VORNADO REALTY TRUST annual report, FY2023

Vornado Realty Trust 2023 Form 10-K Summary

Business Context and Reporting Period

Vornado Realty Trust is a fully integrated REIT conducting substantially all operations through Vornado Realty L.P. The filing covers the fiscal year ended December 31, 2023; it is an annual report rather than a standalone fourth-quarter filing. Vornado owned approximately 91.0% of the Operating Partnership and operated primarily office and retail properties concentrated in the New York metropolitan area, with additional investments in THE MART in Chicago, 555 California Street in San Francisco, Alexander’s, Inc., and other real estate investments.

Portfolio: approximately 32.7 million square feet, including 25.3 million square feet at Vornado’s ownership share.
New York segment occupancy: 89.4%; office occupancy: 90.7%; retail occupancy: 74.9%.
Approximately 88% of NOI at share came from the New York metropolitan area and approximately 78% came from office properties.

Key Financial Metrics

Metric	2023	2022	Change
Total revenues	$1.811 billion	$1.800 billion	Up $11.2 million
Net income attributable to common shareholders	$43.4 million	$(408.6) million	Returned to profitability
Diluted earnings per share	$0.23	$(2.13)	Improved $2.36
FFO attributable to common shareholders plus assumed conversions	$503.8 million	$638.9 million	Down 21.1%
FFO per diluted share	$2.59	$3.30	Down 21.5%
NOI at share	$1.143 billion	$1.162 billion	Down 1.6%
NOI at share, cash basis	$1.140 billion	$1.151 billion	Down 1.0%
Net cash provided by operating activities	$648.2 million	$798.9 million	Down $150.8 million

Interest and debt expense increased to $349.2 million from $279.8 million, primarily because of higher average interest rates. Same-store NOI at share increased 0.4% overall and 2.2% in New York, but declined 34.8% at THE MART, partly because 2022 included a prior-period tax-assessment accrual adjustment. Same-store NOI at 555 California Street increased 26.3%, including a $14.1 million share of a tenant settlement.

At December 31, 2023, consolidated debt was $8.305 billion, consisting of $6.993 billion of fixed-rate debt and $1.311 billion of variable-rate debt, with a weighted average interest rate of 3.94%. The estimated fair value of consolidated debt was $8.013 billion. Consolidated cash and restricted cash totaled $1.262 billion, and total reported liquidity was approximately $3.2 billion, including $1.9 billion available under revolving credit facilities.

Total assets were $16.188 billion and total equity was $5.705 billion at year-end. Vornado paid $129.1 million of common dividends, or $0.675 per share, and $62.1 million of preferred dividends during 2023.

Material Changes Versus the Prior Comparable Period

Net income attributable to common shareholders improved from a $408.6 million loss to $43.4 million of income, primarily because 2022 included substantially larger impairment losses and losses from partially owned entities.
FFO declined by $135.1 million, reflecting weaker operating performance in certain assets, higher interest costs, and other items.
Revenue was broadly stable, while total expenses increased $30.9 million to $1.565 billion. General and administrative expense increased to $162.9 million from $133.7 million.
Interest and debt expense increased $69.5 million, including $98.3 million of higher interest expense from increased average rates, partly offset by higher capitalized interest.
2023 real estate impairment losses were $45.0 million on consolidated assets and $29.3 million on investments in partially owned entities, compared with substantially higher impairment charges in 2022.
Cash and restricted cash increased $240.4 million, despite lower operating cash flow, as investing and financing cash outflows were materially lower than in 2022.
Vornado repurchased 2.0 million common shares for $29.1 million at an average price of $14.40. The remaining authorization was $170.9 million at year-end.

Strategic Activity, Outlook and Unusual Items

Vornado sold four Manhattan retail properties for $100 million, The Armory Show for approximately $24.4 million, and two 220 Central Park South condominium units for net proceeds of $24.5 million. Alexander’s sold the Rego Park III land parcel for approximately $71.1 million.
Vornado contributed its Pier 94 leasehold interest to a 49.9%-owned joint venture developing Sunset Pier 94 Studios. The estimated project cost is $350 million, including $183.2 million of construction financing; Vornado recognized a $36.0 million gain on the contribution.
The PENN 2 redevelopment is estimated to cost $750 million, with $639.0 million expended at year-end. PENN District improvements are estimated at $100 million, with $47.4 million expended.
At 350 Park Avenue, Citadel master leased the property for 10 years at initial annual net rent of $36 million. Future options could result in a 1.7 million square foot development, a sale of the site, or a put of the site to Citadel, with stated values ranging from $1.2 billion to $1.4 billion.
Management expects approximately $250 million of 2024 capital expenditures for consolidated properties, funded through operating cash flow, existing liquidity and/or borrowings.
Management anticipates that 2024 common dividend policy will consist of one common share dividend in the fourth quarter. The filing does not provide earnings or FFO guidance.
Debt maturities, assuming available extensions, include $169.8 million in 2024 and $1.330 billion in 2025. Management expects operating cash flow and 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 borrowing, equity issuance or asset sales.

Risks, Contingencies and Unusual Items

Office exposure is significant, and work-from-home and hybrid-work trends may reduce tenant space requirements, occupancy, rents and property values.
Higher interest rates increase debt service and refinancing costs. A 1% increase in base rates was estimated to reduce annual net income attributable to Vornado by approximately $21.7 million after stated adjustments.
The company has approximately $1.230 billion of guarantees, primarily for certain unconsolidated-property debt and the Pier 94 completion guarantee. Letters of credit outstanding totaled $30.2 million.
The PENN 1 ground lease rent reset remains unresolved. The final fair-market-value rent could be materially higher or lower than the company’s estimate.
Ground leases, construction commitments of approximately $91.4 million, joint-venture obligations and development cost overruns could require additional capital.
Insurance may not fully cover terrorism, earthquake, flood, climate-related or other losses. The company remains exposed to deductibles and losses exceeding policy limits.
Legal matters are described as arising in the ordinary course and are not currently expected to have a material adverse effect. A Regus-related dispute was settled in 2023 for a $21.4 million payment, of which $6.4 million was attributable to noncontrolling interests.
Impairment valuations depend on subjective assumptions regarding market rents, discount rates, capitalization rates, expenses and capital expenditures. Real estate impairment was identified as the critical audit matter.
Management and Deloitte concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, and Deloitte issued unqualified opinions on the financial statements and internal controls.

Important Facts for Investors to Verify

Reconcile GAAP earnings with FFO and NOI, including the effect of impairments, dispositions, tenant settlements and other non-recurring items.
Review 2024 and 2025 debt maturities, extension options, refinancing assumptions, interest-rate caps and swap expirations.
Assess office occupancy, lease expirations, leasing spreads and required tenant improvements, particularly in the New York portfolio.
Monitor the PENN 1 rent reset, PENN 2 redevelopment spending and leasing progress, and Sunset Pier 94 construction and financing.
Evaluate the liquidity impact of the $250 million 2024 capital-expenditure estimate, common and preferred dividends, share repurchases and potential development funding.
Review guarantees, joint-venture debt, noncontrolling interests and the $1.828 billion preferred equity interest in the Fifth Avenue and Times Square joint venture.
Confirm the assumptions supporting property valuations and impairment testing, including capitalization and discount rates.