covered Executives).
SUMMARY COMPENSATION TABLE
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OPTION GRANTS FOR 2004
The following table lists all grants of share options to the Covered Executives made in respect of services performed in 2004 and their potential realizable values, assuming annualized rates of share price appreciation of 5% and 10% over the term of the grant. All of such grants were made on February 8, 2005. The Company has not, to date, granted any share appreciation rights.
Option Grants for 2004
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YEAR-END OPTION HOLDINGS
The following table summarizes all exercises of options during 2004, and the number and value of options held at December 31, 2004 by the Covered Executives.
Aggregated Option Exercises in 2004 and Fiscal Year End Option Values
EMPLOYEE RETIREMENT PLAN
Effective December 31, 1997, the Company froze the employee retirement plan which provided retirement benefits to full-time employees of the Company. Benefits under the plan vested upon the completion of five years of service for all eligible employees. However, employees do not earn any additional benefits after December 31, 1997. In addition, no new participants are eligible to enter the frozen plan. Annual retirement benefits are equal to 1% of the participants base salary for each year of service. However, the portion of retirement benefits payable for service prior to plan participation is equal to 1% of the participants base salary as of December 31 of the year before the participant began to participate in the plan for each year of the participants past service.
The amounts shown below are the estimated annual benefits (payable in the form of a life annuity) for each of the Covered Executives who is a participant in the plan payable upon normal retirement at age 65. The estimated annual benefit payable at age 65 to Mr. Roth is $45,000.
Michael D. Fascitelli
Mr. Fascitelli had an employment agreement that commenced on December 2, 1996 pursuant to which he served as President of the Company. The employment agreement had an initial term of five years. The employment agreement provided for an annual base salary of not less than $600,000. In January 2000, Mr. Fascitellis base salary was increased to $625,000 and in March 2001, it was increased to $1,000,000. In addition to his annual salary, at the commencement of Mr. Fascitellis 1996 employment agree-
20 VORNADO REALTY TRUST 2005 PROXY STATEMENT
ment, Mr. Fascitelli received a deferred payment (the Deferred Payment) consisting of $5,000,000 in cash (which has been invested in marketable securities at the direction of Mr. Fascitelli) and a $20,000,000 convertible obligation payable in 919,540 Shares, which are being held in an irrevocable trust for the benefit of Mr. Fascitelli. The Deferred Payment obligation to Mr. Fascitelli vested in December 1997 and was scheduled to convert into Shares in November 2001. The conversion date was extended to December 2006. In addition, Mr. Fascitellis 1996 employment agreement provided that he may borrow up to $10,000,000 from the Company during the term of his employment at the applicable federal rate. As of March 31, 2005, the outstanding principal amount of loans by the Company to Mr. Fascitelli was $8,600,000. The loans, which were scheduled to mature in 2003, were extended to 2006 in connection with the 2002 extension of Mr. Fascitellis employment agreement, as discussed below. In February 2005, Mr. Fascitelli was granted 9,250 restricted shares of the Company and options to purchase 92,500 Shares. These awards were for the 2004 compensation year and vest ratably over a five-year period.
Effective January 1, 2002, the Company extended the employment agreement with Mr. Fascitelli for a five-year period through December 31, 2006. The 2002 employment agreement provides that, commencing on January 1, 2007, and on each January 1 thereafter, the employment term will automatically be extended for one additional year unless either the Company or Mr. Fascitelli gives written notice not to extend the agreement not less than 90 days before such date. The 2002 employment agreement provides for an annual base salary of not less than $1,000,000. In addition to his annual salary, he will be entitled to a deferred payment consisting of 626,566 convertible units on December 31, 2006, with each unit representing one Share. Accordingly, 626,566 Shares are being held in an irrevocable trust for the benefit of Mr. Fascitelli. The 626,566 Shares vested in December 2002. Mr. Fascitelli may also borrow up to $20,000,000 from the Company during the term of his 2002 employment agreement reduced by the amount of his outstanding loans under his 1996 employment agreement, which was $8,600,000. The loans will bear interest at the applicable federal rate and will mature on the fifth anniversary of the date each loan is made. Payment of the additional loans and the outstanding $8,600,000 may be accelerated by the Company to the extent that the aggregate principal amount of such loans exceeds 50% of the sum of (i) the value of the 1,546,106 Shares payable to Mr. Fascitelli under his original and current employment agreements and (ii) the amount by which the value of the Shares subject to options granted to Mr. Fascitelli by the Company exceeds the aggregate exercise price of such options. In accordance with the terms of his employment agreement, Mr. Fascitelli has also been given the use of a Company automobile.
