VORNADO REALTY TRUST
Certain statements contained in this Quarterly Report constitute forwardlooking
statements as such term is defined in Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are not guarantees of performance. They represent our
intentions, plans, expectations and beliefs and are subject to numerous
assumptions, risks and uncertainties. Our future results, financial condition
and business may differ materially from those expressed in these forward-looking
statements. You can find many of these statements by looking for words such as
"approximates," "believes," "expects," "anticipates," "estimates," "intends,"
"plans," "would," "may" or other similar expressions in this Quarterly Report on
Form 10Q. We also note the following forward-looking statements: in the case of
our development and redevelopment projects, the estimated completion date,
estimated project cost and cost to complete; and estimates of future capital
expenditures, dividends to common and preferred shareholders and operating
partnership distributions. Many of the factors that will determine the outcome
of these and our other forward-looking statements are beyond our ability to
control or predict.
Currently, one of the most significant factors is the ongoing adverse effect of
the novel strain of coronavirus ("COVID-19") pandemic on our business, financial
condition, results of operations, cash flows, operating performance and the
effect it will have on our tenants, the global, national, regional and local
economies and financial markets and the real estate market in general. The
extent of the impact of the COVID-19 pandemic will depend on future
developments, including the duration of the pandemic, which are highly uncertain
at this time but that impact could be material. Moreover, you are cautioned that
the COVID-19 pandemic will heighten many of the risks identified in "Item 1A.
Risk Factors" in Part I of our Annual Report on Form 10-K for the year ended
December 31, 2019 , as well as the risks set forth herein.
For further discussion of factors that could materially affect the outcome of
our forward-looking statements, see "Item 1A. Risk Factors" in Part I of our
Annual Report on Form 10-K for the year ended December 31, 2019 and "Item 1A.
Risk Factors" in Part II of this Quarterly Report on Form 10-Q. For these
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
You are cautioned not to place undue reliance on our forward-looking statements,
which speak only as of the date of this Quarterly Report on Form 10-Q or the
date of any document incorporated by reference. All subsequent written and oral
forward-looking statements attributable to us or any person acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained
or referred to in this section. We do not undertake any obligation to release
publicly any revisions to our forward-looking statements to reflect events or
circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a discussion of our consolidated financial statements for
the three months ended March 31, 2020 . The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from those estimates. The results of operations for the three months
ended March 31, 2020 are not necessarily indicative of the operating results for
the full year. Certain prior year balances have been reclassified in order to
conform to the current year presentation.
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--------------------------------------------------------------------------------Overview
Vornado Realty Trust ("Vornado") is a fully-integrated real estate investment trust ("REIT") and conducts its business through, and substantially all of its interests in properties are held by,Vornado Realty L.P. , aDelaware limited partnership (the "Operating Partnership"). Vornado is the sole general partner of, and owned approximately 92.7% of the common limited partnership interest in theOperating Partnership as ofMarch 31, 2020 . All references to the "Company," "we," "us" and "our" mean, collectively, Vornado, theOperating Partnership and those subsidiaries consolidated by Vornado. We compete with a large number of real estate investors, property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, sales prices, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the global, national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends. See "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2019 and "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q for additional information regarding these factors. InDecember 2019 , COVID-19 was identified inWuhan, China and byMarch 11, 2020 , theWorld Health Organization had declared it a global pandemic. Many states in theU.S. , includingNew York ,New Jersey ,Illinois and California have implemented stay-at-home orders for all "non-essential" business and activity in an aggressive effort to curb the spread of the virus. Consequently, theU.S. economy has suffered and there has been significant volatility in the financial markets. ManyU.S. industries and businesses have been negatively affected and millions of people have filed for unemployment. Our properties, which are concentrated inNew York City , and inChicago andSan Francisco , have been adversely affected as a result of the COVID-19 pandemic and the preventive measures taken to curb the spread. Some of the effects on us include the following: • With the exception of grocery stores and other "essential" businesses, substantially all of our retail tenants have closed their stores and many are seeking rent relief.
• While our office buildings remain open, substantially all of our office
tenants are working remotely.
