Vornado Says It Collected Only 53% of Rent From Retail Tenants – Barron’s

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Vornado Realty Trust, one of the largest commercial landlords in Manhattan, is feeling the effects of New Yorks economic woes as it collected only 53% of the rent due from its retail tenants in April, according to its first-quarter earnings report late Monday.

Vornado (ticker: VNO) owns a large collection of office buildings in Manhattan, including a cluster around Penn Station. With more than 2.4 million square feet of retail space in Manhattan, it is also the largest owner and manager of street retail in Manhattanwith tenants like Coach, Nike, Sephora, and Victorias Secretand sold about half of what it owned last year into a joint venture.

Vornado said that many tenants are seeking rent relief and that substantially all its retail tenants have closed their stores with the exception of grocery businesses.

While its office buildings remain substantially open, all tenants are working remotely, with occupancy around 5%. New York businesses largely shut down or curtailed their operations in late March.

The companys longtime CEO, Steve Roth, 79, said on a conference call on Tuesday that Vornado had collected 90% of April office rents and 53% of retail rents, for a total of 83% collected. He noted that the monthly unpaid rent was $24 million, with two-thirds coming from what he called creditworthy tenants.

If rent collection rates remain the same for a year and if other disruptions continue, it would cost Vornado about $1 a share, Roth said.

He also reiterated comments from his annual shareholder letter that the company was not interested in buying back its own stock while calling the share-price decline this year of about $25, or $5 billion of market value, a gross exaggeration. The company is now valued at less than $8 billion.

Net asset value accretion from stock buybacks are insignificant compared with development opportunities, he said, adding, Right now, buybacks are not No. 1 on our hit parade.

Roth said the company would re-evaluate its dividend now 66 cents a quarter. The stock yields about 6.6%.

Before the conference call, Stifel Sandler analyst Alexander Goldfarb wrote in a client note that eyes turn to the dividend, which he called materially uncovered this year and in 2021

Covid impact so farHotel Penn closed, almost all retail closed with many seeking rent relief, trade shows at theMART [Chicagos former Merchandise Mart] postponed for FY20, and certain development projects on hold, he wrote. Goldfarb has a Neutral rating on the stock.

In Tuesdays call, Roth highlighted the companys financial strength, saying that it has the ample liquidity to complete the renovations of Penn 1 and Penn 2 buildings as well as develop a large, low-rise building within the Farley Post Office Building across the street from Penn Station.

These projects will be completed with no debt attached to them, giving Vornado holders all the upside, Roth said. New York, he said, is the business capital of the world and has always come back bigger and better.

Roth said that he believes that New York workers want to return to their officeswe dont believe that working from home will become a trend. He also said the social distancing stemming from Covid-19 pandemic means the densification trend of cramming workers into smaller spaces is over.

Vornado Vice Chairman David Greenbaum said in response to a question about when workers will return to their offices that it will be a gradual process with 10% to 20% returning initially. There will be fewer people taking mass transit and more driving, walking or bicycling to work, he said.

Roth was asked about whether Vornado might consider demolishing the Hotel Pennsylvania, a dingy building that has a large footprint on a full block that would enable construction of a large office building. Roth said Vornado isnt inclined to do that.

Write to Andrew Bary at andrew.bary@barrons.com

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Vornado Says It Collected Only 53% of Rent From Retail Tenants - Barron's