The 2002 employment agreement also provides that if his employment is terminated by the Company without cause or by him for good reason (as defined in the agreement to include, among other things, a change in his responsibilities, change in control of the Company, relocation of the Companys principal executive offices or the failure of the Company to comply with the terms of the agreement), (i) payment of his base salary shall continue for three years, offset in the second and third years for compensation received or deferred for services to any other employer, (ii) payment of the 919,540 and 626,566 vested Shares payable to him shall be made and (iii) benefits to him and his family shall continue for three years. The agreement further provides that if his employment is terminated by him without good reason or by the Company for cause (as defined in the agreement to include conviction of, or plea of guilty or nolo contendere to, a felony, failure to perform his duties or willful misconduct), payment of his salary will cease but payment of the 919,540 and 626,566 vested Shares payable to him shall nonetheless be made.
2005 PROXY STATEMENT VORNADO REALTY TRUST 21
David R. Greenbaum
Mr. Greenbaum has an employment agreement that commenced on April 15, 1997 pursuant to which he serves as President of the New York Office Division of the Company. The employment agreement provides that, commencing on April 30, 2000, and on each April 30 thereafter, the employment term shall automatically be extended for one additional year unless either the Company or Mr. Greenbaum gives written notice not to extend the agreement, at least 90 days before such date. The employment agreement provides that Mr. Greenbaums base salary shall not be reduced during the term of the agreement. In February 2005, Mr. Greenbaums annual base salary was increased to $1,000,000. Mr. Greenbaums employment agreement provides that he will be entitled to participate at a level commensurate with his position in any equity and/or incentive compensation with respect to senior executives of the Company. In February 2005, Mr. Greenbaum was granted 2,500 restricted shares of the Company and options to purchase 25,000 Shares. These awards were for the 2004 compensation year and vest ratably over a five-year period. In accordance with the terms of his employment agreement, he has also been given the use of a Company automobile.
The agreement also provides that if Mr. Greenbaums employment is terminated by the Company without cause or by him for good reason (as defined in the agreement to include, among other things, a change in his responsibilities, change in control of the Company, relocation of the New York Office Divisions principal executive offices or the failure of the Company to comply with the terms of the agreement), Mr. Greenbaum will receive (a) a lump sum payment of three times the sum of (i) his annual base compensation and (ii) the average of the annual bonuses earned by him in the two fiscal years ending immediately prior to his termination and (b) continued provision of benefits to him and his family for three years. The agreement further provides that if his employment is terminated by him without good reason or by the Company for cause (as defined in the agreement to include conviction of, or plea of guilty or nolo contendere to, a felony, failure to perform his duties or willful misconduct), payment of his salary will cease.
Mr. Mathrani serves as Executive Vice PresidentRetail Division of the Company. His employment agreement entered into in 2002 expired in March 2005. As of January 1, 2005, the Company and Mr. Mathrani entered into a new employment agreement through January 1, 2010, with a term that automatically extends for additional one-year periods unless terminated on at least six months prior notice by either the Company or Mr. Mathrani. The employment agreement provides that Mr. Mathrani will receive a base salary of not less than $1,000,000, or, if the base salary is increased in the future, such increased amount. In addition, Mr. Mathrani is guaranteed an annual bonus of at least $500,000 for 2005 and received an additional one-time cash bonus of $800,000, paid in February 2005.
In connection with his employment agreement, the Company granted Mr. Mathrani 16,836 shares of restricted stock and options to acquire 300,000 of the Companys Common Shares at $71.275 per share (in addition to the 2,000 restricted shares and 20,000 options granted to him for 2004). In addition, 100,000 options will be granted in each of 2006 and 2007 at the then prevailing market price. Both the restricted stock and options will vest one-third each year on January 20th of 2008, 2009 and 2010. The vesting of these restricted shares and options granted pursuant to his employment agreement will accelerate upon certain events including a change of control of the Company or a sale of its retail division.
22 VORNADO REALTY TRUST 2005 PROXY STATEMENT
On February 22, 2005, Mr. Mathrani repaid to the Company an outstanding loan in the amount of $500,000 previously provided for under his prior employment agreement.