• We have temporarily closed the
• We have postponed trade shows at theMART for the remainder of 2020.
• Because certain of our development projects are deemed "non-essential,"
they have been temporarily paused due to
• Closings on the sale of condominium units at
continued. During
units for net proceeds of $157,747,000 . However, future closings may be
temporarily delayed to the extent we cannot complete the buildout and
obtain temporary certificates of occupancy on time.
• We placed 1,803 employees on temporary furlough, including 1,293 employees
of
provides cleaning, security and engineering services primarily to our New
York properties, 414 employees at the
staff employees.
• Effective April 1, 2020 , our executive officers waived portions of their
annual base salary for the remainder of 2020.
• Effective April 1, 2020 , each non-management member of our Board of
Trustees agreed to forgo his or her $75,000 annual cash retainer for the
remainder of 2020.
We have collected substantially all of the rent due for March 2020 and collected
90% of rent due from our office tenants for the month of April 2020 and 53% of
the rent due from our retail tenants for the month of April 2020 , or 83% in the
aggregate. Many of our retail tenants and some of our office tenants have
requested rent relief and/or rent deferral for April 2020 and beyond. While we
believe that our tenants are required to pay rent under their leases, we have
implemented and will continue to consider temporary rent deferrals on a
case-by-case basis.
We have not experienced any material impact to our internal control over
financial reporting to date as a result of most of our employees working
remotely due to the COVID-19 pandemic. We are continually monitoring and
assessing the COVID-19 situation on our internal controls to minimize the impact
to their design and operating effectiveness.
In light of the evolving health, social, economic, and business environment,
governmental regulation or mandates, and business disruptions that have occurred
and may continue to occur, the impact of COVID-19 on our financial condition and
operating results remains highly uncertain but the impact could be material. The
impact on us includes lower rental income and potentially lower occupancy levels
at our properties which will result in less cash flow available for operating
costs, to pay our indebtedness and for distribution to our shareholders. In
addition, the value of our real estate assets may decline, which may result in
non-cash impairment charges in future periods and that impact could be material.
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Vornado Realty Trust Quarter EndedMarch 31, 2020 Financial Results Summary Net income attributable to common shareholders for the quarter endedMarch 31, 2020 was$4,963,000 , or$0.03 per diluted share, compared to$181,488,000 , or$0.95 per diluted share, for the prior year's quarter. The quarters endedMarch 31, 2020 and 2019 include certain items that impact the comparability of period to period net income attributable to common shareholders, which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the quarter endedMarch 31, 2020 by$15,270,000 , or$0.08 per diluted share, and increased net income by$156,674,000 , or$0.82 per diluted share, for the quarter endedMarch 31, 2019 . Funds From Operations ("FFO") attributable to common shareholders plus assumed conversions for the quarter endedMarch 31, 2020 was$130,360,000 , or$0.68 per diluted share, compared to$247,684,000 , or$1.30 per diluted share, for the prior year's quarter. FFO attributable to common shareholders plus assumed conversions for the quarters endedMarch 31, 2020 and 2019 include certain items that impact the comparability of period to period FFO, which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO attributable to common shareholders plus assumed conversions for the quarter endedMarch 31, 2020 by$7,207,000 , or$0.04 per diluted share, and increased FFO attributable to common shareholders plus assumed conversions by$97,745,000 , or$0.51 per diluted share, for the quarter endedMarch 31, 2019 . The following table reconciles the difference between our net income attributable to common shareholders and our net income attributable to common shareholders, as adjusted: (Amounts in thousands) For the Three Months EndedMarch 31, 2020 2019
Certain (income) expense items that impact net income
attributable to common shareholders:
After-tax net gain on sale of
$ (59,911 ) $ (130,954 ) Our share of loss from real estate fund investments 56,158
