Certain statements contained in this Quarterly Report constitute forward-looking 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; estimates of future capital expenditures, dividends to common and preferred shareholders and operating partnership distributions, including the form of any 2023 dividend payments, and the amount and form of potential share repurchases and/or asset sales. 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. 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 endedDecember 31, 2022 . Currently, some of the factors are the increase in interest rates and inflation and the continuing effects of the COVID-19 pandemic on our business, financial condition, results of operations, cash flows, operating performance and the effect that these factors have had and may continue to have on our tenants, the global, national, regional and local economies and financial markets and the real estate market in general. 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 endedMarch 31, 2023 . The preparation of financial statements in conformity with accounting principles generally accepted inthe 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 endedMarch 31, 2023 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. 42 --------------------------------------------------------------------------------
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. (the "Operating Partnership"), aDelaware limited partnership. Vornado is the sole general partner of and owned approximately 91.4% of the common limited partnership interest in theOperating Partnership as ofMarch 31, 2023 . 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 whom 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, 2022 for additional information regarding these factors. Our business has been, and may continue to be, affected by the increase in interest rates and inflation and the continuing effect of the COVID-19 pandemic and other uncertainties including the potential for an economic downturn. These factors could have a material impact on our business, financial condition, results of operations and cash flows.
Quarter Ended
Net income attributable to common shareholders for the quarter endedMarch 31, 2023 was$5,168,000 , or$0.03 per diluted share, compared to$26,478,000 , or$0.14 per diluted share, for the prior year's quarter. The quarters endedMarch 31, 2023 and 2022 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, increased net income attributable to common shareholders for the quarter endedMarch 31, 2023 by$2,795,000 , or$0.02 per diluted share, and decreased net income attributable to common shareholders by$5,204,000 , or$0.02 per diluted share, for the quarter endedMarch 31, 2022 . Funds from operations ("FFO") attributable to common shareholders plus assumed conversions for the quarter endedMarch 31, 2023 was$119,083,000 , or$0.61 per diluted share, compared to$154,908,000 , or$0.80 per diluted share, for the prior year's quarter. FFO attributable to common shareholders plus assumed conversions for the quarters endedMarch 31, 2023 and 2022 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, increased FFO attributable to common shareholders plus assumed conversions for the quarter endedMarch 31, 2023 by$2,795,000 , or$0.01 per diluted share, and increased FFO attributable to common shareholders plus assumed conversions by$2,595,000 , or$0.01 per diluted share, for the quarter endedMarch 31, 2022 . 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, 2023 2022
Certain (income) expense items that impact net income
attributable to common shareholders:
After-tax net gain on sale of
$
(6,173)
2,875 3,173 Other 288 7,829 (3,010) 5,590 Noncontrolling interests' share of above adjustments 215 (386)
Total of certain (income) expense items that impact net income attributable to common shareholders
$
(2,795)
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
2023 2022 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$ (6,173) $ (5,412) Deferred tax liability on our investment inThe Farley Building (held through a taxable REIT subsidiary) 2,875 3,173 Other 288 (549) (3,010) (2,788) Noncontrolling interests' share of above adjustments 215 193 Total of certain (income) expense items that impact FFO attributable to common shareholders plus assumed conversions, net$ (2,795) $ (2,595) 43
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Overview - continued
Same Store Net Operating Income ("NOI") At Share
The percentage increase (decrease) in same store NOI at share and same store NOI at share - cash basis of ourNew York segment, THE MART and555 California Street are below. Three months ended March 31, 2023 compared to 555 California March 31, 2022 Total New York THE MART Street Same store NOI at share % increase (decrease) 0.0 % 1.6 % (22.6) % 4.3 % Same store NOI at share - cash basis % increase (decrease) 1.5 % 3.8 % (28.2) % 8.3 % 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 Financial Condition and Results of Operations.
Dividends/Share Repurchase Program
OnApril 26, 2023 , Vornado announced that it will postpone dividends on its common shares until the end of 2023, at which time, upon finalization of its 2023 taxable income, including the impact of asset sales, it will pay the 2023 dividend in either (i) cash, or (ii) a combination of cash and securities, as determined by itsBoard of Trustees . Vornado also announced that itsBoard of Trustees has authorized the repurchase of up to$200,000,000 of its outstanding common shares under a newly established share repurchase program. Cash retained from dividends or from asset sales will be used to reduce debt and/or fund share repurchases.
