Vornado Realty Trust is set to receive over $1 billion from the Uniqlo sale, NYU prepaid rent, and redemption of street retail preferred shares. With plans to pay off $450 million in bonds and ample cash on hand, they are moving forward with leasing programs for PENN 1 and PENN 2.
They are also progressing with the design of a 1.8 million square foot tower at 350 Park Avenue with Citadel as a major tenant. Additionally, the former Hotel Penn site at PENN 15 is ready for development. Vornado owns the 555 California Street building in San Francisco, boasting high occupancy rates and strong performance.
Vornado announced a deal to bring Primark to THE PENN DISTRICT on 34th Street. Despite challenges with borrowing rates, the economy is growing and occupiers are expanding. Alexander’s Inc., with Vornado as External Manager, refinanced the Bloomberg Headquarters Tower, saving $17 million annually.
Vornado remains open to acquisitions but is selective in the current market. They acquired a defaulted $50 million loan on a midtown site and continue to manage cash rigorously. The company plans to maintain dividends at around $0.68, with a single dividend paid in December and likely continuing into the next year.
Vornado’s major shareholders support their dividend policy. The PENN DISTRICT has seen significant changes and improvements, earning praise for its architecture and amenities. The team effort led by senior leaders Glen Weiss and Barry Langer has been commended for their work on PENN 1 and PENN 2.
Michael Franco reported a decrease in FFO for the quarter, primarily due to lower NOI from move-outs at various properties. Despite this, Vornado’s outlook for comparable FFO for 2024 remains stable. They have already secured leases for 75% of vacant space at 770 Broadway, showing positive trends in the New York Class A office market. Manhattan’s leasing activity is strong, with 23.1 million square feet leased in the first three quarters of 2024. Rents are rising due to high demand for Class A space near transit, especially for large blocks of space. Limited availability is pushing concessions down, signaling a competitive market.
Midtown vacancy rates for prime buildings are around 10%, with large headquarter deals making a comeback. Tenants are focused on recently redeveloped buildings due to limited trophy product availability. PENN 2 is well-positioned to capture this demand, with 10 leases over 100,000 square feet signed in the third quarter.
In New York, leasing 740,000 square feet of office space across three markets was completed in the third quarter. More than 2 million square feet have been leased at an average starting rent of $112 per square foot in the first nine months of 2024. Leasing in New York office portfolio reached 454,000 square feet at starting rents of $92 per square foot in the third quarter.
Google renewed 297,000 square feet at 85 10th Avenue, solidifying the property as a key location in Midtown South. Tech sector demand in New York is strong, with a focus on PENN District. Historic rents were achieved at PENN 1, with over 1 million square feet of leasing completed at $92 per square foot.
The market-leading offerings and complete transformation of the neighborhood have attracted tenants seeking high-quality space. New York office cash mark-to-market for the quarter was reported at negative 7%, but could be positive 17.9% if certain leasing transactions are included. A robust New York pipeline includes multiple tenant headquarter deals at PENN 2.
Current office occupancy is at 87.5%, with a pending full building master lease at 770 Broadway expected to increase occupancy to 90.8%. San Francisco’s 555 California property closed a 46,000 square foot deal with Wells Fargo and continues to outperform the market. In Chicago, theMART attracted top-tier tenants with 15 leases totaling 239,000 square feet, including an important expansion and renewal with Medline. The CMBS market has reopened for Class A NYC office buildings, with recent financings at low rates. Short-term rates are dropping, and the investment sales market is picking up. The company’s balance sheet is strong, with $2.6 billion in liquidity. Assets are being restructured to avoid further investment.
Leasing activity for the year is strong, with 2.5 million square feet leased. Another 1 million to 1.3 million square feet is anticipated. The NYU lease is included in these numbers. The company is focusing on strategic leasing and occupancy starts in January for certain properties.
TheMART in Chicago is seeing increased leasing and occupancy, with reduced rents compared to last quarter. The building is well capitalized and strategically positioned. Leases are being signed opportunistically, with a plan to ramp up leasing as the market improves.
The company has a robust leasing pipeline, with 600,000 to 700,000 square feet in negotiations. Several important transactions are expected to close in the fourth quarter. The PENN 2 pipeline is strong, with leases expected to be signed in the fourth quarter. The market is seeing fewer available blocks, especially of high quality in this location. The amenity program has been successful, with plans for future expansion. Michael Franco clarifies leasing numbers, indicating strong activity and confidence. Steve Sakwa asks about potential street retail sales, with Steven Roth discussing monetizing the balance sheet. The company plans to pay off debt and increase cash balances significantly. Discussions are ongoing for selling more retail properties opportunistically. Demand for retail space is increasing, with discussions for new tenants ongoing. The Primark deal in THE PENN DISTRICT is a big win, with increased interest and activity in Times Square. Steven Roth highlights high occupancy rates in retail, indicating strong demand compared to previous years. Michael Franco corrects mention of Macy’s, clarifying the Manhattan Mall location. Steven Roth of Vornado Realty Trust discussed the company’s strong capital position and lack of immediate need for equity. Despite interest from bankers, Vornado has no plans to issue equity unless highly accretive opportunities arise. Half of the preferred equity in a street retail JV has been monetized at par, with no current plans for the remaining half.