Mr. Mathranis employment agreement also provides that if his employment is terminated by the Company without cause or by him due to a material breach of the agreement by the Company (a material breach is any failure by the Company to comply with any material provision of the agreement that is not cured within 30 days of written notice by Mr. Mathrani of non-compliance), Mr. Mathrani will immediately vest in any stock options and restricted shares granted to him by the Company. In addition, in such event, Mr. Mathrani will receive a lump sum payment equal to (i) his annual base compensation plus (ii) the average of the annual bonuses earned by him in the two fiscal years ending immediately prior to his termination; provided his lump sum payment will be multiplied by two if the termination occurs during the first three years of the agreement. The agreement further provides that if his employment is terminated by him without good reason or by the Company for cause (as defined in the agreement to include conviction of, or plea of guilty or nolo contendere to, a felony, failure to perform his duties or willful misconduct), payment of his salary and all other obligations of the Company under the agreement will cease. Under his employment agreement, Mr. Mathrani also receives the use of a Company automobile.
CHANGE OF CONTROL ARRANGEMENTS
In addition to those change of control arrangements that exist in the employment agreements described above, the Companys 2002 Omnibus Share Plan generally provides, pursuant to the award agreements for options, restricted stock and other equity-based awards granted under the Plan, that equity grants will vest automatically upon a change of control of the Company.
COMPENSATION OF TRUSTEES
Trustees who are not officers of the Company receive an annual retainer and additional meeting fees for each Board or committee meeting attended. Messrs. Roth, Fascitelli and Smith received no compensation for their service as trustees. During 2004, the annual retainers for non-management trustees were: Dr. West$100,000; Mr. Simon and Mr. Targan$75,000 each; and Messrs. Kogod, Mandelbaum and Wight$50,000 each. In addition, non-management trustees receive a meeting fee of $1,000 for all Board and Committee meetings attended. Dr. Wests and Messrs. Simons and Targans annual retainers are reflective of their chairmanship of or membership on the Audit Committee. It is expected that Messrs. Deering and Lynne will receive compensation corresponding to their roles on the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, consisting, in 2004, of Mr. Simon and Dr. West, grants awards under the Companys 2002 Omnibus Share Plan and makes all other executive compensation determinations. Mr. Targan is expected to be elected to replace Mr. Simon upon the Compensation Committee upon Mr. Simons retirement. Messrs. Roth, Fascitelli and Smith are
2005 PROXY STATEMENT VORNADO REALTY TRUST 23
the only officers or employees of the Company who are also members of the Board. There are no interlocking relationships involving the Companys Board that require disclosure under the executive compensation rules of the SEC.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions Involving Interstate Properties
As of April 15, 2005, Interstate and its partners beneficially owned approximately 13.7% of the common shares of beneficial interest of the Company and 27.7% of Alexanders common stock. Interstate is a general partnership in which Steven Roth, David Mandelbaum and Russell B. Wight, Jr. are the partners. Mr. Roth is the Chairman of the Board and Chief Executive Officer of the Company, the Managing General Partner of Interstate, and the Chairman of the Board and Chief Executive Officer of Alexanders. Messrs. Mandelbaum and Wight are trustees of the Company and also directors of Alexanders.
The Company manages and leases the real estate assets of Interstate pursuant to a management agreement for which the Company receives an annual fee equal to 4% of base rent and percentage rent and certain other commissions. The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on sixty days notice at the end of the term. The Company believes, based upon comparable fees charged by other real estate companies, that its terms are fair to the Company. The Company earned $726,000 of management fees under the management agreement for the year ended December 31, 2004.
Transactions Involving Vornado Operating Company
In October 1998, Vornado Operating Company (Vornado Operating) was spun off from the Company in order to own assets that the Company could not itself own and conduct activities that the Company could not itself conduct. Vornado Operatings primary asset was its 60% investment in AmeriCold Logistics, which leased 87 refrigerated warehouses from Americold Realty Trust (Americold), owned 60% by the Company until November 18, 2004 and 47.6% thereafter. The Company granted Vornado Operating a $75,000,000 unsecured revolving credit facility that was to expire on December 31, 2004. Borrowings under this facility bore interest at LIBOR plus 3%. The Company received a commitment fee equal to 1% per annum on the average daily unused portion of this facility. As part of the November 4, 2004 acquisition of AmeriCold Logistics referred to below, this facility was terminated and the outstanding balance was paid in full. Americold recognized $98,532,000 of rent from January 1, 2004 to November 4, 2004 in connection with these refrigerator warehouse leases. In addition, the Company was the day-to-day liaison to the management of AmeriCold Logistics and received a management fee of $406,000 for the period from January 1, 2004 to November 4, 2004. AmeriCold Logistics provided financial statements preparation, tax and similar services to Americold for the same period for a fee of $243,000.
At the time of its dissolution referred to below, Vornado Operating had outstanding 4,068,924 common shares and its operating partnership had outstanding 447,017 units. At such time, Messrs. Roth, Fascitelli, Joseph Macnow (our Executive Vice PresidentFinance and Administration and Chief Financial Officer), Mandelbaum and Wight of the Company held approximately 24.3% of the common shares and units of Vornado Operating. In addition, Messrs. Roth, Fascitelli, Macnow and Wight and Dr. West each served as an officer and/or director of Vornado Operating.
