Vornado Realty Trust 2022 Form 10-K Summary
Business context and reporting period
Vornado Realty Trust is a fully integrated REIT conducting substantially all business through Vornado Realty L.P., its 92%-owned operating partnership. The company primarily owns and operates office and retail properties concentrated in the New York City metropolitan area, with additional investments in Chicago, San Francisco and other markets. The filing covers the fiscal year ended December 31, 2022; it is an annual filing rather than a quarterly report.
- Portfolio included approximately 32.7 million square feet in service, including 19.9 million square feet of Manhattan office space and 2.6 million square feet of Manhattan street retail space.
- Approximately 86% of NOI at share came from the New York City metropolitan area and approximately 77% came from office properties.
- New York segment occupancy was 90.4%, including 91.9% for office, 74.4% for retail and 96.7% for residential properties.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenues | $1.800 billion | $1.589 billion | +$210.8 million |
| Net income attributable to common shareholders | $(408.6) million | $101.1 million | Declined $509.7 million |
| Diluted loss/income per common share | $(2.13) | $0.53 | Declined $2.66 |
| NOI at share | $1.162 billion | $1.033 billion | +12.5% |
| NOI at share, cash basis | $1.151 billion | $1.035 billion | +11.2% |
| FFO attributable to common shareholders plus assumed conversions | $638.9 million, or $3.30 per diluted share | $571.1 million, or $2.97 per diluted share | +11.9% per share |
| Net cash provided by operating activities | $798.9 million | $761.8 million | +$37.1 million |
| Consolidated debt, excluding deferred financing costs | $8.453 billion | $8.674 billion | Down $221.6 million |
Revenue growth reflected higher rental revenues, development and redevelopment activity, increased same-store operations, resumed trade-show activity at theMART and higher building-services income. Interest and debt expense increased to $279.8 million from $231.1 million, primarily because of higher variable interest rates.
GAAP earnings were significantly affected by non-cash and unusual items, including $595.5 million of real estate impairment losses, a $71.1 million Hotel Pennsylvania loss, and a $489.9 million impairment of the Fifth Avenue and Times Square JV investment. Excluding certain listed items, FFO increased from the prior year.
At December 31, 2022, Vornado had $1.0 billion of cash and restricted cash, $472 million of U.S. Treasury bills and $1.9 billion available under its $2.5 billion revolving credit facilities, for total reported liquidity of approximately $3.4 billion.
Material changes versus the prior comparable period
- Same-store NOI at share increased 7.1%; same-store NOI at share on a cash basis increased 9.0%.
- New York office occupancy decreased to 91.9% from 92.2%, while retail occupancy decreased to 74.4% from 80.7%.
- theMART occupancy decreased to 81.6% from 88.9%, although same-store NOI increased 64.2%, primarily because of higher trade-show activity and prior-period property-tax accrual adjustments.
- New York office leasing achieved positive 9.0% GAAP and 5.4% cash mark-to-market on second-generation space. Retail leasing mark-to-market was negative 38.3% on a GAAP basis and negative 34.2% on a cash basis.
- Vornado completed sales of several assets, including 33-00 Northern Boulevard for $172.8 million, 40 Fulton Street for $101.0 million, selected 220 Central Park South units for $88.0 million of net proceeds, and multiple Manhattan retail properties.
- The company refinanced 100 West 33rd Street with $480 million of debt and 770 Broadway with $700 million, extended its $1.25 billion revolving facility to December 2027, and extended its $800 million term loan to December 2027.
- The $450 million 697-703 Fifth Avenue mortgage matured unpaid in December 2022. After $29 million of property-level funds were applied, the balance was $421 million and was in default at an 8.50% default rate while restructuring negotiations continued.
- Common dividends paid in 2022 were $406.6 million, or $2.12 per share. In January 2023, the company declared a quarterly dividend of $0.375 per share, an indicated annual rate of $1.50.
Guidance, outlook, risks and unusual items
Management stated that operating cash flow over the next twelve months, together with existing cash, is expected to fund operations, distributions, debt amortization and recurring capital expenditures. The filing does not provide formal earnings guidance.
- Management expects approximately $250 million of consolidated capital expenditures in 2023. Development and redevelopment projects are expected to be funded through operating cash flow, existing liquidity and/or borrowings.
- Major projects include The Farley Building, PENN 1, PENN 2, the Hotel Pennsylvania site and districtwide PENN District improvements. Estimated remaining costs and completion timing remain subject to construction, leasing, financing and market risks.
- As of December 31, 2022, construction commitments were approximately $409 million, additional expected contributions to partially owned entities were approximately $10.3 million, and guarantees and master leases totaled approximately $1.553 billion.
- Key risks include elevated interest rates, inflation, refinancing availability, office work-from-home trends, weak Manhattan retail conditions, tenant defaults, declining property values, impairment risk, ground-lease obligations, climate-related regulation and insurance costs.
- The company reported current senior debt ratings of BBB- from Fitch, Baa3 from Moody’s and BBB- from S&P. A downgrade below investment grade could increase borrowing costs and affect liquidity.
- Vornado and its joint venture partners were negotiating a restructuring of the defaulted 697-703 Fifth Avenue loan; the filing provides no assurance regarding timing or ultimate resolution.
- Vornado’s investment fund interests were carried at zero at year-end after losses and restructuring activity involving the Crowne Plaza Times Square Hotel. Remaining unfunded fund commitments were $28.5 million, of which Vornado’s share was $8.8 million.
- The company’s investment in 350 Park Avenue is subject to a subsequent-event transaction with Citadel and related parties involving master leases, development options and potential future joint ventures.
Most important facts for an investor to verify
- Reconcile GAAP net loss with FFO and assess the sustainability of the reported FFO increase after excluding impairments, disposition gains and other adjustments.
- Review the status and potential economic impact of the 697-703 Fifth Avenue loan default and any restructuring of the Fifth Avenue and Times Square JV.
- Analyze debt maturities, variable-rate exposure, hedge expiration dates and the effect of continued high interest rates on cash flow and refinancing capacity.
- Evaluate office and retail occupancy, lease expirations and mark-to-market leasing results, particularly the 2023 office and retail expirations.
- Verify the remaining cost, leasing progress, expected returns and financing needs for The Farley Building, PENN 1, PENN 2 and the Hotel Pennsylvania site.
- Assess liquidity after dividends, recurring capital expenditures, development commitments, guarantees, ground-lease payments and potential joint-venture funding requirements.
- Review the assumptions supporting the $595.5 million of real estate impairments and the sensitivity of property values to capitalization rates, discount rates and rental growth.