Dylan Burzinski inquired about Vornado’s plans regarding the B-Note acquisition, which is currently in default. Steven Roth declined to provide details, citing ongoing developments and potential litigation. Roth emphasized the investment’s complexity and the need for discretion at this time.
Alexander Goldfarb congratulated Roth on progress with the preferred equity payment and questioned the rationale behind purchasing the B-Note at par despite potential litigation and default. Roth acknowledged the complexities of the investment but did not provide further details on the decision-making process.
Vornado Realty Trust continues to evaluate investment opportunities and maintain a strong capital position without immediate plans to issue equity. The company’s strategic approach to acquisitions, such as the B-Note purchase, reflects a focus on long-term value creation and prudent financial management. In a recent call, Vornado Realty Trust discussed their investment strategy and focus on traditional office submarkets like 555 California and Park Avenue, which have remained strong post-pandemic. CEO Steve Roth emphasized the established demand in the West Side market, dismissing it as a “new frontier.”
The market has broadened out with high rents on Park Avenue and activity in submarkets like Meatpacking and Chelsea, where top-grade assets are seeing strong tenant interest. Vornado’s pipeline includes opportunities like 350 Park, showing optimism for future growth across all assets.
Looking ahead to 2025, Vornado’s priorities include leasing up Penn 2 and turning over Penn 1 to drive significant growth. Filling vacancies across Manhattan, managing the balance sheet effectively, and pursuing internal opportunities like 350 Park are also key focus areas for the company. Real estate company is exploring internal assets for repurposing or redevelopment. Disappointed by lack of high-quality distressed office assets in market, still actively seeking opportunities. Focus on creating value, improving balance sheet, leasing, and disposing of unwanted assets. Optimistic about stock price increase and potential external opportunities. Landlord’s market in NYC office industry due to demand, limited supply, rising costs, and strong customer demand for better space. Customers enthusiastic about expanding and upgrading office space. Market outlook positive with no recession and high demand for premium office space. Submarket PENN 2 seeing increasing interest from financial services tenants due to limited availability in traditional markets like Park and Sixth. The Penn neighborhood is attracting a variety of industry tenants to PENN 1 and PENN 2, including law firms, financial, entertainment, tech, consulting, private equity, and hedge funds. The area’s transformation has made it a desirable location, coupled with easy access to transportation.
The company is looking to pivot towards acquisitions and external growth in 2025. They are open to both distressed debt and outright asset purchases, with a focus on generating attractive returns and increasing the value of the enterprise over time. Each deal will be evaluated based on its unique dynamics.
Occupancy may dip in 1Q 2025, but the company expects to end the year at around 93%. However, predicting the impact on same-store NOI is challenging due to timing-driven factors. The company is currently going through budgeting processes to gain more visibility.
The company aims to be rigorous in capital investment, focusing on opportunities with appropriate returns. As the business recovers, they will continue to deploy capital strategically, prioritizing assets with potential returns. Concessions in the best submarkets may start to tighten as the market transitions to favor landlords.
There is discussion about the expected 2024 dividend and the policy for 2025. The decision to suspend the quarterly dividend was aimed at conserving cash and protecting the balance sheet. The company will continue to evaluate the situation to determine when it would be appropriate to reinstate the quarterly dividend. The company has adopted a lower dividend policy to protect the balance sheet during uncertain times. Shareholders endorsed the strategy, which may change as the business cycle improves. The interim strategy aims to conserve cash and will likely convert back to a normal dividend policy in the future.
The build-up of PENN 2 is not expected to impact earnings until 2026 due to lease timing. Rents at PENN 1 have been increasing quarter-to-quarter, with additional growth anticipated. The PENN DISTRICT transformation has led to rising rents as the district improves.
Occupancy improvements may not lead to FFO growth until 2026 due to lease timing. The company anticipates material growth in 2026 and thereafter, with 2025 expected to be relatively flat compared to the current year. Timing of move-outs and backfilling impacts earnings, but positive trends are emerging. Vornado Realty Trust predicts material impact in 2026 due to hedging, with 2025 similar to current year. Election day excitement prompts proud Penn District tour invite. Motley Fool advises against Vornado stock, touting 10 other lucrative options. Stock Advisor boasts 918% average return, outperforming S&P 500 by 722%.
Read more at Yahoo Finance: Vornado (VNO) Q3 2024 Earnings Call Transcript