24 VORNADO REALTY TRUST 2005 PROXY STATEMENT
On December 31, 2002, the Company and Crescent Real Estate Equities formed a joint venture to acquire the Carthage, Missouri and Kansas City, Kansas quarries from AmeriCold Logistics for $20,000,000 in cash (appraised value). The Company contributed cash of $8,800,000 to the joint venture representing its 44% interest. AmeriCold Logistics used the proceeds from the sale to repay a portion of a loan to Vornado Operating. Vornado Operating then repaid $9,500,000 of the amount outstanding under the Companys revolving credit facility. In addition, during 2004 and 2003, this joint venture acquired $21,930,000 and $5,720,000 of trade receivables from AmeriCold Logistics for $21,500,000 and $5,606,000, respectively. These receivables were subsequently collected in full. These quarry assets were included in the November 4, 2004 AmeriCold transaction.
On November 4, 2004, Americold purchased its tenant, AmeriCold Logistics, for $47,700,000 in cash. This price was negotiated by the Company and a special committee of the Board of Directors of Vornado Operating. As part of this transaction, Vornado Operating repaid the $21,989,000 balance of the loan to the Company as well as $4,771,000 of unpaid interest that the Company had not previously recorded as income.
In November 2004, a class action shareholder derivative lawsuit was brought against Vornado Operating, its directors and the Company concerning the sale of AmeriCold Logistics to Americold. A stipulation of settlement was entered into on November 24, 2004 and recorded by the Company as an expense. Under this stipulation, the litigation would be settled in return for the payment by the Company of approximately $4,500,000 (or about $1 per share prior to the payment of litigation related expenses). On December 29, 2004, Vornado Operating dissolved and made a liquidating distribution to the transfer agent for the benefit of its shareholders of $2.00 per share. On March 21, 2005, the Delaware Court of Chancery approved the settlement of the litigation on the terms stipulated. Accordingly, an additional payment of approximately $.85 per share will be made to the former shareholders of Vornado Operating.
Transactions Involving Alexanders
As of April 15, 2005, Interstate and its three general partnersSteven Roth (Chief Executive Officer of the Company and Alexanders and Chairman of the Board of the Company), David Mandelbaum (a trustee of the Company and director of Alexanders) and Russell B. Wight, Jr. (a trustee of the Company and director of Alexanders)owned approximately 13.7% of the Shares of the Company and 27.7% of Alexanders common stock.
The Company owns 33% of the outstanding common stock of Alexanders. At March 31, 2005, the Company had loans receivable from Alexanders of $124,000,000 (the largest outstanding balance of the loans during the last fiscal year), including $29,000,000 drawn under a $50,000,000 line of credit granted to Alexanders on August 1, 2000. The maturity date of the loan and the line of credit is the earlier of January 3, 2006 and the date the Alexanders Lexington Avenue project construction loan (the Construction Loan) is repaid. At March 31, 2005, the interest rate on the loan and line of credit was 9% and resets quarterly using a 6% spread to one-year treasuries with a 3% floor for treasuries. Interest on these loans (including a 1% unused commitment fee) during 2004 was $8,642,000.
2005 PROXY STATEMENT VORNADO REALTY TRUST 25
The Company manages, leases and develops Alexanders properties pursuant to agreements (see below) which expire in March of each year and are automatically renewable, except for the 731 Lexington Avenue development agreement which provides for a term lasting until substantial completion of the development of the property.
The Company receives an annual fee for managing all of Alexanders properties equal to the sum of (i) $3,000,000, (ii) 3% of the gross income from the Kings Plaza Mall, and (iii) 6% of the development costs with minimum guaranteed fees of $750,000 per annum.
The Company generally receives a fee of (i) 3% of the lease rent for the first 10 years of a lease term, 2% of lease rent for the 11th through the 20th years of a lease term and 1% of lease rent for the 21st through 30th years of a lease term, subject to the payment of rents of Alexanders tenants and (ii) 3% of the asset sales proceeds. Such amounts are payable to the Company annually in an amount not to exceed an aggregate of $2,500,000 until the present value of such installments (calculated at a discount rate of 9% per annum) equals the amount that would have been paid at the time the transactions which gave rise to the commissions occurred.
