VORNADO REALTY TRUST annual report, FY2020

Vornado Realty Trust 2020 Form 10-K Summary

Business context and reporting period

Vornado Realty Trust, together with Vornado Realty L.P., is a fully integrated REIT operating primarily through the Operating Partnership, which Vornado owned approximately 92.8% of at December 31, 2020. The filing covers the fiscal year ended December 31, 2020. The portfolio is concentrated in New York City and includes Manhattan office and retail properties, residential assets, Hotel Pennsylvania, theMART in Chicago, 555 California Street in San Francisco, and investments in partially owned entities including Alexander’s, Inc.

At year-end, the portfolio comprised approximately 32.5 million square feet, including 24.5 million square feet in the New York segment and 7.9 million square feet in the Other segment. New York accounted for approximately 87% of NOI at share.

Financial performance and key metrics

Metric	2020	2019	Change
Total revenue	$1.528 billion	$1.925 billion	Down $396.7 million
Net loss attributable to common shareholders	$348.7 million, or $1.83 per diluted share	Net income of $3.098 billion, or $16.21 per diluted share	Turned to a loss
FFO attributable to common shareholders plus assumed conversions	$750.5 million, or $3.93 per diluted share	$1.003 billion, or $5.25 per diluted share	Down 25.2%
NOI at share	$972.6 million	$1.260 billion	Down 22.8%
NOI at share, cash basis	$1.019 billion	$1.254 billion	Down 18.7%
Net cash provided by operating activities	$424.2 million	$662.5 million	Down $238.3 million

GAAP net loss was driven largely by non-cash items, including a $413.3 million impairment of the Fifth Avenue and Times Square joint venture investment and $236.3 million of impairment losses, primarily on wholly owned retail assets. The company also recorded a $381.3 million gain on 220 Central Park South condominium sales.

Same-store NOI at share declined 13.8%; same-store cash NOI at share declined 8.3%. By major operating area, New York same-store NOI at share declined 12.7%, theMART declined 32.5%, and 555 California Street increased 0.6%.

Liquidity, debt and capital resources

Cash and cash equivalents plus restricted cash totaled $1.730 billion at December 31, 2020, including $1.624 billion of cash and cash equivalents.
Total liquidity was approximately $3.9 billion, consisting of $1.7 billion of cash and restricted cash and $2.2 billion of available capacity under $2.75 billion of revolving credit facilities.
Consolidated debt totaled $7.433 billion before deferred financing costs, with a weighted-average interest rate of 2.89%; net debt was $7.399 billion.
Variable-rate debt was $3.221 billion and fixed-rate debt was $4.213 billion. A 1% increase in base rates was estimated to increase annual consolidated interest expense by approximately $32.2 million, before considering hedges and other effects.
Debt maturities were $1.563 billion in 2021 and $1.650 billion in 2022. The company stated that it may refinance, repay debt with cash or use revolving credit capacity.
Recurring capital expenditures and leasing costs totaled $149.1 million in 2020, while total capital expenditures and leasing commissions were $213.7 million. Planned 2021 recurring tenant improvements, leasing commissions and other capital expenditures were $212.5 million.

Material changes versus the prior comparable period

COVID-19 materially reduced rent collections, retail activity, trade-show revenue, Hotel Pennsylvania revenue and BMS service revenue. Hotel Pennsylvania closed April 1, 2020, and trade shows at theMART were cancelled from late March through the rest of the year.
Fourth-quarter rent collections were 95%, or 97% including rent deferrals; office collections were 97%, or 99% including deferrals, and retail collections were 88%, or 89% including deferrals.
Lease receivables and tenant receivables written off during 2020 totaled $74.1 million, including $51.6 million of straight-line rent receivables and $22.5 million of tenant receivables deemed uncollectible.
Occupancy declined year over year. New York office occupancy was 93.4% versus 96.9% in 2019, New York retail occupancy was 78.8% versus 94.5%, and residential occupancy was 83.9% versus 97.0%.
The company sold 35 condominium units at 220 Central Park South for net proceeds of approximately $1.049 billion. Since inception, 100 units had closed, representing 91% of the project’s units at December 31, 2020.
Vornado sold all of its Pennsylvania Real Estate Investment Trust shares for net proceeds of $28.4 million.
The company increased its unsecured term loan to $800 million, refinanced PENN11 with a $500 million loan, extended the $700 million 770 Broadway mortgage to March 2022, and issued $300 million of 5.25% Series N preferred shares for net proceeds of $291.2 million.
Development and redevelopment remained significant, including Farley Office and Retail, PENN1, PENN2, 220 Central Park South, 345 Montgomery Street and 825 Seventh Avenue. Estimated project costs increased for Farley and PENN1.

Guidance, outlook, risks and unusual items

Management did not provide formal earnings guidance. It stated that cash flow from continuing operations and cash balances were expected to fund operations, distributions, debt amortization and recurring capital expenditures over the following twelve months, while noting that development, acquisitions and other capital requirements could require borrowings, equity issuance or asset sales.

Vornado declared a January 2021 quarterly common dividend of $0.53 per share, an indicated annual rate of $2.12 per share. The company estimated 2021 cash requirements of approximately $406 million for common dividends, $66 million for preferred dividends and $29 million for distributions to Operating Partnership unitholders.

The duration and economic effects of COVID-19 remained uncertain and could materially affect occupancy, rents, tenant credit, asset values, cash flow and access to capital.
Work-from-home trends could reduce long-term office demand, while e-commerce, weak tourism and tenant distress could pressure retail properties.
Debt refinancing and covenant compliance remain important given upcoming maturities, interest-rate exposure and reliance on capital markets.
Vornado’s real estate fund investments had an aggregate fair value of only $3.7 million at year-end, a $339.0 million decline below cost. A fund joint venture defaulted on a $274.4 million non-recourse Crowne Plaza Times Square loan in June 2020.
The company had approximately $451 million of construction commitments, approximately $1.769 billion of guarantees and master leases, and expected to fund approximately $10.7 million of additional capital to partially owned entities.
Vornado had a pending dispute involving a former Regus tenant and guaranty obligations related to 345 Montgomery Street. A final ruling was pending after a tentative ruling in Vornado’s favor.
The company stopped paying rent under its non-recourse Pier 92 lease beginning in March 2020 after being ordered to vacate because of structural issues; the recorded lease liability was $47.5 million at year-end.
Insurance coverage for communicable disease, terrorism, earthquake and other risks may be limited, costly or unavailable, leaving potential exposure to uninsured losses.

Important facts for investors to verify

Whether office and retail occupancy, rent collections and tenant credit quality recover following the pandemic.
The refinancing plan and available liquidity for the $1.563 billion of debt maturing in 2021 and $1.650 billion maturing in 2022.
The valuation assumptions supporting the $413.3 million joint venture impairment and $236.3 million of property impairments, including capitalization rates, discount rates and projected rents.
Progress, leasing, remaining costs and completion timing for Farley, PENN1, PENN2 and other redevelopment projects.
The sustainability of the $0.53 quarterly common dividend relative to recurring cash flow, debt service and capital requirements.
The status and potential financial impact of the Regus litigation, Pier 92 lease dispute, guarantees, construction commitments and historic tax-credit obligations.
The effect of LIBOR discontinuation and benchmark-rate transition on variable-rate debt, derivatives and future interest expense.
The distinction between GAAP results and non-GAAP measures such as FFO and NOI at share, which exclude or adjust for significant real estate depreciation, impairments and disposition gains.