2,904
Credit losses on loans receivable resulting from a
new GAAP accounting standard effective
7,261 -
Mark-to-market decrease in
4,938 15,649
Net gain from sale of Urban Edge Properties ("UE")
common shares (sold on
-
(62,395 )
Prepayment penalty in connection with redemption of
- 22,540
Mark-to-market increase in Lexington Realty Trust
("Lexington") common shares (sold on March 1, 2019) - (16,068 )
Other 7,896 1,152
16,342 (167,172 )
Noncontrolling interests' share of above adjustments (1,072 ) 10,498
Total of certain expense (income) items that impact
net income attributable to common shareholders
The following table reconciles the difference between our FFO attributable to
common shareholders plus assumed conversions and our FFO attributable to common
shareholders plus assumed conversions, as adjusted:
(Amounts in thousands) For the Three Months Ended
March 31,
2020 2019
Certain (income) expense items that impact FFO
attributable to common shareholders plus assumed
conversions:
After-tax net gain on sale of 220 CPS condominium
units $ (59,911 ) $ (130,954 )
Our share of loss from real estate fund investments 56,158 2,904
Credit losses on loans receivable resulting from a
new GAAP accounting standard effective
7,261 -
Prepayment penalty in connection with redemption of
$400 million 5.00% senior unsecured notes due January
2022 - 22,540
Other 4,205 1,206
7,713 (104,304 )
Noncontrolling interests' share of above adjustments (506 ) 6,559
Total of certain expense (income) items that impact FFO attributable to common shareholders plus assumed conversions, net$ 7,207 $ (97,745 ) 45
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Overview - continued
Vornado Realty Trust andVornado Realty L.P. Same Store Net Operating Income ("NOI") At Share The percentage (decrease) increase in same store NOI at share and same store NOI at share - cash basis of ourNew York segment, theMART and555 California Street are summarized below. 555 California Total New York(1) theMART(2) Street Same store NOI at share % (decrease) increase: Three months endedMarch 31, 2020 compared to March 31, 2019 (2.5 )% (1.9 )% (13.3 )% 5.6 % Three months endedMarch 31, 2020 compared to December 31, 2019 (8.2 )% (9.0 )% (8.2 )% 5.1 % Same store NOI at share - cash basis % (decrease) increase: Three months endedMarch 31, 2020 compared to March 31, 2019 (1.5 )% (0.7 )% (11.8 )% 3.7 % Three months endedMarch 31, 2020 compared to December 31, 2019 (7.0 )% (7.6 )% (9.0 )% 5.8 %
____________________
(1) As a result of the COVID-19 pandemic, we have temporarily closed the Hotel
Excluding the
decrease:
Three months ended
Three months ended
Excluding the
increase (decrease):
Three months ended
Three months ended
(2) The decrease is primarily due to the cancellation of trade shows resulting
from the COVID-19 pandemic.
Excluding trade shows, same store NOI at share % increase
(decrease):
Three months ended
Three months ended
Excluding trade shows, same store NOI at share - cash basis %
increase (decrease):
Three months ended
Three months ended
Calculations of same store NOI at share, reconciliations of our net income to NOI at share, NOI at share - cash basis and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management's Discussion and Analysis of the Financial Condition and Results of Operations. Dispositions PREIT OnJanuary 23, 2020 , we sold all of our 6,250,000 common shares of PREIT, realizing net proceeds of$28,375,000 . We recorded a$4,938,000 loss (mark-to-market decrease) for the three months endedMarch 31, 2020 . 220 CPS During the three months endedMarch 31, 2020 , we closed on the sale of seven condominium units at 220 CPS for net proceeds aggregating$191,216,000 resulting in a financial statement net gain of$68,589,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with these sales,$8,678,000 of income tax expense was recognized on our consolidated statements of income. From inception toMarch 31, 2020 , we closed on the sale of 72 units for aggregate net proceeds of$2,011,348,000 . 46 --------------------------------------------------------------------------------