OnJanuary 24, 2023 , we and the Rudin family ("Rudin") completed agreements withCitadel Enterprise Americas LLC ("Citadel") and with an affiliate ofKenneth C. Griffin ,Citadel's Founder and CEO ("KG"), for a series of transactions relating to350 Park Avenue and40 East 52nd Street . Pursuant to the agreements,Citadel master leases350 Park Avenue , a 585,000 square footManhattan office building, on an "as is" basis for ten years, with an initial annual net rent of$36,000,000 . Per the terms of the lease, no tenant allowance or free rent was provided.Citadel will also master lease Rudin's adjacent property at40 East 52nd Street (390,000 square feet). In addition, we have entered into a joint venture with Rudin ("Vornado/Rudin") to purchase39 East 51st Street for$40,000,000 and, upon formation of the KG joint venture described below, will combine that property with350 Park Avenue and40 East 52nd Street to create a premier development site (collectively, the "Site"). The purchase is expected to close in the second quarter of 2023.
From
•acquire a 60% interest in a joint venture with Vornado/Rudin that would value the Site at$1.2 billion ($900,000,000 to Vornado and$300,000,000 to Rudin) and build a new 1,700,000 square foot office tower (the "Project") pursuant to East Midtown Subdistrict zoning with Vornado/Rudin as developer. KG would own 60% of the joint venture and Vornado/Rudin would own 40% (with Vornado owning 36% and Rudin owning 4% of the joint venture along with a$250,000,000 preferred equity interest in the Vornado/Rudin joint venture). •at the joint venture formation,Citadel or its affiliates will execute a pre-negotiated 15-year anchor lease with renewal options for approximately 850,000 square feet (with expansion and contraction rights) at the Project for its primary office inNew York City ; •the rent forCitadel's space will be determined by a formula based on a percentage return (that adjusts based on the actual cost of capital) on the total Project cost; •the master leases will terminate at the scheduled commencement of demolition;
•or, exercise an option to purchase the Site for
Further, Vornado/Rudin will have the option fromOctober 2024 toSeptember 2030 to put the Site to KG for$1.2 billion ($900,000,000 to Vornado and$300,000,000 to Rudin). For ten years following any put option closing, unless the put option is exercised in response to KG's request to form the joint venture or KG makes a$200,000,000 termination payment, Vornado/Rudin will have the right to invest in a joint venture with KG on the terms described above if KG proceeds with development of the Site. 44 --------------------------------------------------------------------------------
Overview - continued Dispositions
Alexander's, Inc. ("Alexanders")
OnMarch 8, 2023 , Alexander's entered into an agreement to sell theRego Park III land parcel, located inQueens, New York , for$71,060,000 , inclusive of consideration for Brownfield tax benefits and reimbursement of costs for plans, specifications and improvements to date. Alexander's anticipates the closing of the sale in the second quarter of 2023 and will recognize a financial statement gain of approximately$54,000,000 . Upon completion of the sale, we will recognize our approximate$16,000,000 share of the net gain.
Financings
150 West 34th Street Loan Participation
OnJanuary 9, 2023 , our$105,000,000 participation in the$205,000,000 mortgage loan on150 West 34th Street was repaid, which reduced "other assets" and "mortgages payable, net" on our consolidated balance sheets by$105,000,000 . The remaining$100,000,000 mortgage loan balance bears interest at SOFR plus 1.86%, subject to an interest rate cap arrangement with a SOFR strike rate of 4.10%, and matures inMay 2024 .