The Company is entitled to a development fee for the construction of Alexanders 731 Lexington Avenue property of approximately $26,300,000, based on 6% of construction costs, as defined, payable on the earlier of January 3, 2006, or the date of payment in full of the construction loan encumbering the property. The Company guaranteed to Alexanders 731 Lexington Avenue construction lender, the lien free, timely completion of the construction of the project and funding of project costs in excess of a stated budget, if not funded by Alexanders for which the Company is entitled to a $6,300,000 estimated fee based on 1% of construction costs, as defined, payable upon the completion of construction. Based upon the current status of construction, management does not anticipate the need to fund pursuant to this completion guarantee.
Building Management Services (BMS), a wholly-owned subsidiary of the Company, supervises the cleaning, engineering and security at Alexanders 731 Lexington Avenue property for an annual fee of 6% of costs for such services. In October 2004, Alexanders also contracted with BMS to provide the same services at the Kings Plaza Regional Shopping Center on the same terms. Included in BMSs costs for such services is rent that BMS pays subsidiaries of Alexanders for storage space in the properties. On May 27, 2004, the Company entered into an agreement with Alexanders under which it provides property management services at 731 Lexington Avenue for an annual fee of $0.50 per square foot of the tenant-occupied office and retail space. These agreements were negotiated and approved by a special committee of directors of Alexanders that were not affiliated with the Company.
At March 31, 2005, Alexanders owed the Company (i) $19,748,000 in development fees, (ii) $32,209,000 in leasing fees, (iii) $5,210,000 for the guarantee fee, (iv) $537,000 in interest, and (v) $609,000 in management fees and other costs. The largest amount outstanding during the year ended December 31, 2004 for these fees and other costs was $48,200,000. During the year ended December 31, 2004, Alexanders incurred $12,156,000 of leasing fees, $5,571,000 of development and guarantee fees, $4,101,000 of management fees and $1,768,000 of other fees and rents under its agreements with Vornado.
26 VORNADO REALTY TRUST 2005 PROXY STATEMENT
Certain Other Transactions
On July 1, 2004, the Company acquired the Marriott hotel located in its Crystal City office complex, in metropolitan Washington, DC from a limited partnership in which Robert H. Smith and Robert P. Kogod, trustees of the Company, together with family members own approximately 67%. The purchase price of $21,500,000 was paid in cash. This transaction was negotiated by management and approved at a meeting of the Board at which Messrs. Kogod and Smith recused themselves from voting. The hotel contains 343 rooms and is leased to an affiliate of Marriott International, Inc. until July 31, 2015, with one 10-year extension option. The land under the hotel was acquired in 1999.
On October 1, 2004, the Company increased its ownership interest in the Investment Building in Washington, DC to 5% by acquiring an additional 2.8% interest for $2,240,000 in cash. The Companys original interest in the property was acquired in connection with the acquisition of the Kaempfer Company in April 2003. Mitchell N. Schear, President of the Companys CESCR division and other former members of Kaempfer management at the time of its acquisition were also partners in the Investment Building partnership.
At March 31, 2005, the secured loan due from Mr. Roth arising from his 1992 stock option exercises was $13,123,000 (the largest outstanding balance during the last fiscal year) bearing interest at 4.49% per annum (the applicable federal rate), collateralized by assets with a value of not less than two times the loan amount and maturing in January 2006. Mr. Roth also has the right to draw up to $15,000,000 of secured loans on a revolving basis. Each additional loan will bear interest at the applicable federal rate and will mature on the sixth anniversary of the loan.
At March 31, 2005, loans due from Mr. Fascitelli, in accordance with his employment agreement, aggregated $8,600,000 (the largest outstanding balance during the last fiscal year). The loans mature in 2006 and bear interest, payable quarterly, at a rate of 3.97% (based on the applicable federal rate). Payment of the loans may be accelerated by the Company to the extent that the aggregate principal amount of the loans exceeds 50% of the sum of (i) the value of the 1,546,106 Shares payable to Mr. Fascitelli under his employment agreements and (ii) the amount by which the value of the Shares subject to options granted to Mr. Fascitelli by the Company exceeds the aggregate exercise price of such options.
In March 2004, the Company loaned $2,000,000 to Mr. Melvyn Blum (PresidentDevelopment Division) pursuant to the revolving credit facility contained in his January 2000 employment agreement. The loan bears interest at 1.57% (the applicable federal rate), matures in March 2007 and had an outstanding balance of $2,000,000 at March 31, 2005.
In February 2005, Mr. Mathrani repaid the $500,000 loan to the Company provided to him under his prior employment agreement.
In the year ended December 31, 2004, the Company paid Mr. Kogod fees of $225,000 for consulting services rendered. The Company expects to pay a similar fee during 2005.