Overview - continued Financings Unsecured Term Loan OnFebruary 28, 2020 , we increased our unsecured term loan balance to$800,000,000 (from$750,000,000 ) by exercising an accordion feature. Pursuant to an existing swap agreement,$750,000,000 of the loan bears interest at a fixed rate of 3.87% throughOctober 2023 , and the balance of$50,000,000 floats at a rate of LIBOR plus 1.00% (1.94% as ofMarch 31, 2020 ). The entire$800,000,000 will float thereafter for the duration of the loan throughFebruary 2024 . Leasing Activity The leasing activity and related statistics in the table below are based on leases signed during the period and are not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). Second generation relet space represents square footage that has not been vacant for more than nine months and tenant improvements and leasing commissions are based on our share of square feet leased during the period. (Square feet in thousands) New York 555 California Office Retail theMART Street Three Months Ended March 31, 2020 Total square feet leased 311 15 231 6 Our share of square feet leased: 297 13 231 4 Initial rent(1)$ 90.47 $ 416.36 $ 47.31 $ 117.00
Weighted average lease term
(years) 6.6 9.7 10.3 1.4
Second generation relet
space: Square feet 275 9 228 4 GAAP basis:
Straight-line rent(2)
Prior straight-line rent
Percentage (decrease)
increase (3.3 )% 126.6 % 2.6 % 44.5 %
Cash basis:
Initial rent(1)$ 89.22 $ 469.99 $
47.05
Prior escalated rent
Percentage increase
(decrease) 0.8 % 104.6 % (1.2 )% 29.7 %
Tenant improvements and
leasing commissions:
Per square foot$ 77.14 $ 467.30 $
45.72 $ 4.08
Per square foot per annum
Percentage of initial rent 12.9 % 11.6 % 9.4 % 2.5 %
____________________
(1) Represents the cash basis weighted average starting rent per square foot,
which is generally indicative of market rents. Most leases include free rent
and periodic step-ups in rent which are not included in the initial cash
basis rent per square foot but are included in the GAAP basis straight-line
rent per square foot.
(2) Represents the GAAP basis weighted average rent per square foot that is
recognized over the term of the respective leases and includes the effect of
free rent and periodic step-ups in rent.
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Overview - continued
Square Footage (in service) and Occupancy as ofMarch 31, 2020 (Square feet in thousands) Square Feet (in service) Number of Total Our Properties Portfolio Share Occupancy %New York : Office 35 19,005 16,128 96.9 % Retail (includes retail properties that are in the base of our office properties) 70 2,287 1,830 94.9 % Residential - 1,678 units 9 1,526 793 96.1 % Alexander's, Inc. ("Alexander's") including 312 residential units 7 2,230 723 96.5 % Hotel Pennsylvania 1 1,400 1,400 26,448 20,874 96.7 % Other: theMART 4 3,825 3,816 91.9 % 555 California Street 3 1,741 1,218 99.8 % Other 10 2,533 1,198 93.4 % 8,099 6,232 Total square feet as of March 31, 2020 34,547
27,106
Square Footage (in service) and Occupancy as ofDecember 31, 2019 (Square feet in thousands) Square Feet (in service) Number of Total Our properties Portfolio Share Occupancy %New York : Office 35 19,070 16,195 96.9 % Retail (includes retail properties that are in the base of our office properties) 70 2,300 1,842 94.5 % Residential - 1,679 units 9 1,526 793 97.0 % Alexander's, including 312 residential units 7 2,230 723 96.5 % Hotel Pennsylvania 1 1,400 1,400 26,526 20,953 96.7 % Other: theMART 4 3,826 3,817 94.6 % 555 California Street 3 1,741 1,218 99.8 % Other 10 2,533 1,198 92.7 % 8,100 6,233 Total square feet as of December 31, 2019 34,626
27,186
Critical Accounting Policies A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . For the three months endedMarch 31, 2020 , there were no material changes to these policies. Recently Issued Accounting Literature Refer to Note 4 - Recently Issued Accounting Literature to the unaudited consolidated financial statements in Part I, Item I of this Quarterly Report on Form 10-Q for information regarding recent accounting pronouncements that may affect us. 48
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NOI At Share by Segment for the Three Months EndedMarch 31, 2020 and 2019 NOI at share represents total revenues less operating expenses including our share of partially owned entities. NOI at share - cash basis represents NOI at share adjusted to exclude straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments. We consider NOI at share - cash basis to be the primary non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on NOI at share - cash basis, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. NOI at share and NOI at share - cash basis should not be considered alternatives to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. Below is a summary of NOI at share and NOI at share - cash basis by segment for the three months endedMarch 31, 2020 and 2019.
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