Interest Rate Hedging Activities
We entered into the following interest rate swap agreements during the three months endedMarch 31, 2023 . See Note 13 - Fair Value Measurements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our consolidated hedging instruments: (Amounts in thousands) Notional Amount
All-In Swapped Rate Swap Expiration Date Variable Rate Spread
$ 840,000 5.92% 05/26 L+193 Unsecured term loan(1) (effective 10/23) 150,000 5.13% 07/25 S+130 ____________________ (1)The unsecured term loan, which matures inDecember 2027 , is subject to various interest rate swap arrangements throughAugust 2027 , see below for details: Unswapped Balance (bears interest at Swapped Balance All-In Swapped Rate S+130) Through 10/23 $ 800,000 4.05% $ - 10/23 through 07/25 700,000 4.53% 100,000 07/25 through 10/26 550,000 4.36% 250,000 10/26 through 08/27 50,000 4.04% 750,000
Leasing Activity for the Three Months Ended
The leasing activity and related statistics 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. •777,000 square feet ofNew York Office space (771,000 square feet at share) at an initial rent of$101.02 per square foot and a weighted average lease term of 9.5 years. The changes in the GAAP and cash mark-to-market rent on the 677,000 square feet of second generation space were positive 8.5% and positive 1.7%, respectively. Tenant improvements and leasing commissions were$2.48 per square foot per annum, or 2.5% of initial rent. •25,000 square feet of New York Retail space (20,000 square feet at share) at an initial rent of$373.07 per square foot and a weighted average lease term of 6.8 years. The changes in the GAAP and cash mark-to-market rent on the 7,000 square feet of second generation space were positive 2.9% and positive 2.4%, respectively. Tenant improvements and leasing commissions were$26.54 per square foot per annum, or 7.1% of initial rent. •79,000 square feet at THE MART (all at share) at an initial rent of$56.44 per square foot and a weighted average lease term of 6.8 years. The changes in the GAAP and cash mark-to-market rent on the 51,000 square feet of second generation space were negative 1.5% and negative 7.9%, respectively. Tenant improvements and leasing commissions were$8.04 per square foot per annum, or 14.2% of initial rent. •4,000 square feet at555 California Street (3,000 square feet at share) at an initial rent of$156.96 per square foot and a weighted average lease term of 7.0 years. The 4,000 square feet was first generation space. Tenant improvements and leasing commissions were$39.07 per square foot per annum, or 24.9% of initial rent. 45
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Overview - continued
Square Footage (in service) and Occupancy as of
(Square feet in thousands)
Square Feet (in service)
Number of Total Our Properties Portfolio Share Occupancy %New York : Office 30 (1) 18,748 16,050 91.8 % Retail (includes retail properties that are in the base of our office properties) 56 (1) 2,260 1,822 74.2 % Residential - 1,976 units(2) 6 (1) 1,499 766 96.8 % (2) Alexander's 6 2,454 795 86.9 % (2) 24,961 19,433 89.9 % Other: THE MART 4 3,634 3,625 80.3 % 555 California Street 3 1,819 1,274 94.9 % Other 11 2,537 1,202 92.4 % 7,990 6,101 Total square feet as of March 31, 2023 32,951 25,534 ____________________ See notes below.
Square Footage (in service) and Occupancy as of
(Square feet in thousands)
Square Feet (in service)
Number of Total Our properties Portfolio Share Occupancy %New York : Office 30 (1) 18,724 16,028 91.9 % Retail (includes retail properties that are in the base of our office properties) 56 (1) 2,289 1,851 74.4 % Residential - 1,976 units(2) 6 (1) 1,499 766 96.7 % (2) Alexander's 6 2,241 726 96.4 % (2) 24,753 19,371 90.4 % Other: THE MART 4 3,635 3,626 81.6 % 555 California Street 3 1,819 1,273 94.7 % Other 11 2,532 1,197 92.6 % 7,986 6,096 Total square feet as of December 31, 2022 32,739 25,467
____________________
(1)Reflects the Office, Retail and Residential space within our 71 totalNew York properties as ofMarch 31, 2023 andDecember 31, 2022 . (2)The Alexander Apartment Tower (312 units) is reflected in Residential unit count and occupancy. Critical Accounting Estimates A summary of our critical accounting policies and estimates used in the preparation of our consolidated financial statements is included in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedDecember 31, 2022 . For the three months endedMarch 31, 2023 , there were no material changes to these policies. Recently Issued Accounting Literature Refer to Note 3 - 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. 46 -------------------------------------------------------------------------------- NOI At Share by Segment for the Three Months EndedMarch 31, 2023 and 2022 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 ended
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