The Company leases office space to Archstone-Smith Trust and these two companies share the costs of certain office-related services. Under these agreements, for the year ended December 31, 2004, the Company recorded rent from and paid fees to Archstone-Smith Trust in the amounts of $2,468,000 and $904,000, respectively. Mr. Smith and Mr. Kogod are trustees and shareholders of Archstone-Smith Trust.
2005 PROXY STATEMENT VORNADO REALTY TRUST 27
With respect to one of its Manhattan properties, the Company is the lessee under a ground lease that expires in 2070. The lessor under the ground lease is a limited liability company that is owned by several members, some of which include David Mandelbaum (one of the Companys trustees), his children, his brother, his sister and his sisters family. The underlying fee property was purchased by the parents of Mr. Mandelbaum in 1961 and placed into trusts at that time for the benefit of their children and grandchildren. Since 1961, this property has been owned 20% by these trusts and, when the trusts expired, descendents of Mr. Mandelbaums parents. The remaining 80% of the limited liability company is owned by two unrelated families. One family owns 55% of the limited liability company and is its managing member. Mr. Mandelbaums personal interest in the property is an indirect 2.66% interest. The Company acquired the building at 888 Seventh Avenue (and the tenants interest under the ground lease) from an unrelated party in 1998. The limited liability company owning the property receives under the ground lease an aggregate payment of $3,350,000 a year in rent. Its rights and obligations under the ground lease are limited.
Michael Lynne, a nominee for trustee of the Company, is the Co-Chairman and Co-Chief Executive Officer of New Line Cinema Corporation. New Line Cinema Corporation is a tenant at the Companys building at 888 Seventh Avenue in New York City. During 2004, the Company recorded rent from New Line Cinema Corporation in the amount of $3,198,000 under its lease. The lease was negotiated prior to the Company purchasing the building and renewed prior to Mr. Lynne being nominated as a trustee.
REPORT OF THE AUDIT COMMITTEE
The Audit Committees purposes are to (i) assist the Board in its oversight of (a) the integrity of the Companys financial statements, (b) the Companys compliance with legal and regulatory requirements, (c) the independent auditors qualifications and independence, and (d) the performance of the independent auditors and the Companys internal audit function; and (ii) prepare an Audit Committee report as required by the SEC for inclusion in the Companys annual proxy statement. The function of the Audit Committee is oversight. The Board of Trustees, in its business judgment, has determined that all members of the Audit Committee are independent, as required by applicable listing standards of the NYSE, as currently in effect, and in accordance with the rules and regulations promulgated by the SEC. The Board of Trustees has also determined that each member of the Audit Committee is financially literate and has accounting or related financial management expertise, as such qualifications are defined under the rules of the NYSE, and that Dr. West is an audit committee financial expert within the meaning of the rules of the SEC. The Audit Committee operates pursuant to an Audit Committee Charter.
Management is responsible for the preparation, presentation and integrity of the Companys financial statements and for the effectiveness of internal control over financial reporting, and for maintaining appropriate accounting and financial reporting principles and policies and internal controls and procedures that provide for compliance with accounting standards and applicable laws and regulations. The independent auditors, Deloitte & Touche LLP, are responsible for planning and carrying out a proper audit of the Companys annual financial statements in accordance with auditing standards generally accepted in the United States of America.
28 VORNADO REALTY TRUST 2005 PROXY STATEMENT
In performing its oversight role, the Audit Committee has considered and discussed the audited consolidated financial statements with management and the independent auditors. The Audit Committee has also discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended by Statement on Auditing Standards No. 90 Audit Committee Communications. The Audit Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect. The Audit Committee has also discussed with the independent auditors their independence. The independent auditors have free access to the Audit Committee to discuss any matters they deem appropriate.
Based on the reports and discussions described in the preceding paragraph, and subject to the limitations on the role and responsibilities of the Audit Committee referred to below and in the Audit Committee Charter in effect during 2004, the Audit Committee recommended to the Board of Trustees that the audited consolidated financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2004.
Members of the Audit Committee rely without independent verification on the information provided to them and on the representations made by management and the independent auditors. Accordingly, the Audit Committees oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committees considerations and discussions referred to above do not assure that the audit of the Companys consolidated financial statements has been carried out in accordance with auditing standards generally accepted in the United States of America, that the consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America or that Deloitte & Touche LLP is in fact independent.
PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the Deloitte Entities) has been the Companys independent auditors since 1976. The Audit Committee has selected the Deloitte Entities as the Companys independent auditors for the fiscal year ending December 31, 2005 as a result of a process begun in 2003 and continued into early 2004 by which the Audit Committee and management solicited and received proposals from each of the four largest independent auditing firms: Deloitte, KPMG LLP, PricewaterhouseCoopers LLP and Ernst & Young LLP. The Audit Committee initiated this process after consultation with management because it determined that there were possible benefits to be considered with regard to audit firm independence and obtaining a fresh look at the Companys financial accounting and internal controls processes. This process was not related to the quality of services provided by the Deloitte Entities. After consideration of each of the proposals, the Audit Committee retained the Deloitte Entities as the Companys
2005 PROXY STATEMENT VORNADO REALTY TRUST 29
independent auditors for 2004 and continued that retention in 2005. Among other matters, the Audit Committee concluded that current requirements for audit partner rotation, auditor independence through limitation of services and other regulations affecting the audit engagement process will substantially assist in supporting auditor independence. As a matter of good corporate governance, the Audit Committee has determined to submit its selection to shareholders for ratification. In the event that this selection of auditors is not ratified by a majority of the common shares present or represented at the annual meeting, the Audit Committee will review its future selection of auditors but will retain all rights of selection.
Even if the selection of the Deloitte Entities is ratified at the Annual Meeting, the Audit Committee, in its discretion, may change the appointment at any time during the year.
We expect that representatives of the Deloitte Entities will be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire, and will be available to respond to appropriate questions.
The aggregate fees billed by the Deloitte Entities for the years ended December 31, 2004 and 2003, for professional services rendered for the audits of the Companys annual consolidated financial statements included in the Companys Annual Reports on Form 10-K, for the reviews of the consolidated interim financial statements included in the Companys Quarterly Reports on Form 10-Q and reviews of other filings or registration statements under the Securities Act of 1933 and Securities Exchange Act of 1934 during those fiscal years were $3,184,000 and $3,001,000, respectively. Audit fees for the year ended December 31, 2004 include $636,000 for the audit of Americold Realty Trust. During 2004, audit fees include the attestation of managements assessment of internal control, as required by the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), Section 404.
The aggregate fees billed by the Deloitte Entities for the years ended December 31, 2004 and 2003 for professional services rendered that are related to the performance of the audits or reviews of the Companys consolidated financial statements which are not reported above under Audit Fees were $2,077,000 and $2,484,000, respectively. Audit-Related Fees generally include fees for stand-alone audits of subsidiaries, due diligence associated with mergers/acquisitions and Sarbanes-Oxley Section 404 pre-implementation assistance.
The aggregate fees billed by the Deloitte Entities for the years ended December 31, 2004 and 2003 for professional services rendered for tax compliance, tax advice and tax planning were $202,000 and $237,000, respectively. Tax Fees generally include fees for tax consultations regarding return preparation and REIT tax law compliance.
All Other Fees
The aggregate fees billed by the Deloitte Entities for the years ended December 31, 2004 and 2003 for professional services rendered other than those described above under Audit Fees, Audit-Related Fees and Tax Fees were $0 and $124,000, respectively. All Other Fees generally included fees for consultations relating to systems review.
30 VORNADO REALTY TRUST 2005 PROXY STATEMENT
Pre-approval Policies and Procedures
In May 2003, the Audit Committee established a policy of reviewing and approving engagement letters with the Deloitte Entities for the services described above under Audit Fees before the provision of those services commences. For all other services, the Audit Committee has detailed polices and procedures pursuant to which it has pre-approved the use of the Deloitte Entities for specific services for which the Audit Committee has set an aggregate quarterly limit of $250,000 on the amount of services that the Deloitte Entities can provide the Company. Any services not specified that exceed the quarterly limit, or which would cause the amount of total services provided by the Deloitte Entities to exceed the quarterly limit, must be approved by the Audit Committee Chairman before the provision of such services commences. The Audit Committee also requires management to provide it with regular quarterly reports of the amount of services provided by the Deloitte Entities. Since the adoption of such policies and procedures, all of such fees were approved by the Audit Committee in accordance therewith.
The Board of Trustees recommends that you vote FOR the ratification of the appointment of Deloitte & Touche LLP as the Companys independent auditors for 2005.
INCORPORATION BY REFERENCE
To the extent this Proxy Statement is incorporated by reference into any other filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, the sections entitled Compensation Committee Report on Executive Compensation, Report of the Audit Committee (to the extent permitted by the rules of the SEC), and Performance Graph will not be deemed incorporated unless provided otherwise in such filing.
ADDITIONAL MATTERS TO COME BEFORE THE MEETING
The Board does not intend to present any other matter, nor does it have any information that any other matter will be brought before the Annual Meeting. However, if any other matter properly comes before the Annual Meeting, it is the intention of each of the individuals named in the enclosed proxy to vote said proxy in accordance with their discretion on such matters.
