Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "intends," "plans," "would," "may" or other similar expressions in this Quarterly Report on Form 10-Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements and our future results of operations and financial condition, see "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2008. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Management's Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and six months ended June 30, 2009. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Critical Accounting Policies

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2008 in Management's Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2009.

Business Objective and Operating Strategy

Our business objective is to maximize shareholder value, which we measure by our total return provided to our shareholders. Below is a table comparing our performance to that of the Morgan Stanley REIT Index ("RMS") and the SNL REIT Index ("SNL") for the following periods ending June 30, 2009:

                                         Total Return (1)
                                    Vornado     RMS       SNL
                      One-year      (47.1%)   (43.9%)   (42.4%)
                      Three-years   (48.5%)   (45.9%)   (43.8%)
                      Five-years     (3.8%)   (14.1%)   (11.1%)
                      Ten-years     110.3%     67.8%     75.5%


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(1) Past performance is not necessarily indicative of how we will perform in the future.

We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:

• Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;

• Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation;

• Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;

• Investing in retail properties in select under-stored locations such as the New York City metropolitan area;

• Investing in fully-integrated operating companies that have a significant real estate component; and

• Developing and redeveloping our existing properties to increase returns and maximize value.

We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from possible asset sales and by accessing the public and private capital markets.

On May 14, 2009, our Board of Trustees executed its long-planned management succession strategy and elected Michael D. Fascitelli, as our Chief Executive Officer, succeeding Steven Roth, who continues to serve as Chairman of the Board.

We have a large concentration of properties in the New York City metropolitan area and in the Washington, DC and Northern Virginia areas. We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, attractiveness of location, the quality of the property and breadth and quality of services provided. Our success depends upon, among other factors, trends of the national, regional and local economies, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends. See "Risk Factors" in Item 1A of our Annual Report on form 10-K for the year ended December 31, 2008, for additional information regarding these factors.

In the second half of 2007 the residential mortgage and capital markets began showing signs of stress, primarily in the form of escalating default rates on sub-prime mortgages, declining home values and increasing inventory nationwide. In 2008, the "credit crisis" spread to the broader commercial credit and financial markets resulting in illiquidity and volatility in the bond and equity markets. These trends have continued in 2009. We are currently in an economic recession which has negatively affected substantially all businesses, including ours. Real estate transactions have diminished significantly and capitalization rates have risen. The commercial real estate industry may continue to be affected by declining demand for office and retail space due to bankruptcies, layoffs, downsizing, cost cutting as well as general economic conditions, which would result in lower occupancy rates and effective rents and a corresponding decrease in net income, funds from operations and cash flow. In addition, the value of investments in joint ventures, marketable securities, and mezzanine loans may continue to decline, and may result in impairment charges and/or valuation allowances and a corresponding decrease in net income and funds from operations. Impairment charges and valuation allowances are based on our judgment and represent our estimate of losses we may incur based on the difference between the carrying amounts of our investments and our estimate of the amounts we may ultimately receive upon disposition of the investments. The estimation process is inherently uncertain, and is based upon, among other factors, our expectations of future events, and accordingly, actual amounts received on these investments could differ materially from our estimates.

The trends discussed above have had an impact on our financial results in the first half of 2009. As shown in our table of leasing statistics by segment on page 41 of this "Overview," changes in occupancy rates from December 31, 2008 to June 30, 2009 ranged from a decrease of 60 basis points for each of our New York Office and Retail portfolios, to an increase of 40 basis points for our Washington, DC Office portfolio. Initial rents on space re-leased during 2009 exceeded expiring escalated rents, although at spreads below increases achieved during 2008. During the quarter ended June 30, 2009, we recorded a $122,738,000 mezzanine loans receivable valuation allowance. At June 30, 2009, the market values of our investment in Lexington Realty Trust (NYSE: LXP) common shares and our marketable securities portfolio were $10,253,000 and $14,312,000, respectively, below their adjusted cost bases. We have concluded that, as of June 30, 2009, the declines in the value of these investments were not "other-than-temporary." As of July 31, 2009, the market values of these investments have recovered significantly and are $3,123,000 higher in the aggregate, than their June 30, 2009 market values, and continue to be subject to market fluctuations. It is not possible for us to quantify the impact of the above trends, which may persist for the remainder of 2009 and beyond, on our future financial results.

