Vornado Realty Trust 10-Q Summary
Business context and reporting period
Vornado Realty Trust, through Vornado Realty L.P., is a fully integrated REIT focused primarily on office, retail, residential, development and other real estate assets concentrated in New York City, with additional properties in Chicago and San Francisco. Vornado owned approximately 92.7% of the Operating Partnership as of June 30, 2020. The filing covers the three and six months ended June 30, 2020, compared with the corresponding 2019 periods. The financial statements are unaudited and were reviewed by Deloitte & Touche LLP.
Financial results and key metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenues | $343.0 million | $463.1 million | $787.6 million | $997.8 million |
| Net income attributable to common shareholders | $(197.8) million | $2,400.2 million | $(192.8) million | $2,581.7 million |
| Diluted EPS | $(1.03) | $12.56 | $(1.01) | $13.51 |
| FFO attributable to common shareholders plus assumed conversions | $203.3 million | $164.3 million | $333.6 million | $412.0 million |
| FFO per diluted share | $1.06 | $0.86 | $1.75 | $2.16 |
| NOI at share | $222.6 million | $308.9 million | $503.6 million | $646.7 million |
| NOI at share, cash basis | $256.8 million | $318.7 million | $540.8 million | $651.2 million |
| Net cash provided by operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $267.7 million | $292.9 million |
Q2 cash-basis NOI at share represented approximately 74.9% of total revenue, compared with approximately 68.8% in the prior-year quarter; this is a non-GAAP operating metric and is not equivalent to a GAAP profit margin. Six-month cash-basis NOI at share was approximately 68.7% of revenue, compared with approximately 65.3% in the prior-year period.
- Cash and cash equivalents were $1.768 billion at June 30, 2020; cash plus restricted cash totaled $1.863 billion.
- Liquidity was approximately $3.6 billion, consisting of $1.9 billion of cash and restricted cash and $1.7 billion available under $2.75 billion of revolving credit facilities.
- Consolidated debt totaled approximately $7.988 billion before deferred financing costs, including $5.663 billion of mortgages, $450 million of senior unsecured notes, $800 million of unsecured term debt and $1.075 billion of revolving credit borrowings.
- Total assets were $18.042 billion and total equity was $6.929 billion at June 30, 2020.
- Common dividends were $0.66 per share in Q2 and $1.32 per share for the first six months. A $1.95 per-share special dividend was paid in January 2020.
Material changes versus the prior comparable period
- Revenue declined 25.9% in Q2 and 21.1% for the first six months, primarily because of COVID-19-related rent collection and operating impacts, the Hotel Pennsylvania closure, cancellation of trade shows at theMART, reduced building-services activity and the 2019 transfer of properties to the Fifth Avenue and Times Square joint venture.
- Q2 same-store NOI at share decreased 24.5%; same-store cash-basis NOI at share decreased 10.8%. For the first six months, the decreases were 13.9% and 6.3%, respectively.
- Office rent collection for Q2 was 93%, or 98% including deferrals; retail collection was 72%, or 78% including deferrals. Total collection was 88%, or 94% including deferrals.
- Net loss attributable to common shareholders replaced substantial prior-year income because Q2 2019 included a $2.571 billion gain on the Fifth Avenue and Times Square JV transaction. Q2 2020 also included a $305.9 million after-noncontrolling-interest impairment related to that investment.
- FFO increased in Q2 despite lower operating performance, primarily because the 2019 period included significant transaction-related and other adjustments. Six-month FFO declined 19.0% year over year.
- Unsecured term debt increased from $750 million to $800 million in February 2020, and revolving credit borrowings increased from $575 million at year-end 2019 to $1.075 billion at June 30, 2020.
- Cash flow from operations declined $25.1 million for the first six months. Investing cash flow changed from $2.114 billion provided in 2019 to $124.1 million used in 2020, while financing cash flow changed from $2.046 billion used in 2019 to $112.6 million provided in 2020.
Guidance, outlook, management commentary, risks and unusual items
- Management did not provide formal full-year earnings guidance. It stated that the ultimate effect of COVID-19 remains highly uncertain and could be material.
- Management expects cash flow from operations over the next twelve months, together with cash on hand, to fund operations, distributions, debt amortization and recurring capital expenditures. Development and acquisition requirements may require additional borrowings or equity offerings.
- Management expected approximately $500 million of additional net cash proceeds from 220 Central Park South condominium sales during the remainder of 2020. Four units generated $157.0 million of net proceeds in Q2, and seven additional units generated $250.1 million in July 2020.
- The Hotel Pennsylvania was temporarily closed, trade shows at theMART were cancelled for the remainder of 2020, and certain development projects were temporarily paused before resuming during phased reopening.
- The company furloughed 1,803 employees as of April 30, 2020. As of July 31, 2020, 542 had returned to work. Executive officers waived portions of base salary and non-management trustees waived their cash retainers for the remainder of 2020.
- Vornado wrote off $36.3 million of straight-line rent receivables and $8.8 million of tenant receivables deemed uncollectible. JCPenney and New York & Company had filed for Chapter 11 bankruptcy, and future revenue recognition for those tenants will generally be based on amounts actually received.
- The real estate fund portfolio had a fair value of $17.5 million, $324.1 million below cost. A joint venture defaulted on a $274.4 million non-recourse Crowne Plaza Times Square Hotel loan in June 2020; negotiations with lenders were ongoing.
- The company recognized $211.5 million of unrealized losses on real estate fund investments for the first six months and $13.4 million of credit losses on loans receivable following adoption of the expected-credit-loss standard.
- The company recognized a $70.3 million non-cash gain after surrendering the 608 Fifth Avenue lease and being released from related obligations.
- Commitments included approximately $556 million of construction commitments, approximately $11 million of expected additional capital contributions to partially owned entities, and approximately $1.537 billion of guarantees and master leases. Letters of credit outstanding totaled $17.0 million.
- Vornado and Related guaranteed certain Farley Office and Retail and Moynihan Train Hall obligations. The historic tax credit investor had contributed $92.4 million and held an interest subject to a potential put option.
Most important facts an investor should verify
- Whether rent collections, deferrals, abatements, tenant bankruptcies and occupancy trends improve or deteriorate after June 30, 2020.
- The duration and financial effect of COVID-19 restrictions on New York office and retail properties, Hotel Pennsylvania, theMART and development projects.
- The valuation and future impairment risk of the Fifth Avenue and Times Square JV and the real estate fund investments.
- The resolution of the Crowne Plaza Times Square Hotel loan default and any resulting obligations.
- Debt maturities, revolving-facility availability, covenant compliance, refinancing conditions and exposure to variable interest rates.
- The pace and pricing of remaining 220 Central Park South condominium sales and whether projected 2020 proceeds are realized.
- Funding requirements and completion risks for the Penn District, Farley Office and Retail, Moynihan Train Hall and other development commitments.
- The sustainability of dividends and distributions relative to recurring operating cash flow and FFO.