Vornado Realty Trust 2020 Q3 Form 10-Q Summary
Business context and reporting period
Vornado Realty Trust is a fully integrated REIT operating primarily through Vornado Realty L.P. The portfolio is concentrated in New York office, retail and residential properties, with additional investments including theMART and 555 California Street. This combined Form 10-Q covers the three and nine months ended September 30, 2020. The results were materially affected by the COVID-19 pandemic.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Total revenue | $364.0 million | $466.0 million | $1,151.5 million | $1,463.7 million |
| Net income attributable to common shareholders | $53.2 million | $322.9 million | $(139.6) million | $2,904.6 million |
| Diluted earnings per share | $0.28 | $1.69 | $(0.73) | $15.20 |
| FFO attributable to common shareholders plus assumed conversions | $278.5 million | $279.5 million | $612.1 million | $691.5 million |
| FFO per diluted share | $1.46 | $1.46 | $3.20 | $3.62 |
| NOI at share | $220.5 million | $307.5 million | $724.1 million | $954.2 million |
| NOI at share, cash basis | $231.5 million | $303.5 million | $772.3 million | $954.7 million |
| Net cash from operating activities | Not separately presented | Not separately presented | $191.4 million | $398.0 million |
Q3 same-store NOI at share declined 16.4%, while same-store NOI at share on a cash basis declined 10.6%. For the nine-month period, the declines were 14.7% and 7.7%, respectively. Q3 cash-basis NOI margin relative to total revenue was approximately 63.6%; the filing does not present a GAAP operating margin.
At September 30, 2020, total assets were $17.6 billion, cash and cash equivalents were $1.411 billion, and restricted cash was $79.3 million. Consolidated debt, before deferred financing costs and other adjustments, was $7.486 billion, including $5.661 billion of mortgage debt, $450.0 million of senior unsecured notes, $800.0 million of unsecured term debt and $575.0 million drawn under revolving credit facilities. Management reported total liquidity of approximately $3.7 billion, consisting of $1.5 billion of cash and restricted cash and $2.2 billion available under $2.75 billion of revolving credit facilities.
Material changes versus the prior comparable period
- Q3 revenue decreased $102.0 million, or approximately 21.9%, primarily because of lower same-store operations, the Hotel Pennsylvania closure, cancelled trade shows and COVID-19-related tenant issues.
- Nine-month revenue decreased $312.2 million, or approximately 21.3%. The comparison also reflects properties transferred to the Fifth Avenue and Times Square JV in 2019.
- Q3 net income attributable to common shareholders fell to $53.2 million from $322.9 million. Nine-month results shifted to a $139.6 million loss from $2.905 billion of income in 2019, when the company recorded a $2.571 billion gain on the transfer of assets to the Fifth Avenue and Times Square JV.
- FFO was broadly stable year over year in Q3 at $1.46 per diluted share but declined 11.6% for the nine months to $3.20 per diluted share.
- The company recorded a $103.2 million after-tax impairment, net of noncontrolling interests, on its investment in the Fifth Avenue and Times Square JV in Q3 and $409.1 million for the nine months.
- Real estate fund investments declined to $3.7 million from $222.6 million at December 31, 2019, reflecting $225.4 million of unrealized losses for the nine months.
- Occupancy at September 30, 2020 was 95.8% for New York office, 79.9% for New York retail, 89.8% at theMART and 98.4% at 555 California Street. New York retail occupancy was 94.5% at December 31, 2019.
Guidance, outlook, risks and unusual items
No formal earnings or financial guidance is provided in the filing. Management stated that operating cash flow over the following twelve months, together with cash on hand, was expected to fund operations, distributions, debt amortization and recurring capital expenditures. Development expenditures and acquisitions may require additional borrowings or equity offerings.
- For Q3, the company collected 93% of rent due, or 95% including rent deferrals. Office collections were 95%, or 97% including deferrals; retail collections were 82%, or 85% including deferrals.
- The Hotel Pennsylvania remained closed, trade shows at theMART were cancelled for the remainder of 2020, and many office tenants continued working remotely. The company accrued $9.2 million of Hotel Pennsylvania severance costs.
- The company wrote off $50.2 million of straight-line rent receivables and $21.2 million of tenant receivables during the nine months. The filing identifies JCPenney and New York & Company as bankrupt tenants.
- The Crowne Plaza Times Square Hotel joint venture defaulted on a $274.4 million non-recourse loan in June 2020. Negotiations with lenders were continuing, with no assurance regarding timing or resolution.
- At September 30, 2020, the real estate fund had investments with fair value of $3.7 million, $338.3 million below cost, and remaining unfunded commitments of $28.7 million, of which Vornado's share was $9.1 million.
- The company had approximately $504 million of construction commitments, approximately $1.745 billion of guarantees and master leases, $14.1 million of outstanding letters of credit, and approximately $11 million of expected additional capital contributions to partially owned entities.
- Development projects included 220 Central Park South, PENN1, PENN2, Farley Office and Retail, 345 Montgomery Street and other projects. Total construction commitments and project costs remain subject to completion, timing and budget risk.
- Subsequent events included a $500 million PENN11 refinancing in October 2020, additional 220 Central Park South condominium sales, and repayment of a $52.5 million Borgata-related mortgage in November 2020.
Most important facts for investors to verify
- Whether rent collections, deferrals, abatements, tenant bankruptcies and remote-work trends lead to further declines in occupancy, rental revenue and same-store NOI.
- The ultimate resolution and recovery implications of the Crowne Plaza Times Square Hotel loan default.
- Whether further impairment charges arise for the Fifth Avenue and Times Square JV, real estate fund investments or other properties.
- The sustainability of distributions given nine-month operating cash flow of $191.4 million, common distributions paid of $725.9 million and ongoing development commitments.
- Available revolver capacity, covenant compliance, debt maturities and refinancing terms as pandemic-related market conditions evolve.
- Completion costs, funding sources and guarantees associated with Farley Office and Retail, Moynihan Train Hall, PENN1, PENN2 and other development projects.
- The filing's non-GAAP FFO and NOI measures, including the effects of condominium gains, impairments, rent deferrals and other adjustments.