Quarter Ended June 30, 2009 Financial Results Summary

Net loss attributable to common shareholders for the quarter ended June 30, 2009 was $51,904,000, or $0.30 per diluted share, versus net income of $116,858,000, or $0.72 per diluted share, for the quarter ended June 30, 2008. Net income for the quarter ended June 30, 2008 includes $58,603,000 of net gains on sale of real estate. In addition, net loss for the quarter ended June 30, 2009 and net income for the quarter ended June 30, 2008 includes certain items that affect comparability which are listed in the table below. The aggregate of the net gains on sale of real estate and the items in the table below, net of amounts attributable to noncontrolling interests, increased net loss attributable to common shareholders for the quarter ended June 30, 2009 by $91,516,000, or $0.53 per diluted share and increased net income attributable to common shareholders for the quarter ended June 30, 2008 by $48,971,000, or $0.30 per diluted share.

Funds from operations attributable to common shareholders plus assumed conversions ("FFO") for the quarter ended June 30, 2009 was $93,515,000, or $0.54 per diluted share, compared to $200,784,000, or $1.19 per diluted share, for the prior year's quarter. FFO for the quarters ended June 30, 2009 and 2008 includes certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the quarter ended June 30, 2009 by $92,700,000, or $0.53 per diluted share and decreased FFO for the quarter ended June 30, 2008 by $4,229,000 or $0.02 per diluted share.

(Amounts in thousands, except per share amounts)              For the Three Months
                                                                 Ended June 30,
Items that affect comparability (income) expense:              2009           2008
Mezzanine loans receivable - loss accrual                   $    122,738     $      -
Net gains on early extinguishment of debt                        (17,684 )          -
Our share of partially owned entities:
Non-cash purchase price accounting adjustments (primarily        (13,946 )     10,800
Toys "R" Us)
Filene's, Boston - lease termination payment                       7,650            -
Lexington Realty Trust - impairment loss                           4,580            -
Alexander's stock appreciation rights                                  -       (7,157 )
Recognition of previously deferred income upon the
termination of a lease with a partially
owned entity                                                      (5,402 )          -
Other, net                                                         2,909        1,002
                                                                 100,845        4,645
Noncontrolling interests' share of above adjustments              (8,145 )       (416 )
Items that affect comparability, net                        $     92,700     $  4,229

On January 1, 2009, we adopted FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement) ("FSP 14-1"). FSP 14-1 was required to be applied retrospectively. Accordingly, net income for the three and six months ended June 30, 2008 has been adjusted to include $8,500,000 and $16,900,000, respectively, of additional interest expense, net of amounts attributable to noncontrolling interests. In addition, in accordance with FASB Statement No. 128, Earnings Per Share ("SFAS 128"), we have included 4,850,000 additional common shares in the computation of income and FFO per share retroactively to the three and six months ended June 30, 2008, as a result of our first and second quarter common share dividends in 2009.

During the three and six months ended June 30, 2009, we did not recognize income on certain assets with an aggregate carrying amount of approximately $800 million at June 30, 2009, because they were out of service for redevelopment, although we capitalized $10,078,000 of interest cost in connection with the development of these assets. Assets under development include 1229-1231 25th Street ("West End 25"), 220 20th Street, portions of the Bergen Town Center and certain investments in partially owned entities.

The percentage increase (decrease) in the same store Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") of our operating segments for the quarter ended June 30, 2009 over the quarter ended June 30, 2008 and the trailing quarter ended March 31, 2009 are summarized below.

  Quarter Ended:                     New York   Washington, DC            Merchandise
                                      Office        Office       Retail      Mart
  June 30, 2009 vs. June 30, 2008      1.7%          6.2%         2.0%      (19.5%)
  June 30, 2009 vs. March 31, 2009     2.3%          2.8%        (3.0%)     9.2%(1)


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(1) Results from the timing of trade shows.

Six Months Ended June 30, 2009 Financial Results Summary

Net income attributable to common shares for the six months ended June 30, 2009 was $73,937,000, or $0.44 per diluted share, versus $506,421,000, or $3.08 per diluted share, for the six months ended June 30, 2008. Net income for the six months ended June 30, 2008 includes $64,605,000, of net gains on sale of real estate. In addition, net income for the six months ended June 30, 2009 and 2008 includes certain items that affect comparability which are listed in the table below. The aggregate of net gains on sale of real estate and the items in the table below, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the six months ended June 30, 2009 by $107,531,000, or $0.64 per diluted share and increased net income attributable to common shareholders for the six months ended June 30, 2008 by $307,739,000, or $1.82 per diluted share.

