Vornado Realty Trust — Q2 2021 Form 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 operating assets and was 92.7% owned by Vornado as of June 30, 2021. The portfolio is concentrated in New York office, retail and residential properties, with additional assets including theMART and 555 California Street. The filing covers the three and six months ended June 30, 2021; financial statements are unaudited.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenues | $378.9 million | $343.0 million | $758.9 million | $787.6 million |
| Net income (loss) | $76.8 million | $(217.4) million | $103.8 million | $(321.9) million |
| Net income (loss) attributable to common shareholders | $48.0 million | $(197.8) million | $52.1 million | $(192.8) million |
| Diluted EPS | $0.25 | $(1.03) | $0.27 | $(1.01) |
| FFO attributable to common shareholders plus assumed conversions | $153.4 million / $0.80 | $203.3 million / $1.06 | $271.8 million / $1.41 | $333.6 million / $1.75 |
| NOI at share | $249.6 million | $222.6 million | $499.7 million | $503.6 million |
| NOI at share, cash basis | $250.4 million | $256.8 million | $499.3 million | $540.8 million |
| Net cash provided by operating activities | Six-month measure: $472.7 million vs. $267.7 million | Increase of $205.0 million |
Consolidated NOI margin, calculated as NOI before noncontrolling interests divided by total revenues, was approximately 49.6% in Q2 2021 and 49.7% for the first six months of 2021.
Balance sheet, debt and liquidity
- Total assets were $16.66 billion at June 30, 2021, including $9.00 billion of net real estate and $2.17 billion of cash and cash equivalents.
- Consolidated debt, before deferred financing costs and other adjustments, was approximately $8.16 billion, consisting of $5.59 billion of mortgages, $1.20 billion of senior unsecured notes, $800.0 million of unsecured term debt and $575.0 million drawn on revolving facilities. The weighted-average interest rate was 2.60%.
- Cash and restricted cash totaled $2.32 billion. Management reported approximately $4.5 billion of liquidity, including $2.3 billion of cash and restricted cash and $2.161 billion available under $2.75 billion of revolving credit facilities.
- Total equity was $6.57 billion, compared with $6.95 billion at December 31, 2020. Redeemable noncontrolling interests increased to $749.7 million from $606.3 million.
- Six-month investing cash flow was an outflow of $183.5 million, including $269.4 million of development and construction expenditures. Financing cash flow was an inflow of $297.7 million.
Material changes versus the prior comparable period
- Q2 net income attributable to common shareholders improved to $48.0 million from a $197.8 million loss, primarily because the prior-year period included a $305.9 million after-tax share of a non-cash impairment at the Fifth Avenue and Times Square JV and other pandemic-related losses.
- Six-month revenue declined 3.6%, primarily due to the permanent closure of Hotel Pennsylvania, the cancellation of trade shows at theMART and development, disposition and other portfolio changes. Q2 revenue increased 10.5% as same-store rental revenues recovered.
- Cash-basis same-store NOI increased 0.5% in Q2 but declined 3.6% for the six-month period. Six-month cash-basis same-store NOI declined 3.7% in New York and 6.8% at theMART, while increasing 1.6% at 555 California Street.
- FFO declined 24.6% in Q2 and 18.6% for the six-month period, reflecting the continuing effect of pandemic-related operating pressure, the hotel closure and canceled trade shows.
- General and administrative expense declined, reflecting the overhead reduction program announced in December 2020. Interest and debt expense also declined due to lower variable rates and the expiration of certain higher-rate swaps.
- The company issued $750.0 million of green senior notes and used proceeds in part to repay the $675.0 million theMART mortgage. It also refinanced 909 Third Avenue and 555 California Street and extended its $1.25 billion revolving credit facility to April 2026, as fully extended.
Outlook, commentary, risks and unusual items
- Management stated that cash flow from operations over the next twelve months and cash on hand are expected to fund operations, distributions, debt amortization and recurring capital expenditures. Development and acquisitions may require additional debt, equity or asset-sale proceeds.
- COVID-19 remained a material risk. Q2 rent collections were 97%, including 98% from office tenants and 93% from retail tenants. Remote work, retail tenant financial stress, rent deferrals or abatements, reduced BMS and parking revenue, and uncertainty related to variants and government restrictions could continue to affect results.
- Hotel Pennsylvania was permanently closed in April 2021. Trade shows at theMART were expected to resume in the third quarter of 2021, but the filing provides no quantified earnings guidance.
- Real estate fund investments had a fair value of only $3.7 million, $339.8 million below cost. The Crowne Plaza Times Square and 1100 Lincoln Road loans were in default, and the Fund had approximately $29.2 million of remaining unfunded commitments, of which Vornado’s share was $9.3 million.
- Development commitments included approximately $429 million of construction commitments. Farley Office and Retail, PENN 1 and PENN 2 had estimated total development costs of approximately $1.12 billion, $450 million and $750 million, respectively, excluding certain district improvements.
- On July 20, 2021, Vornado agreed to acquire the remaining 45% of One Park Avenue for approximately $158 million in cash and assumption of its joint venture partner’s share of a $525 million mortgage; closing was expected in the third quarter of 2021.
- Other matters requiring monitoring include approximately $1.678 billion of guarantees and master leases, $13.3 million of outstanding letters of credit, potential insurance limitations, the $48.6 million Pier 92 lease liability, and litigation involving the former Regus tenant at 345 Montgomery Street.
Investor verification checklist
- Verify rent collections, occupancy trends and leasing spreads as office tenants return from remote work and retail conditions normalize.
- Assess whether cash-basis NOI and FFO can recover despite the permanent hotel closure, reduced development activity and canceled or delayed trade shows.
- Review debt maturities, floating-rate exposure, covenant compliance and refinancing requirements, particularly for debt maturing or extendable in 2023.
- Evaluate funding needs and execution risk for Farley, PENN 1, PENN 2 and the planned One Park Avenue acquisition.
- Monitor the defaulted real estate fund loans, the Fund’s low fair value, unfunded commitments and potential $28 million incentive-allocation clawback.
- Consider the effect of COVID-19, tenant bankruptcies, rent concessions, real estate valuations and insurance availability on future cash flow and asset values.