VORNADO REALTY TRUST quarterly report, Q3 FY2021

Vornado Realty Trust 10-Q 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 combines both registrants and covers the unaudited three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Vornado owned approximately 92.6% of the Operating Partnership at quarter-end and had 191.7 million common shares outstanding.

The portfolio is concentrated in New York office, retail and residential properties, with additional investments in theMART, 555 California Street, Alexander’s and other partially owned entities. Total portfolio occupancy was 90.4% at September 30, 2021, compared with 92.2% at December 31, 2020.

Financial performance and key metrics

Metric	Q3 2021	Q3 2020	9M 2021	9M 2020
Total revenues	$409.2 million	$364.0 million	$1,168.1 million	$1,151.5 million
Net income (loss)	$71.8 million	$68.7 million	$175.6 million	$(253.1) million
Net income (loss) attributable to common shareholders	$37.7 million	$53.2 million	$89.8 million	$(139.6) million
Diluted EPS	$0.20	$0.28	$0.47	$(0.73)
FFO attributable to common shareholders plus assumed conversions	$158.3 million	$278.5 million	$430.1 million	$612.1 million
FFO per diluted share	$0.82	$1.46	$2.24	$3.20
NOI at share	$255.3 million	$220.5 million	$754.9 million	$724.1 million
NOI at share—cash basis	$257.2 million	$231.5 million	$756.5 million	$772.3 million
Net cash provided by operating activities	Not separately presented for the quarter	$478.1 million	$191.4 million

Q3 revenue increased 12.4%, primarily from resumed trade shows at theMART, same-store growth and higher BMS cleaning fees. Nine-month revenue increased 1.4%. Net income margins were approximately 17.5% in Q3 2021 versus 18.9% in Q3 2020, and approximately 15.0% for the first nine months of 2021 versus a negative margin in the prior-year period.

Q3 same-store NOI at share increased 4.1% overall and 7.8% in New York; theMART declined 50.8% and 555 California Street increased 3.0%. On a cash basis, Q3 same-store NOI increased 2.8% overall. For the first nine months, same-store NOI at share increased 1.9%, while cash-basis same-store NOI declined 1.1%.

Liquidity, debt and capital allocation

Cash and restricted cash totaled $2.268 billion at September 30, 2021, up $537.8 million from year-end 2020.
Management reported approximately $4.5 billion of liquidity, consisting of $2.3 billion of cash and restricted cash and $2.162 billion available under $2.75 billion of revolving credit facilities.
Consolidated debt totaled $8.680 billion before deferred financing costs, comprising $6.105 billion of mortgages, $1.200 billion of senior unsecured notes, $800 million of unsecured term debt and $575 million drawn on revolving facilities. The weighted-average interest rate was 2.51%.
Debt increased from $7.433 billion at December 31, 2020, primarily due to the One Park Avenue consolidation and new senior unsecured notes.
Variable-rate consolidated debt was $3.590 billion. Management estimates that a 1% increase in base rates would reduce annual net income attributable to Vornado by approximately $41.5 million after noncontrolling interests.
Operating cash flow was $478.1 million, while investing cash flow was $(392.6) million and financing cash flow was $452.4 million for the nine months.
Development and construction spending totaled $444.6 million, and recurring and non-recurring capital expenditures and leasing commissions totaled $132.0 million.
Common dividends were $0.53 per share in Q3 and $1.59 per share for the first nine months.

Material changes versus the prior comparable period

Vornado acquired the remaining 45% interest in One Park Avenue on August 5, 2021, bringing ownership to 100%; the transaction valued the property at $875 million and included assumed mortgage debt of $525 million.
Trade shows at theMART resumed in Q3 2021 after being cancelled beginning in March 2020, improving revenue but remaining below pre-pandemic operating levels.
Hotel Pennsylvania was permanently closed on April 5, 2021. The company began capitalizing carrying costs for the planned PENN 15 redevelopment in Q3.
Vornado issued $750 million of green senior unsecured notes, consisting of $400 million of 2.15% notes due 2026 and $350 million of 3.40% notes due 2031, and used proceeds in part to repay the $675 million theMART mortgage.
Vornado issued $291.2 million of net proceeds from 4.45% Series O preferred shares and called and subsequently redeemed all $300 million of 5.70% Series K preferred shares on October 13, 2021. The Series K call caused a $9.0 million issuance-cost charge in Q3.
Q3 2021 included a $10.1 million gain on the sale of one 220 Central Park South condominium unit and $7.9 million of non-cash impairment losses on Madison Avenue retail properties. Q3 2020 included substantially larger 220 Central Park South gains and a significant loss from the partially owned Fifth Avenue and Times Square JV.
General and administrative expense declined due primarily to the overhead reduction program, while preferred dividends increased following the issuance of Series N preferred shares in November 2020.

Outlook, management commentary, risks and contingencies

Management stated that cash from operations and cash on hand are expected to fund operations, distributions, debt amortization and recurring capital expenditures over the next twelve months. Development and acquisitions may require additional borrowings, equity issuance or asset sales. The filing does not provide formal earnings or FFO guidance.

COVID-19 continues to affect rent collections, office attendance, retail tenants, BMS revenue, parking, signage and trade shows. Management cautioned that future variants, vaccine effectiveness, government restrictions and broader economic conditions could have a material impact. The company expects lower cash flow or property values could affect debt service and distributions.

The company had four real estate fund investments with aggregate fair value of $3.7 million, approximately $339.8 million below cost. The Crowne Plaza Times Square and 1100 Lincoln Road loans were in default, and remaining unfunded fund commitments were $29.2 million, of which Vornado’s share was $9.3 million.
Construction commitments totaled approximately $384 million, and additional funding commitments to partially owned entities were approximately $10.7 million.
Guarantees and master leases totaled approximately $1.653 billion. Letters of credit outstanding under a revolving facility totaled $13.3 million.
The company disclosed a potential $28 million clawback of previously paid incentive allocations associated with its real estate fund, already accrued and not expected to affect current-period income.
Vornado is pursuing claims related to a disputed Regus lease and guaranty following a favorable court decision that was appealed. Management does not currently expect ordinary-course litigation to have a material adverse effect.
Insurance coverage, deductibles, terrorism exposure, environmental matters, development execution, refinancing conditions and debt covenant compliance remain material risks.

Most important facts for investors to verify

Whether office, retail and residential occupancy and rent collections continue to recover after the pandemic, particularly in New York and at theMART.
The pace, leasing progress, total cost and financing needs of Farley, PENN 1, PENN 2 and PENN 15 redevelopment projects.
Debt maturities, extension options, variable-rate exposure and compliance with revolving-credit financial covenants.
The financial effect of the Series K redemption, Series O issuance and future preferred dividend obligations.
Valuation and potential additional losses from the distressed real estate fund investments and related loan defaults.
Future condominium sales at 220 Central Park South and the extent to which reported earnings and FFO depend on asset dispositions and other non-recurring items.