MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS VORNADO REALTY TRUST 15 (3) Reflects increases of $12,953 from New York City Office leasing activity and $2,901 from CESCR’s leasing activity. These increases resulted primarily from higher rents for space relet in 2003 and 2002 (full year impact in 2003 as compared to a partial year in 2002) and an increase in CESCR occupancy of .3% this year partially offset by a decrease in NYC office occupancy of .6%. Initial rent for the 677 square feet of space relet in New York City was $44.41 per square foot in 2003, a 15.3% increase over prior esca- lated rent. Initial rent for the 2,510 square feet of space relet in CESCR portfolio was $30.62 per square foot a 2.5% increase over prior escalated rents. For further details of NYC and CESCR office leasing activity see page 5. (4) Resulted primarily from (i) an increase in the occupancy rate from 88.3% at December 31, 2002 to 93.0% at December 31, 2003 as a result of leasing space previously vacated by Bradlees and Kmart and (ii) higher rents for space relet in 2003 and 2002 (full year impact in 2003 as compared to a partial year in 2002). Initial rent for the 1,046 square feet of space relet in 2003 was $15.56 per square foot, a 13.2% increase over prior rent. For further details of Retail leasing activity see page 5.  (5) Reflects an increase in occupancy of Merchandise Mart office space of 0.9% from 2002, higher rents for 1,157 square feet of showroom space relet in 2003 and 911 square feet relet in 2002 (full year impact in 2003 as compared to partial year impact in 2002), partially offset by a decrease in Merchandise Mart showroom occupancy of .1% from 2002 and lower rents for 270 square feet of office space relet in 2003. Initial rents for the 1,157 square feet of showroom space relet in 2003 was $23.43, a 0.6% increase over prior escalated rent. Initial rents for the 270 square feet of office space relet in 2003 was $21.24, a 5.3% decrease over prior escalated rent. For further details of Merchandise Mart leasing activity see page 5. (6) Reflects higher reimbursements from tenants resulting primarily from increases in real estate taxes. The increases in Office and Retail were $19,383 and $3,247, before reductions of $2,215 and $1,407 in the current quarter relating to the true-up of prior year’s billings. (7) Results primarily from a $3,444 decrease in CESCR third party leasing revenue from $7,100 in 2002 to $3,656 in 2003 as a result of the closing of one of the CESCR leasing offices. The Company’s expenses wer $921,097,000 for the year ended December 31, 2003, compared to $852,370,000 in the prior year, an increase of $68,727,000. Below ar the details of the increase (decrease) by segment: Expenses (1) The increase in Hotel Pennsylvania’ operating expenses was primarily due to a $1,700 increase in real estate taxes and a $500 increase in utility costs over the prior year.  (2) Results primarily from the rescheduling of two trade shows from the fourth quarter of 2002, in which they were previously held to the first quarter of 2003, and due to a new trade show held for the first time in 2003.  Merchandise (AMOUNTS IN THOUSANDS) T otal Office Retail Mart Other Operating : Acquisitions: BMS $ 19,789 $19,789 $ — $ — $ — Las Catalinas (acquisition of remaining  50% and consolidation vs. equity method  accounting for 50%) 3,007 — 3,007 — — Crystal Gateway One 1,742 1,742 — — — Bergen Mall 399 — 399 — — 2101 L Street 1,531 1,531 — — — 435 Seventh Avenue 503 — 503 — — 424 Sixth Avenue 98 — 98 — — Hotel activity 2,769 — — — 2,769 (1) Trade Shows activity 1,487 — — 1,487 (2) — Operations 32,990 (3) 23,853 (3) 4,955 (3) 3,524 (3) 658 64,315 46,915 8,962 5,011 3,427 Depreciation and amortization : Acquisitions 5,966 4,026 1,940 — — Operations 10,465 4,947 (4) 1,938 3,409 (4) 171 16,431 8,973 3,878 3,409 171 General and administrative : Acquisitions 4,915 4,274 641 — — Operations 17,440 (5) (357) 1,502 (167) 16,462 22,355 3,917 2,143 (167) 16,462 Costs of acquisitions and development not  consummated (6,874) — — — (6,874) Amortization of officer’s deferred compensation expense (27,500) — — — (27,500) Total increase (decrease) in expenses $ 68,727 $59,805 $14,983 $8,253 $(14,314)