FFO for the six months ended June 30, 2009 was $355,777,000, or $2.12 per diluted share, compared to $728,667,000, or $4.32 per diluted share, for the prior year's six months. FFO for the six months ended June 30, 2009 and 2008 includes certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the six months ended June 30, 2009 by $108,194,000, or $0.64 per diluted share and increased FFO for the six months ended June 30, 2008 by $255,491,000, or $1.52 per diluted share.

(Amounts in thousands, except per share amounts) For the Six Months Ended June 30,

                                                       2009               2008
Items that affect comparability (income) expense:
Mezzanine loans receivable - loss accrual          $     122,738     $       (10,300 )
(reversal)
Write-off of unamortized costs from the voluntary         32,588                   -
surrender of equity awards
Net gains on early extinguishment of debt                (23,589 )                 -
Our share of partially owned entities:
Non-cash purchase price accounting adjustments
(primarily Toys "R" Us)                                  (13,946 )            10,800
Alexander's stock appreciation rights                    (11,105 )            (6,952 )
Filene's, Boston - lease termination payment               7,650                   -
Lexington Realty Trust - impairment loss                   4,580                   -
Development joint ventures - non-cash asset                    -              34,200
write-downs
Recognition of previously deferred income upon
the termination of a lease with a partially
owned entity                                              (5,402 )                 -
Reversal of deferred income taxes initially                    -            (222,174 )
recorded in connection with H Street acquisition
Net gain on sale of our 47.6% interest in                      -            (112,690 )
Americold Realty Trust
Derivative positions in marketable equity                      -              21,830
securities
Marketable equity security - impairment loss                   -               9,073
Other, net                                                 4,783               1,480
                                                         118,297            (274,733 )
Americold's FFO - sold on March 31, 2008                       -              (6,098 )
                                                         118,297            (280,831 )
Noncontrolling interests' share of above                 (10,103 )            25,340
adjustments
Items that affect comparability, net               $     108,194     $      (255,491 )

The percentage increase (decrease) in the same-store "EBITDA" of our operating segments for the six months ended June 30, 2009 over the six months ended June 30, 2008 is summarized below.

  Six Months Ended:                 New York   Washington, DC            Merchandise
                                     Office        Office       Retail      Mart
  June 30, 2009 vs. June 30, 2008     1.8%          5.6%         3.8%      (13.9%)

Calculations of same store EBITDA, reconciliations of our net income to EBITDA and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management's Discussion and Analysis of the Financial Condition and Results of Operations.

2009 Financing Activities:

During the first quarter of 2009, we purchased $81,534,000 (aggregate face amount) of our senior unsecured notes for $75,977,000 in cash. In the second quarter of 2009, pursuant to our April 30, 2009 tender offer, we purchased an additional $173,321,000 (aggregate face amounts) of our senior unsecured notes for $169,832,000 in cash.

In the first quarter of 2009, we purchased $47,000,000 of our cross-collateralized mortgages on 42 shopping centers for $46,231,000 in cash.

On April 7, 2009, we completed a $75,000,000 financing of 4 Union Square South, Manhattan, a 203,000 square foot, fully-leased retail property. This interest-only loan has a rate of LIBOR plus 3.25% (3.57% as of June 30, 2009) and matures in April 2012, with two one-year extension options. The property was previously unencumbered.

On April 22, 2009, we sold 17,250,000 common shares, including underwriters' over-allotment, in an underwritten public offering pursuant to an effective registration statement at an initial public offering price of $43.00 per share. We received net proceeds of approximately $709,700,000, after the underwriters' discount and offering expenses and contributed the net proceeds to the Operating Partnership in exchange for 17,250,000 Class A units of the Operating Partnership.

During the second quarter of 2009, we purchased $195,522,000 (aggregate face amount) of our convertible senior debentures for $171,652,000 in cash. In July 2009, we purchased an additional $59,750,000 (aggregate face amount) of our convertible senior debentures for $52,920,000 in cash.

On June 1, 2009, we repaid the $50,223,000 outstanding balance of the Commerce Executive loan, which was scheduled to mature on July 31, 2009.

In June 2009, we purchased $58,399,000 (aggregate carrying amount) of the debt secured by 555 California Street Complex for $55,814,000 in cash.

On June 24, 2009, Toys "R" Us, Inc. ("Toys") in which we own a 32.7% interest, extended its $2.0 billion credit facility, which was to expire in July 2010, to May 2012. The borrowing capacity under the amended facility will remain at $2.0 billion through the original maturity date in July 2010 and will continue at $1.5 billion thereafter. The interest rate will be LIBOR plus 3.20%, which may vary based on availability, through July 2010 and LIBOR plus 4.00%, subject to usage, thereafter. In addition, on July 9, 2009, Toys issued $950 million aggregate principal amount of senior unsecured notes due in 2017 at 97.399%. The proceeds from the issuance, along with existing cash, were used to repay the outstanding balance under its $1.3 billion senior credit facility, which was subsequently terminated.

