MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS VORNADO REALTY TRUST 45 FFO was $130,729,000, or $1.08 per diluted share for the thr ee months ended December 31, 2003, compared to $93,507,000, or $.83 per diluted share for the three months ended December 31, 2002, an increase of $37,222,000 or $.25 per share. Income from the straight-lining of rents included in FFO, amounted to $8,204,000, or $.06 per diluted share for the three months ended December 31, 2003, and $7,794,000, or $.06 per diluted share for the three months ended December 31, 2002. Income from the amortization of acquired below market leases net of above market leases included in FFO, amounted to $2,133,000, or $.01 per diluted share for the three months ended December 31, 2003 and $12,662,000, or $.09 per diluted share for the three months ended December 31, 2002.  Also included in FFO are certain items that affect comparability as detailed below. Before these items, the three months ended December 31, 2003 FFO is 8.7% higher than the year ended December 31, 2002 on a per share basis. The following table reconciles FFO and net income: For The Year Ended For the Three Months Ended December 31, December 31, (AMOUNTS IN THOUSANDS) 2003 2002 2003 2002 Net income applicable to common shares $ 439,888 $ 209,736 $ 200,259 $40,540 Cumulative effect of change in accounting principle — 30,129 — — Depreciation and amortization of real property 208,624 195,808 58,125 51,384 Net gains on sale of real estate (161,789) — (158,378) — Proportionate share of adjustments to equity in  net income of partially-owned entities  to arrive at funds from operations: Depreciation and amortization of real property 54,762 51,881 14,455 13,957 Net gains on sale of real estate (6,733) (3,431) 219 (4,104) Minority interest’s share of above adjustments (20,080) (50,498) 15,742 (9,448) 514,672 433,625 130,422 92,329 Series A preferred dividends 3,570 6,150 307 1,178 FFO applicable to common shares $ 518,242 $ 439,775 $ 130,729 $93,507 Weighted average shares for FFO per share 116,651 112,600 120,895 112,796 December 31, 2003  December 31, 2002  Per Per (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Amount Share Amount Share FFO as reported above $ 130,729 $1.08 $93,507 $ .83 Items that affect comparability of FFO: Alexander’s stock appreciation rights compensation expense $ 5,391 $ .04 $ — $ — Write-off of Series D-1 preferred unit offering costs 2,187 .02 — — Primestone foreclosure and impairment losses — — 15,857 .14 Amortization of Officer’s employment arrangement — — 6,875 .06 Write-off of 20 Times Square pre-development costs — — 6,874 .06 Minority interest’s share of above adjustments (1,369) (.01) (6,061) (.05) $ 6,209 $ .05 $23,545 $ .21 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) December 31, 2003 December 31, 2002 Per Per Amount Share Amount Share Amortization of officer’s employment arrangement — — 27,500 .24 Write-off of 20 Times Square pre-development costs — — 6,874 .06 Gain on sale of marketable securities, air rights and  transfer of mortgages — — (16,130) (.14) Minority interest’s share of above adjustments (3,130) (.03) (10,628) (.09) $ 13,431 $ .12 $ 41,217 $ .37 Fourth Quarter 2003 vs. Fourth Quarter 2002 For The Three Months Ended