VORNADO REALTY TRUST 34 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUILDING MAINTENANCE SERVICE COMPANY (“BMS”) On January 1, 2003, the Company acquired BMS, a company which pr ovides cleaning and related services principally to the Company’s Manhattan office properties for $13,000,000 in cash from the estate of Bernard Mendik and certain other individuals including David Greenbaum, one of the Company’s executive officers. The Company paid BMS $53,024,000 and $51,280,000 for the years ended December 31, 2002 and 2001 for services render ed at the Company’s Manhattan office properties. Although the terms and conditions of the contracts pursuant to which these services were provided were not negotiated at arms length, the Company believes based upon comparable amounts char ged to other real estate companies that the terms and conditions of the contracts were fair to the Company.  VORNADO OPERATING COMPANY AND AMERICOLD LOGISTICS In October 1998, 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. The Company granted Vornado Operating a $75,000,000 unsecured revolving credit facility which expires on December 31, 2004. Borrowings under the revolving credit facility bear interest at LIBOR plus 3%. The Company receives a commitment fee equal to 1% per annum on the average daily unused portion of the facility. No amortization is required to be paid under the revolving cr edit facility during its term.  The revolving credit facility prohibits Vornado Operating from incurring indebtedness to third parties (other than certain purchase money debt and certain other exceptions) and prohibits Vornado Operating from paying dividends. As of December 31, 2003, $21,989,000 was outstanding under the revolving credit facility. Vornado Operating has disclosed that ther is substantial doubt as to its ability to continue as a going concern and its ability to discharge its liabilities in the normal course of business. Vornado Operating has incurred losses since its inception and  in the aggregate its investments do not, and for the foreseeable futur e are not expected to, generate sufficient cash flow to pay all of its debts and expenses. Vornado Operating estimates that it has adequate borrowing capacity under its credit facility with the Company to meet its cash needs until December 31, 2004. However, the principal, interest and fees outstanding under the line of credit come due on such date. Further, Vornado Operating states that its only investee, AmeriCold Logistics (“Tenant”), anticipates that its Landlord, a partnership 60% owned by the Company and 40% owned by Crescent Real Estate Equities, will need to restructure the leases between the Landlor and the Tenant to provide additional cash flow to the  Tenant (the Landlord has previously restructured the leases to provide additional cash flow to the Tenant). Management anticipates a further lease restructuring in 2004, although it is under no obligation to do so and there can be no assurance that it will do  so. Vornado Operating is expected to have a source to repay the debt under this facility from the lease restructuring or other options, although not by its original due date. Since January 1, 2002, the Company has not recognized interest income on the debt under this facility. OTHER 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, the Company’s tenant at the cold storage warehouses (Temperature Controlled 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 Company’s revolving credit facility. The Company owns preferred securities in Capital Trust, Inc. (“Capital T rust”) with a carrying amount of $29,259,000 at December 31, 2003. Mr. Roth, the Chairman and Chief Executive Of ficer of Vornado Realty Trust, is a member of the Board  of Directors of Capital Trust nominated by the Company.