Vornado Realty Trust 2021 Form 10-K Summary
Business context and reporting period
Vornado Realty Trust, together with Vornado Realty L.P., reported results for the fiscal year ended December 31, 2021. Vornado is a fully integrated REIT that conducts substantially all operations through the Operating Partnership, which it owned approximately 92.6% of at year-end.
The portfolio is concentrated in the New York metropolitan area and includes Manhattan office and retail properties, residential assets, theMART in Chicago, a controlling interest in 555 California Street in San Francisco, a 32.4% interest in Alexander’s, Inc., and other investments. Approximately 88% of 2021 NOI at share came from the New York metropolitan area, including approximately 79% from office properties and 17% from Manhattan retail properties.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenues | $1.589 billion | $1.528 billion | Up $61.3 million |
| Net income attributable to common shareholders | $101.1 million | $(348.7) million | Returned to profit |
| Diluted earnings per share | $0.53 | $(1.83) | Improved |
| NOI at share | $1.033 billion | $972.6 million | Up 6.3% |
| NOI at share, cash basis | $1.035 billion | $1.019 billion | Up 1.6% |
| FFO attributable to common shareholders plus assumed conversions | $571.1 million, or $2.97 per diluted share | $750.5 million, or $3.93 per diluted share | Down 23.9% |
| Net cash provided by operating activities | $761.8 million | $424.2 million | Up $337.6 million |
2021 net income benefited from lower impairment losses, improved results from partially owned entities and real estate fund investments, tax benefits, and lower general and administrative expense. Results also included a $50.3 million gain on sales of 220 Central Park South condominium units, a $23.7 million refinancing defeasance cost, a $7.9 million impairment loss on Manhattan retail properties sold during the year, and $9.0 million of previously capitalized Series K preferred issuance costs.
Same-store NOI at share increased 2.9% overall, including 4.0% in New York and 7.9% at 555 California Street, but declined 14.2% at theMART. TheMART decline included an $18.3 million increase in real estate tax expense. New York office occupancy was 92.2%, retail occupancy was 80.7%, and residential occupancy was 96.4% at December 31, 2021. TheMART occupancy was 88.9% and 555 California Street occupancy was 93.8%.
Liquidity, debt and capital resources
- Cash and restricted cash totaled $1.930 billion at December 31, 2021.
- Total liquidity was approximately $4.1 billion, consisting of $1.9 billion of cash and restricted cash and $2.2 billion available under $2.75 billion of revolving credit facilities.
- Consolidated debt totaled $8.674 billion before deferred financing costs, compared with $7.433 billion at year-end 2020. The weighted-average interest rate was 2.29%, compared with 2.89% in 2020.
- Variable-rate debt was $4.534 billion and fixed-rate debt was $4.140 billion. Management estimated that a 1% increase in base rates would increase annual income expense by approximately $47.7 million attributable to Vornado after applicable noncontrolling interests.
- Debt maturities, based on applicable extensions, include approximately $700 million in 2022 and no consolidated debt maturities in 2023. Contractual principal and interest repayments totaled approximately $9.328 billion.
- Management stated that cash flow from operations and cash balances should be adequate over the next twelve months for operations, distributions, debt amortization and recurring capital expenditures.
- The January 2022 common dividend was $0.53 per share, or an indicated annual rate of $2.12. Expected 2022 cash requirements included approximately $406 million of common dividends, $62 million of preferred dividends and $30 million of Operating Partnership distributions.
Material changes versus the prior comparable period
- Vornado acquired the remaining 45% interest in One Park Avenue for approximately $158 million and began consolidating the 944,000-square-foot office property.
- The company sold six 220 Central Park South condominium units for $137.4 million of net proceeds, three Manhattan retail properties for $96.5 million of net proceeds, and other assets through Alexander’s and the real estate fund.
- Vornado completed major refinancing transactions, including $1.2 billion for 555 California Street, $950 million for 1290 Avenue of the Americas, $525 million for One Park Avenue and $350 million for 909 Third Avenue.
- Vornado issued $750 million of green senior unsecured notes and issued $300 million of Series O preferred shares, using the proceeds in part to redeem all $300 million of Series K preferred shares.
- The $1.25 billion revolving credit facility was extended to April 2026, and its spread was reduced to LIBOR plus 0.89% after a sustainability margin adjustment.
- The Hotel Pennsylvania was permanently closed on April 5, 2021, demolition commenced in the fourth quarter, and the site is planned for redevelopment as PENN 15.
- Trade shows at theMART resumed in the third quarter of 2021 but attendance remained below pre-pandemic levels.
Development, outlook, risks and unusual items
Major development and redevelopment projects include Farley Office and Retail, PENN 1, PENN 2, PENN 15 and districtwide PENN District improvements. Estimated costs and cash expended at December 31, 2021 included Farley at approximately $1.120 billion estimated cost and $896.2 million expended; PENN 1 at $450 million and $309.4 million expended; PENN 2 at $750 million and $161.1 million expended; and PENN District improvements at $100 million and $31.5 million expended. The filing cautions that projects may not be completed on schedule or within budget. Construction commitments totaled approximately $494 million.
COVID-19 continued to affect office attendance, tenant space requirements, Manhattan tourism, retail tenants and trade-show activity. Management identified work-from-home and hybrid work trends, tenant credit deterioration, reduced retail demand, interest rates, refinancing access, inflation, construction costs, LIBOR transition, climate-related regulation, insurance availability and concentration in New York as significant risks.
Approximately $6.7 billion of consolidated debt was indexed to LIBOR at year-end 2021, although approximately $2.2 billion was hedged with interest-rate swaps. New floating-rate loans entered after December 31, 2021 reference SOFR or another alternative rate. The company also disclosed defaults on certain non-recourse real estate fund loans and a potential $27.1 million clawback obligation associated with fund incentive allocations.
Other disclosed contingencies included approximately $1.648 billion of guarantees and master leases, $15.3 million of outstanding letters of credit, approximately $10.3 million of expected additional capital contributions to partially owned entities, potential obligations related to the Farley historic tax credit investor, and ongoing litigation involving the former Regus tenant. Management does not expect ordinary-course legal proceedings to have a material adverse effect, but recovery under the Regus guaranty remains subject to litigation and bankruptcy-related proceedings.
For 2022, the company approved a long-term performance plan tied to comparable FFO per share, total shareholder return and ESG measures, including greenhouse-gas reductions, GRESB performance and LEED certification.
Most important facts for an investor to verify
- Whether office occupancy, leasing spreads and tenant demand continue to recover as hybrid work patterns evolve.
- The refinancing plan and interest-rate exposure for debt maturing in 2022 and 2023, including the transition from LIBOR to SOFR.
- Progress, total remaining cost, leasing and expected returns for Farley, PENN 1, PENN 2 and PENN 15.
- Whether $4.1 billion of reported liquidity remains sufficient after development spending, dividends, debt service and other commitments.
- The sustainability of $2.12 per-share annualized common dividends relative to FFO, operating cash flow and capital requirements.
- Performance and valuation sensitivity of theMART, Manhattan retail assets and other properties affected by tourism and work-from-home trends.
- Potential cash exposure from guarantees, fund loan defaults, the Farley tax-credit arrangement, construction commitments, insurance gaps and litigation.
- The effect of non-GAAP measures, including NOI and FFO, and unusual items such as condominium gains, impairment losses and refinancing costs on reported results.