On July 7, 2009, we refinanced the loan on Beverly Connection, which was scheduled to mature on July 9, 2009. The new loan has a two-year term and an interest rate of LIBOR plus 3.50%, with a LIBOR floor of 1.50%, and provides for a one-year extension through July 2012, at LIBOR plus 5.00%.

On July 30, 2009, we completed an $82,500,000 refinancing of 2011 Crystal Drive, a 442,000 square foot office building located in Crystal City - Arlington, Virginia. The loan has a fixed interest rate of 7.3% and matures in August 2017, with two one-year extension options. We retained net proceeds of approximately $44,500,000 after repaying the existing loan and closing costs.

The following table sets forth certain information for the properties we own directly or indirectly, including leasing activity. The leasing activity presented below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue recognition in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Tenant improvements and leasing commissions are presented below based on square feet leased during the period, on a per square foot and per square foot per annum basis based on weighted average lease terms and as a percentage of initial rent per square foot.

(Square feet in thousands)
                                       New York    Washington, DC                  Merchandise Mart
As of June 30, 2009:                    Office         Office         Retail      Office      Showroom
Square feet (in service)                  16,154            18,073     22,379        2,430        6,337
Number of properties                          28                82        173            8            8
Occupancy rate                             96.1%             95.4%      91.5%        95.4%        90.2%

Leasing Activity:
Quarter Ended June 30, 2009:
Square feet                                  406               530        348            -          326
Initial rent per square foot (1)       $   53.11    $        40.11   $  17.61    $       -    $   24.79
Weighted average lease terms (years)         8.8               5.7       12.8            -          3.6
Rent per square foot - relet space:
Square feet                                  321               355         49            -          326
Initial Rent - cash basis (1)          $   54.51    $        38.97   $  24.62    $       -    $   24.79
Prior escalated rent - cash basis      $   50.83    $        36.44   $  24.14    $       -    $   25.28
Percentage increase (decrease):
Cash basis                                  7.2%              6.9%       2.0%            -        (1.9% )
GAAP basis                                 12.6%             12.3%       9.3%            -         7.1%
Rent per square foot - vacant space:
Square feet                                   85               175        299            -            -
Initial rent (1)                       $   47.79    $        42.42   $  16.46    $       -    $       -
Tenant improvements and leasing
commissions:
Per square foot                        $   53.43    $        17.89   $   0.41    $       -    $    2.75
Per square foot per annum              $    6.06    $         3.14   $   0.03    $       -    $    0.76
Percentage of initial rent                 11.2%              8.1%       0.2%            -         3.1%

Six Months Ended June 30, 2009:
Square feet                                  567             1,069        595            -          444
Initial rent per square foot (1)       $   53.15    $        39.74   $  17.23    $       -    $   26.44
Weighted average lease terms (years)         7.9               4.7        9.9            -          3.8
Rent per square foot - relet space:
Square feet                                  475               853        281            -          444
Initial Rent - cash basis (1)          $   53.84    $        39.26   $  16.15    $       -    $   26.44
Prior escalated rent - cash basis      $   49.94    $        37.20   $  15.30    $       -    $   27.11
Percentage increase (decrease):
Cash basis                                  7.8%              5.5%       5.5%            -        (2.5% )
GAAP basis                                 11.5%             10.4%      10.2%            -         5.6%
Rent per square foot - vacant space:
Square feet                                   93               216        314            -            -
Initial rent (1)                       $   49.62    $        41.60   $  18.21    $       -    $       -
Tenant improvements and leasing
commissions:
Per square foot                        $   43.60    $        15.94   $   1.80    $       -    $    3.41
Per square foot per annum              $    5.51    $         3.39   $   0.14    $       -    $    0.90
Percentage of initial rent                 10.4%              8.5%       0.8%            -         3.4%

(Square feet and cubic feet in thousands)
                                            New York    Washington, DC                     Merchandise Mart
                                             Office         Office         Retail         Office        Showroom
As of March 31, 2009:
Square feet (in service)                       16,138         17,963        22,224          2,438         6,337
Number of properties                             28             82           176              8             8
Occupancy rate                                 95.9%          95.2%         92.0%           95.1%         90.1%

. . .