Vornado Realty Trust 2023 Q3 10-Q Summary
Business context and reporting period
Vornado Realty Trust is a fully integrated REIT operating primarily through Vornado Realty L.P., which held substantially all assets and operations. Vornado owned approximately 90.9% of the Operating Partnership as of September 30, 2023. The unaudited filing covers the three and nine months ended September 30, 2023, with comparisons to the corresponding 2022 periods. The portfolio is concentrated in New York, with additional properties in Chicago and San Francisco.
Financial performance and key metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenues | $451.0 million | $457.4 million | $1.369 billion | $1.353 billion |
| Net income | $59.6 million | $20.1 million | $133.5 million | $142.4 million |
| Net income attributable to common shareholders | $52.8 million | $7.8 million | $104.4 million | $84.7 million |
| Diluted earnings per common share | $0.28 | $0.04 | $0.54 | $0.44 |
| FFO attributable to common shareholders plus assumed conversions | $119.5 million | $152.5 million | $382.7 million | $462.5 million |
| FFO per diluted share | $0.62 | $0.79 | $1.97 | $2.39 |
| NOI at share—cash basis | $278.0 million | $295.7 million | $852.6 million | $861.5 million |
| Cash flow from operating activities | Not separately reported for the quarter | Not separately reported for the quarter | $436.9 million | $559.8 million |
Q3 2023 rental revenues were $400.4 million and fee and other income was $50.6 million. Q3 NOI at share—cash basis declined 6.0% year over year, primarily reflecting weakness in the Other segment, particularly THE MART, partly offset by New York same-store growth. Nine-month NOI at share—cash basis declined 1.0%.
As of September 30, 2023, total assets were $16.45 billion, including $10.03 billion of net real estate and $2.67 billion of investments in partially owned entities. Cash and cash equivalents were $1.00 billion, and restricted cash was $262.1 million.
Debt, liquidity and capital allocation
- Net consolidated debt consisted of $5.715 billion of mortgages, $1.193 billion of senior unsecured notes, $794.2 million of unsecured term debt and $575.0 million drawn on revolving credit facilities.
- Gross consolidated debt was approximately $8.333 billion, with a reported weighted-average interest rate of 4.19%. The estimated fair value of consolidated debt was $8.006 billion.
- Approximately $2.009 billion of variable-rate debt was subject to interest-rate caps at quarter-end. The filing estimates that a 1% increase in base rates would increase annual net income attributable to Vornado by approximately $27.2 million after specified noncontrolling interests.
- Liquidity was approximately $3.2 billion, consisting of $1.3 billion of cash and restricted cash and $1.9 billion available under revolving credit facilities.
- Operating cash flow declined by $123.0 million year over year to $436.9 million. Investing activities generated $65.8 million, while financing activities used $261.4 million.
- Vornado postponed common-share dividends through the end of 2023. The Board will determine whether the 2023 dividend is paid in cash, securities or a combination after finalizing taxable income.
- Under a $200 million share-repurchase authorization, Vornado repurchased 2.024 million common shares for $29.2 million through September 30, 2023. Approximately $170.9 million remained available.
Material changes versus the prior comparable periods
- Q3 net income attributable to common shareholders increased to $52.8 million from $7.8 million, but the increase was driven substantially by nonrecurring or unusual items, including the $36.0 million gain on the Pier 94 leasehold contribution and the $20.2 million gain on the sale of The Armory Show.
- Nine-month net income attributable to common shareholders rose 23% to $104.4 million, while nine-month FFO declined 17% to $382.7 million, reflecting higher interest costs and weaker underlying operating performance.
- Interest and debt expense increased 15% in Q3 and 37% for the nine months, primarily because of higher average interest rates. Nine-month cash interest payments increased to $306.0 million from $170.8 million.
- Q3 revenues declined 1.4%, while nine-month revenues increased 1.2%. New York revenue increased in Q3, but Other-segment revenue declined, including lower trade-show activity and weaker THE MART performance.
- Same-store NOI at share increased 4.0% in New York during Q3 but declined 54.0% at THE MART. For the nine months, same-store NOI at share increased 2.8% in New York, declined 35.5% at THE MART and increased 32.2% at 555 California Street.
- Occupancy at September 30, 2023 was 91.6% for New York office, 74.3% for New York retail, 96.6% for New York residential, 76.8% at THE MART and 94.5% at 555 California Street.
Guidance, outlook, management commentary and unusual items
- Management expects cash flow from operations and existing cash balances to fund operations, distributions, debt amortization and recurring capital expenditures over the next twelve months, but development, redevelopment and acquisitions may require additional borrowings, equity or asset-sale proceeds.
- Management identified higher interest rates, inflation, economic uncertainty, potential recessionary conditions, tenant financial stress and real estate market weakness as significant risks.
- Vornado formed the Pier 94 JV with Hudson Pacific Properties and Blackstone to develop a 266,000-square-foot studio campus. Estimated project cost is $350 million, including $183.2 million of construction financing and $166.8 million of equity. Vornado has a 49.9% interest, contributed its leasehold interest and expects to provide approximately $34 million of cash equity. The Company recognized a $36.0 million gain on formation.
- PENN 1, PENN 2 and related PENN District improvements had estimated total development costs of $450 million, $750 million and $100 million, respectively. The filing states that project completion, timing and costs are not assured.
- Vornado entered into or supported several refinancings and interest-rate hedges during the period. Key maturities and refinancing needs remain concentrated in 2025 and later, including the restructured 697-703 Fifth Avenue loan maturing in June 2025 and other joint-venture debt.
- Vornado has approximately $1.153 billion of guarantees, primarily related to mortgage loans of unconsolidated joint ventures, approximately $169.5 million of construction commitments and $30.2 million of outstanding letters of credit.
- The PENN 1 ground lease was extended through June 2073, but the June 2023 fair-market rent reset had not been determined and could be material.
- The filing reports no material changes to previously disclosed risk factors, no material adverse legal proceedings and effective disclosure controls.
Most important facts for investors to verify
- Whether the postponed 2023 common dividend will be paid in cash, securities or a combination, and the timing and amount of the payment.
- The sustainability of liquidity given higher interest expense, variable-rate exposure, upcoming debt maturities, refinancing requirements and joint-venture guarantees.
- Underlying operating trends excluding the Pier 94, Armory Show, tenant settlement and other disposition-related gains.
- Leasing, occupancy and rent trends at New York office properties, THE MART and 555 California Street, including required tenant improvements and leasing commissions.
- Total remaining funding requirements and completion risks for PENN District projects and Sunset Pier 94 Studios.
- The impact of the PENN 1 ground-rent reset, insurance availability and costs, environmental exposures, and potential uninsured losses.
- The terms and execution of the Citadel-related options and potential 350 Park Avenue development or sale transactions beginning in 2024.