PROXY AUTHORIZATION VIA THE INTERNET OR BY TELEPHONE
We have established procedures where shareholders may authorize their proxies via the Internet or by telephone. You may also authorize your proxy by mail. Please see the proxy card accompanying this Proxy Statement for specific instructions on how to authorize your proxy by any of these methods.
Proxies authorized via the Internet or by telephone must be received by 5:00 P.M., New York City time, on May 17, 2005. Authorizing your proxy via the Internet or by telephone will not affect the right to revoke your proxy should you decide to attend the Annual Meeting in person and desire to revoke your proxy.
2005 PROXY STATEMENT VORNADO REALTY TRUST 31
The Internet and telephone proxy authorization procedures are designed to authenticate shareholders identities and to allow shareholders to give their voting instructions and confirm that shareholders instructions have been recorded properly. The Company has been advised that the Internet and telephone proxy authorization procedures that have been made available are consistent with the requirements of applicable law. Shareholders authorizing their proxies via the Internet or by telephone should understand that there may be costs associated with voting in these manners, such as charges for Internet access providers and telephone companies that must be borne by the shareholder.
ADVANCE NOTICE FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The Bylaws of the Company provide that in order for a shareholder to nominate a candidate for election as a trustee at an Annual Meeting of Shareholders or propose business for consideration at such meeting, notice must be given to the Secretary of the Company no more than 120 days nor less than 90 days prior to the first anniversary of the preceding years Annual Meeting. As a result, any notice given by or on behalf of a shareholder pursuant to the provisions of our Bylaws must be delivered to the Secretary of the Company at the principal executive office of the Company, 888 Seventh Avenue, New York, New York 10019 between and including January 18, 2006 and February 17, 2006.
Shareholders interested in presenting a proposal for inclusion in the Proxy Statement for the Companys Annual Meeting of Shareholders in 2006 may do so by following the procedures in Rule 14a-8 under the Securities Exchange Act of 1934. To be eligible for inclusion, shareholder proposals must be received at the principal executive office of the Company, 888 Seventh Avenue, New York, New York 10019, Attention: Secretary, not later than December 28, 2005.
It is important that Proxies be returned promptly. Therefore, shareholders are urged to fill in, sign and return the accompanying proxy in the enclosed envelope.
888 Seventh Avenue, New York, New York 10019
VORNADO REALTY TRUST
P R O X Y
The undersigned shareholder, revoking all prior proxies, hereby appoints Steven Roth and Michael D. Fascitelli, or either of them, as proxies, each with full power of substitution, to attend the Annual Meeting of Shareholders of Vornado Realty Trust, a Maryland real estate investment trust (the Company), to be held at the Saddle Brook Marriott, Interstate 80 and the Garden State Parkway, Saddle Brook, New Jersey 07663 on Wednesday, May 18, 2005 at 12:30 P.M., local time, and any postponements or adjournments thereof, to cast on behalf of the undersigned all votes that the undersigned is entitled to cast at such meeting and otherwise represent the undersigned at the meeting with all powers possessed by the undersigned if personally present at the meeting. Each proxy is authorized to vote as directed on the reverse side hereof upon the proposals which are more fully set forth in the Proxy Statement and otherwise in his discretion upon such other business as may properly come before the meeting and all postponements or adjournments thereof, all as more fully set forth in the Notice of Annual Meeting of Shareholders and Proxy Statement, receipt of which is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE COMPANY. WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF THIS PROXY IS EXECUTED BUT NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF TRUSTEES, THE RATIFICATION OF THE SELECTION OF THE INDEPENDENT AUDITORS AND OTHERWISE IN THE DISCRETION OF THE PROXIES.
(Continued and to be executed, on reverse side)
VORNADO REALTY TRUST
(OR COMPLETE THE PROXY CARD BELOW AND RETURN IT BY MAIL IN THE ENCLOSED ENVELOPE)
You may authorize your proxy either by mail, by telephone or by Internet. Your telephone or Internet proxy authorization authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card by mail. You must authorize your proxy by telephone or Internet, not later than 5:00 P.M., New York City time on May 17, 2005.
TO AUTHORIZE YOUR PROXY BY INTERNET:
GO TO https://www.proxyvotenow.com/vrt.
Enter the control number listed below and follow the simple instructions.
If you authorize your proxy by telephone or Internet, please DO NOT mail back the proxy card.
THANK YOU FOR VOTING!
(Continued from other side)
PLEASE AUTHORIZE, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE