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Vornado Announces Second Quarter 2018 Financial Results

NEW YORK, July 30, 2018 (GLOBE NEWSWIRE) -- VORNADO REALTY TRUST (VNO) reported today:

Quarter Ended June 30, 2018 Financial Results

NET INCOME attributable to common shareholders for the quarter ended June 30, 2018 was $111.5 million, or $0.58 per diluted share, compared to $116.0 million, or $0.61 per diluted share, for the prior year's quarter.  Adjusting net income attributable to common shareholders for the items that impact the comparability of period to period net income listed in the table on the following page, net income attributable to common shareholders, as adjusted (non-GAAP) for the quarters ended June 30, 2018 and 2017 was $69.7 million and $67.4 million, or $0.36 and $0.35 per diluted share, respectively.

FUNDS FROM OPERATIONS ("FFO") attributable to common shareholders plus assumed conversions (non-GAAP) for the quarter ended June 30, 2018 was $209.7 million, or $1.10 per diluted share, compared to $257.7 million, or $1.35 per diluted share, for the prior year's quarter.  Adjusting FFO attributable to common shareholders plus assumed conversions for the items that impact the comparability of period to period FFO listed in the table on page 3, FFO attributable to common shareholders plus assumed conversions, as adjusted (non-GAAP) for the quarters ended June 30, 2018 and 2017 was $187.4 million and $180.5 million, or $0.98 and $0.95 per diluted share, respectively.

Six Months Ended June 30, 2018 Financial Results

NET INCOME attributable to common shareholders for the six months ended June 30, 2018 was $93.7 million, or $0.49 per diluted share, compared to $163.7 million, or $0.86 per diluted share, for the six months ended June 30, 2017.  Adjusting net income attributable to common shareholders for the items that impact the comparability of period to period net income listed in the table on the following page, net income attributable to common shareholders, as adjusted (non-GAAP) for the six months ended June 30, 2018 and 2017 was $126.1 million and $113.5 million, or $0.66 and $0.60 per diluted share, respectively.

FUNDS FROM OPERATIONS ("FFO") attributable to common shareholders plus assumed conversions (non-GAAP) for the six months ended June 30, 2018 was $312.3 million, or $1.63 per diluted share, compared to $463.4 million, or $2.43 per diluted share, for the six months ended June 30, 2017.  Adjusting FFO attributable to common shareholders plus assumed conversions for the items that impact the comparability of period to period FFO listed in the table on page 3, FFO attributable to common shareholders plus assumed conversions, as adjusted (non-GAAP) for the six months ended June 30, 2018 and 2017 was $361.4 million and $339.4 million, or $1.89 and $1.78 per diluted share, respectively.

The following table reconciles our net income attributable to common shareholders to net income attributable to common shareholders, as adjusted (non-GAAP):

(Amounts in thousands, except per share amounts) For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
  2018   2017   2018   2017
Net income attributable to common shareholders $ 111,534     $ 115,972     $ 93,693     $ 163,724  
Per diluted share $ 0.58     $ 0.61     $ 0.49     $ 0.86  
               
Certain (income) expense items that impact net income attributable to common shareholders:              
Net gains on sale of real estate $ (24,449 )   $ (15,339 )   $ (24,767 )   $ (19,459 )
(Increase) decrease in fair value of marketable securities (including our share of partially owned entities) (16,024 )       18,636      
Profit participation on the April 2018 sale of 701 Seventh Avenue (5,457 )       (5,457 )    
Our share of loss from 666 Fifth Avenue Office Condominium (49.5% interest) 1,269     7,852     4,761     18,049  
Our share of (income) loss from real estate fund investments (excluding our $4,252 share of One Park Avenue potential additional transfer taxes and reduction in carried interest for the six months ended June 30, 2018) (551 )   304     (1,365 )   3,539  
(Income) loss from discontinued operations and sold properties (primarily related to JBG SMITH Properties operating results and transaction costs through July 17, 2017 spin-off) (286 )   (18,251 )   83     (31,246 )
Net gain resulting from Urban Edge Properties operating partnership unit issuances     (15,900 )       (15,900 )
Net gain on repayment of our Suffolk Downs JV debt investments     (11,373 )       (11,373 )
Our share of potential additional New York City transfer taxes based on a Tax Tribunal interpretation which Vornado is appealing         23,503      
Preferred unit issuance costs         14,486      
Other 839     900     4,609     2,864  
  (44,659 )   (51,807 )   34,489     (53,526 )
Noncontrolling interests' share of above adjustments 2,778     3,207     (2,105 )   3,314  
Total of certain (income) expense items that impact net income attributable to common shareholders $ (41,881 )   $ (48,600 )   $ 32,384     $ (50,212 )
               
Net income attributable to common shareholders, as adjusted (non-GAAP) $ 69,653     $ 67,372     $ 126,077     $ 113,512  
Per diluted share (non-GAAP) $ 0.36     $ 0.35     $ 0.66     $ 0.60  
 
 

The following table reconciles our FFO attributable to common shareholders plus assumed conversions (non-GAAP) to FFO attributable to common shareholders plus assumed conversions, as adjusted (non-GAAP):

(Amounts in thousands, except per share amounts) For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
  2018   2017   2018   2017
FFO attributable to common shareholders plus assumed conversions (non-GAAP)(1) $ 209,680     $ 257,673     $ 312,339     $ 463,422  
Per diluted share (non-GAAP) $ 1.10     $ 1.35     $ 1.63     $ 2.43  
               
Certain (income) expense items that impact FFO attributable to common shareholders plus assumed   conversions:              
(Increase) decrease in fair value of marketable securities (including our share of partially owned entities) $ (16,024 )   $     $ 18,636     $  
Profit participation on the April 2018 sale of 701 Seventh Avenue (5,457 )       (5,457 )    
Our share of FFO from 666 Fifth Avenue Office Condominium (49.5% interest) (2,178 )   (4,160 )   (2,041 )   (7,713 )
Our share of FFO from real estate fund investments (excluding our $4,252 share of One Park Avenue potential additional transfer taxes and reduction in carried interest for the six months ended June 30, 2018) (551 )   304     (1,365 )   3,539  
FFO from discontinued operations and sold properties (primarily related to JBG SMITH Properties operating results and transaction costs through July 17, 2017 spin-off) (374 )   (51,561 )   (104 )   (99,901 )
Net gain resulting from Urban Edge Properties operating partnership unit issuances     (15,900 )       (15,900 )
Net gain on repayment of our Suffolk Downs JV debt investments     (11,373 )       (11,373 )
Our share of potential additional New York City transfer taxes based on a Tax Tribunal interpretation which Vornado is appealing         23,503      
Preferred unit issuance costs         14,486      
Other 839     379     4,592     (962 )
  (23,745 )   (82,311 )   52,250     (132,310 )
Noncontrolling interests' share of above adjustments 1,477     5,182     (3,212 )   8,302  
Total of certain (income) expense items that impact FFO attributable to common shareholders plus assumed conversions, net $ (22,268 )   $ (77,129 )   $ 49,038     $ (124,008 )
               
FFO attributable to common shareholders plus assumed conversions, as adjusted (non-GAAP) $ 187,412     $ 180,544     $ 361,377     $ 339,414  
Per diluted share (non-GAAP) $ 0.98     $ 0.95     $ 1.89     $ 1.78  

____________________________________________________________

(1) See page 10 for a reconciliation of our net income attributable to common shareholders to FFO attributable to common shareholders plus assumed conversions (non-GAAP) for the three and six months ended June 30, 2018 and 2017.

Disposition Activity

On June 21, 2018, we completed the $45,000,000 sale of 27 Washington Square North, which resulted in a net gain of $23,559,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. We acquired the property in December 2015 for $20,000,000.

Financing Activities

On April 19, 2018, the joint venture between our Fund (25% owned) and our Crowne Plaza Joint Venture (57.1% owned) completed a $255,000,000 refinancing of the Crowne Plaza Times Square Hotel.  The interest-only loan is at LIBOR plus 3.51% (5.56% at June 30, 2018) and matures in May 2020 with three one-year extension options. In connection therewith, the joint venture purchased an interest rate cap that caps LIBOR at a rate of 4.00%. The Crowne Plaza Times Square Hotel was previously encumbered by a $310,000,000 interest-only mortgage at LIBOR plus 2.80% which was scheduled to mature in December 2018.

On June 11, 2018, the joint venture (50.1% owned) that owns Independence Plaza, a three-building 1,327 unit residential complex in the Tribeca submarket of Manhattan completed a $675,000,000 refinancing of Independence Plaza. The seven-year interest-only loan matures in July 2025 and has a fixed rate of 4.25%. Our share of net proceeds, after repayment of the existing 3.48% $550,000,000 mortgage and closing costs, was $55,618,000.

 Second Quarter Leasing Activity:

  • 611,000 square feet of New York Office space (545,000 square feet at share) at an initial rent of $88.28 per square foot and a weighted average term of 10.5 years.  The GAAP and cash mark-to-markets on the 502,000 square feet of second generation space were 41.3% and 28.4%, respectively. Tenant improvements and leasing commissions were $9.63 per square foot per annum, or 10.9% of initial rent.

  • 49,000 square feet of New York Retail space (44,000 square feet at share) at an initial rent of $165.98 per square foot and a weighted average term of 5.9 years.  The GAAP and cash mark-to-markets on the 38,000 square feet of second generation space were 11.6% and 8.7%, respectively. Tenant improvements and leasing commissions were $18.73 per square foot per annum, or 11.3% of initial rent.

  • 50,000 square feet at theMART (all at share and all second generation) at an initial rent of $51.66 per square foot and a weighted average term of 5.4 years.  The GAAP and cash mark-to-markets were 9.4% and 1.6%, respectively. Tenant improvements and leasing commissions were $1.55 per square foot per annum, or 3.0% of initial rent.

Same Store Net Operating Income ("NOI"):

The percentage increase (decrease) in same store NOI at share and same store NOI at share - cash basis of our New York segment, theMART and 555 California Street are summarized below.

    Total   New York(2)   theMART   555
California
Street
Same store NOI at share % increase(1):              
  Three months ended June 30, 2018 compared to June 30, 2017 4.7 %   4.2 %   5.2 %   13.5 %
  Six months ended June 30, 2018 compared to June 30, 2017 4.5 %   4.1 %   4.3 %   12.9 %
  Three months ended June 30, 2018 compared to March 31, 2018 3.2 %   3.3 %   3.4 %   1.1 %
                 
Same store NOI at share - cash basis % increase(1):              
  Three months ended June 30, 2018 compared to June 30, 2017 7.0 %   5.9 %   10.8 %   23.8 %
  Six months ended June 30, 2018 compared to June 30, 2017 6.7 %   5.8 %   10.4 %   18.5 %
  Three months ended June 30, 2018 compared to March 31, 2018 4.6 %   4.6 %   2.9 %   7.7 %

____________________

(1 )             See pages 12 through 17 for same store NOI at share and same store NOI at share - cash basis reconciliations.
 
    Increase (Decrease)
(2 )              Excluding Hotel Pennsylvania - New York same store NOI at share % increase (decrease):  
                 Three months ended June 30, 2018 compared to June 30, 2017 4.6 %
                 Six months ended June 30, 2018 compared to June 30, 2017 4.2 %
                 Three months ended June 30, 2018 compared to March 31, 2018 (0.3 )%
     
                 Excluding Hotel Pennsylvania - New York same store NOI at share - cash basis % increase:  
                 Three months ended June 30, 2018 compared to June 30, 2017 6.3 %
                 Six months ended June 30, 2018 compared to June 30, 2017 5.8 %
                 Three months ended June 30, 2018 compared to March 31, 2018 0.7 %
       

NOI:

The elements of our New York and Other NOI at share for the three and six months ended June 30, 2018 and 2017 and the three months ended March 31, 2018 are summarized below.

  For the Three Months Ended   For the Six Months Ended
June 30,
(Amounts in thousands) June 30,   March 31, 2018  
  2018   2017     2018   2017
New York:                  
Office $ 184,867     $ 171,809     $ 187,156     $ 372,023     $ 346,533  
Retail 87,109     89,955     87,909     175,018     179,003  
Residential 6,338     6,191     6,141     12,479     12,469  
Alexander's 11,909     11,966     11,575     23,484     23,709  
Hotel Pennsylvania 5,644     6,267     (4,185 )   1,459     1,629  
Total New York 295,867     286,188     288,596     584,463     563,343  
                   
Other:                  
theMART 27,816     26,182     26,875     54,691     52,071  
555 California Street 13,660     12,032     13,511     27,171     24,066  
Other investments 17,086     21,732     20,054     37,140     43,812  
Total Other 58,562     59,946     60,440     119,002     119,949  
                   
NOI at share $ 354,429     $ 346,134     $ 349,036     $ 703,465     $ 683,292  

NOI - Cash Basis:

The elements of our New York and Other NOI at share - cash basis for the three and six months ended June 30, 2018 and 2017 and the three months ended March 31, 2018 are summarized below.

  For the Three Months Ended   For the Six Months Ended
June 30,
(Amounts in thousands) June 30,   March 31, 2018  
  2018   2017     2018   2017
New York:                  
Office $ 180,710     $ 163,972     $ 178,199     $ 358,909     $ 330,311  
Retail 79,139     79,967     79,589     158,728     159,386  
Residential 5,463     5,342     5,599     11,062     10,884  
Alexander's 12,098     12,311     12,039     24,137     24,399  
Hotel Pennsylvania 5,744     6,299     (4,153 )   1,591     1,694  
Total New York 283,154     267,891     271,273     554,427     526,674  
                   
Other:                  
theMART 27,999     24,897     27,079     55,078     49,429  
555 California Street 13,808     11,151     12,826     26,634     22,476  
Other investments 16,987     19,720     19,910     36,897     41,757  
Total Other 58,794     55,768     59,815     118,609     113,662  
                   
NOI at share - cash basis $ 341,948     $ 323,659     $ 331,088     $ 673,036     $ 640,336  
 

Development/Redevelopment as of June 30, 2018

(Amounts in thousands, except square feet)
            (At Share)                       Full
Quarter
Stabilized
Operations
        Property
Rentable
Sq. Ft.
  Excluding Land Costs               Available for Occupancy  
Current Projects:   Segment     Incremental
Budget
  Amount
Expended
      %
Complete
  Start    
220 Central Park South - residential condominiums   Other   397,000     $ 1,400,000     $ 1,054,000     (1)   75.3%   Q3 2012   N/A   N/A
Moynihan Office Building - (50.1% interest)(2)   New York   850,000     400,000     42,503         10.6%   Q2 2017   Q3 2020   Q2 2022
One Penn Plaza - renovation(3)

  New York   2,535,000     200,000     3,939         2.0%   Q4 2018   N/A   N/A
61 Ninth Avenue - office/retail (45.1% interest)(4)   New York   170,000     69,000     55,134         79.9%   Q1 2016   Q2 2018   Q2 2019
512 West 22nd Street - office/retail (55.0% interest)   New York   173,000     72,000     47,719     (5)   66.3%   Q4 2015   Q3 2018   Q1 2020
345 Montgomery Street (555 California Street (70.0% interest)

  Other   64,000     32,000     6,399     (6)   20.0%   Q1 2018   Q3 2019   Q3 2020
606 Broadway - office/retail (50.0% interest)   New York   34,000     30,000     20,866     (7)   69.6%   Q2 2016   Q4 2018   Q2 2020
825 Seventh Avenue - office (50.0% interest)

  New York   165,000     15,000     2,449         16.3%   Q2 2018   Q1 2020   Q1 2021
Total current projects               $ 1,233,009                      
                                     
Future Opportunities:   Segment   Property
Zoning
Sq. Ft.
                           
Penn Plaza - multiple opportunities office/residential/retail   New York   TBD                            
Hotel Pennsylvania   New York   2,052,000                              
260 Eleventh Avenue - office(8)   New York   280,000                              
                                     
Undeveloped Land:                                    
29, 31, 33 West 57th Street (50.0% interest)   New York   150,000                              
527 West Kinzie, Chicago   Other   330,000                              
Total undeveloped land       480,000                              

_______________________

(1) Excludes land and acquisition costs of $515,426.
(2) Excludes $115,230 for our share of the upfront contribution of $230,000. The building and land are subject to a lease which expires in 2116.
(3) The building is subject to a ground lease which expires in 2098.
(4) The building is subject to a ground lease which expires in 2115.
(5) Excludes land and acquisition costs of $57,000.
(6) Excludes land and building costs of $31,000.
(7) Excludes land and acquisition costs of $22,703.
(8) The building is subject to a ground lease which expires in 2114.

Conference Call and Audio Webcast

As previously announced, the Company will host a quarterly earnings conference call and an audio webcast on Tuesday, July 31, 2018 at 10:00 a.m. Eastern Time (ET).  The conference call can be accessed by dialing 888-771-4371 (domestic) or 847-585-4405 (international) and indicating to the operator the passcode 47136894.  A telephonic replay of the conference call will be available from 1:30 p.m. ET on July 31, 2018 through August 30, 2018.  To access the replay, please dial 888-843-7419 and enter the passcode 47136894#.  A live webcast of the conference call will be available on the Company’s website at www.vno.com and an online playback of the webcast will be available on the website for 90 days following the conference call.

Supplemental Financial Information

Further details regarding results of operations, properties and tenants can be accessed at the Company’s website www.vno.com.  Vornado Realty Trust is a fully - integrated equity real estate investment trust.

Certain statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  For a discussion of factors that could materially affect the outcome of our forward-looking statements and our future results and financial condition, see “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2017.  Such factors include, among others, risks associated with the timing of and costs associated with property improvements, financing commitments and general competitive factors.

 
VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
 
  As of
(Amounts in thousands, except unit, share, and per share amounts) June 30, 2018   December 31, 2017
ASSETS      
Real estate, at cost:      
Land $ 3,175,830     $ 3,143,648  
Buildings and improvements 9,969,190     9,898,605  
Development costs and construction in progress 1,797,301     1,615,101  
Leasehold improvements and equipment 105,625     98,941  
      Total 15,047,946     14,756,295  
Less accumulated depreciation and amortization (3,035,523 )   (2,885,283 )
Real estate, net 12,012,423     11,871,012  
Cash and cash equivalents 1,090,791     1,817,655  
Restricted cash 121,168     97,157  
Marketable securities 165,650     182,752  
Tenant and other receivables, net of allowance for doubtful accounts of $3,891 and $5,526 65,773     58,700  
Investments in partially owned entities 959,801     1,056,829  
Real estate fund investments 373,039     354,804  
Receivable arising from the straight-lining of rents, net of allowance of $1,798 and $954 936,614     926,711  
Deferred leasing costs, net of accumulated amortization of $198,100 and $191,827 443,859     403,492  
Identified intangible assets, net of accumulated amortization of $163,406 and $150,837 146,370     159,260  
Assets related to discontinued operations 52     1,357  
Other assets 550,543     468,205  
  $ 16,866,083     $ 17,397,934  
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY      
Mortgages payable, net $ 8,108,618     $ 8,137,139  
Senior unsecured notes, net 843,417     843,614  
Unsecured term loan, net 749,494     748,734  
Unsecured revolving credit facilities 80,000      
Accounts payable and accrued expenses 394,079     415,794  
Deferred revenue 187,934     227,069  
Deferred compensation plan 100,368     109,177  
Liabilities related to discontinued operations 214     3,620  
Preferred shares redeemed on January 4 and 11, 2018     455,514  
Other liabilities 520,331     464,635  
    Total liabilities 10,984,455     11,405,296  
Commitments and contingencies      
Redeemable noncontrolling interests:      
Class A units - 12,616,515 and 12,528,899 units outstanding 932,613     979,509  
Series D cumulative redeemable preferred units - 177,101 units outstanding 5,428     5,428  
    Total redeemable noncontrolling interests 938,041     984,937  
Vornado's shareholders' equity:      
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 36,799,573 shares 891,325     891,988  
Common shares of beneficial interest: $0.04 par value per share; authorized 250,000,000 shares; issued and outstanding 190,237,957 and 189,983,858 shares 7,587     7,577  
Additional capital 7,555,993     7,492,658  
Earnings less than distributions (4,206,381 )   (4,183,253 )
Accumulated other comprehensive income 33,351     128,682  
    Total Vornado shareholders' equity 4,281,875     4,337,652  
Noncontrolling interests in consolidated subsidiaries 661,712     670,049  
Total equity 4,943,587     5,007,701  
  $ 16,866,083     $ 17,397,934  
 



 
VORNADO REALTY TRUST
OPERATING RESULTS
 
(Amounts in thousands, except per share amounts) For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
  2018   2017   2018   2017
Revenues $ 541,818     $ 511,087     $ 1,078,255     $ 1,019,145  
               
Income from continuing operations $ 104,655     $ 129,373     $ 105,300     $ 187,902  
Income from discontinued operations 683     18,111     320     33,429  
Net income 105,338     147,484     105,620     221,331  
Less net loss (income) attributable to noncontrolling interests in:              
Consolidated subsidiaries 26,175     (7,677 )   34,449     (14,414 )
Operating Partnership (7,445 )   (7,706 )   (6,321 )   (10,935 )
Net income attributable to Vornado 124,068     132,101     133,748     195,982  
Preferred share dividends (12,534 )   (16,129 )   (25,569 )   (32,258 )
Preferred share issuance costs         (14,486 )    
NET INCOME attributable to common shareholders $ 111,534     $ 115,972     $ 93,693     $ 163,724  
               
INCOME PER COMMON SHARE – BASIC:              
Income from continuing operations, net $ 0.59     $ 0.52     $ 0.49     $ 0.70  
Income from discontinued operations, net     0.09         0.16  
Net income per common share $ 0.59     $ 0.61     $ 0.49     $ 0.86  
Weighted average shares outstanding 190,200     189,395     190,141     189,304  
               
INCOME PER COMMON SHARE – DILUTED:              
Income from continuing operations, net $ 0.58     $ 0.52     $ 0.49     $ 0.70  
Income from discontinued operations, net     0.09         0.16  
Net income per common share $ 0.58     $ 0.61     $ 0.49     $ 0.86  
Weighted average shares outstanding 191,168     190,444     191,190     190,674  
               
FFO attributable to common shareholders plus assumed conversions (non-GAAP) $ 209,680     $ 257,673     $ 312,339     $ 463,422  
Per diluted share (non-GAAP) $ 1.10     $ 1.35     $ 1.63     $ 2.43  
               
FFO attributable to common shareholders plus assumed conversions, as adjusted (non-GAAP) $ 187,412     $ 180,544     $ 361,377     $ 339,414  
Per diluted share (non-GAAP) $ 0.98     $ 0.95     $ 1.89     $ 1.78  
               
Weighted average shares used in determining FFO per diluted share 191,168     190,444     191,228     190,450  
 


VORNADO REALTY TRUST
NON-GAAP RECONCILIATIONS

The following table reconciles net income attributable to common shareholders to FFO attributable to common shareholders plus assumed conversions:

null
(Amounts in thousands, except per share amounts) For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
  2018   2017   2018   2017
Net income attributable to common shareholders $ 111,534     $ 115,972     $ 93,693     $ 163,724  
Per diluted share $ 0.58     $ 0.61     $ 0.49     $ 0.86  
               
FFO adjustments:              
Depreciation and amortization of real property $ 103,599     $ 128,527     $ 204,009     $ 258,996  
Net gains on sale of real estate (24,177 )       (24,177 )   (2,267 )
Proportionate share of adjustments to equity in net income (loss) of partially owned entities to arrive at FFO:              
Depreciation and amortization of real property 25,488     37,682     53,594     76,756  
Net gains on sale of real estate (272 )   (15,339 )   (577 )   (17,192 )
Real estate impairment losses     167     4     3,218  
  104,638     151,037     232,853     319,511  
Noncontrolling interests' share of above adjustments (6,508 )   (9,356 )   (14,419 )   (19,873