Vornado(VNO) - 2019 Q1 - Quarterly Report

PART I. Financial Information This section presents the company's consolidated financial statements, management's discussion, and market risk disclosures Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Vornado Realty Trust and L.P., highlighting significant gains from asset sales and the adoption of ASC 842 Vornado Realty Trust Consolidated Financial Statements Vornado Realty Trust reported a significant increase in Q1 2019 net income to $194.0 million, primarily driven by gains on asset dispositions Vornado Realty Trust - Key Financial Highlights (Q1 2019 vs Q1 2018) | Metric | Q1 2019 (in thousands) | Q1 2018 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $534,668 | $536,437 | -0.3% | | Net Income Attributable to Vornado | $194,022 | $9,680 | +1904.4% | | Net Income (Loss) Attributable to Common Shareholders | $181,488 | $(17,841) | N/A | | Diluted EPS | $0.95 | $(0.09) | N/A | Vornado Realty Trust - Balance Sheet Summary (As of March 31, 2019) | Account | March 31, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :--- | :--- | :--- | | Real estate, net | $10,213,215 | $13,057,708 | | Assets held for sale | $3,027,058 | $0 | | Total Assets | $17,637,955 | $17,180,794 | | Mortgages payable, net | $6,519,189 | $8,167,798 | | Total Liabilities | $11,679,978 | $11,289,349 | | Total Shareholders' Equity | $4,443,992 | $4,465,231 | Vornado Realty Trust - Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $64,118 | $265,418 | | Net Cash from Investing Activities | $403,294 | $(190,620) | | Net Cash from Financing Activities | $(274,683) | $(571,542) | Vornado Realty L.P. Consolidated Financial Statements Vornado Realty L.P.'s financial statements mirror the Trust's, showing a significant increase in Q1 2019 net income to $206.2 million Vornado Realty L.P. - Key Financial Highlights (Q1 2019 vs Q1 2018) | Metric | Q1 2019 (in thousands) | Q1 2018 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $534,668 | $536,437 | -0.3% | | Net Income Attributable to Vornado Realty L.P. | $206,224 | $8,556 | +2310.2% | | Net Income (Loss) Attributable to Class A Unitholders | $193,649 | $(19,014) | N/A | | Diluted EPS (per Class A unit) | $0.95 | $(0.10) | N/A | Notes to Consolidated Financial Statements The notes detail accounting policies, the adoption of ASC 842, and significant transactions including asset sales and a major post-quarter-end joint venture - Effective January 1, 2019, the company adopted the new lease accounting standard ASC 842, resulting in the recording of $526.9 million of right-of-use assets and corresponding lease liabilities for its 12 ground leases[57] - During Q1 2019, the company closed on the sale of 12 condominium units at 220 Central Park South, generating net proceeds of $425.5 million and a financial statement net gain of $157.9 million[101] - On April 18, 2019, the company entered into a joint venture for its Fifth Avenue and Times Square portfolio, valuing the properties at $5.556 billion. The transaction is expected to result in a financial statement net gain of approximately $2.6 billion and net cash proceeds of approximately $1.2 billion[103][105][106] - The company sold its entire stake in Urban Edge Properties (UE) for net proceeds of $108.5 million, recognizing a net gain of $62.4 million[87] - On March 1, 2019, the company redeemed all of its $400 million 5.00% senior unsecured notes due 2022, incurring a debt prepayment cost of $22.5 million[118] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2019 financial results, highlighting increased net income and FFO per share driven by asset sales and solid leasing activity Overview of Financial Results Q1 2019 saw significant improvements in net income and FFO per share, primarily due to asset sales, with strong Same Store NOI growth Q1 2019 Financial Performance vs. Q1 2018 | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income (Loss) per Diluted Share | $0.95 | $(0.09) | | FFO per Diluted Share | $1.30 | $0.71 | Same Store NOI at Share % Change (Q1 2019 vs. Q1 2018) | Metric | Total | New York | theMART | 555 California Street | | :--- | :--- | :--- | :--- | :--- | | Same Store NOI at Share (GAAP) | (0.1)% | (0.1)% | (4.3)% | 7.3% | | Same Store NOI at Share (Cash) | 3.0% | 2.6% | 0.9% | 15.0% | - The company's portfolio occupancy remained high as of March 31, 2019, with the New York office portfolio at 97.0% and 555 California Street at 99.4%[246] Results of Operations Total revenues slightly decreased while expenses rose, primarily due to G&A and debt prepayment costs, offset by significant net gains on dispositions - Total revenues decreased slightly by $1.8 million year-over-year, while total expenses increased by $25.6 million[261][262] - General and administrative expenses increased by $15.5 million, primarily due to a $16.2 million non-cash charge for accelerated vesting of stock-based compensation[262][263] - Interest and debt expense rose by $14.3 million, largely due to a $22.5 million prepayment cost related to the redemption of $400 million in senior unsecured notes[273] - Net gains on dispositions totaled $220.3 million, comprising a $157.9 million gain from 220 CPS condo sales and a $62.4 million gain from the sale of UE units[274] Liquidity and Capital Resources Cash and equivalents increased due to strong investing activities from asset sales, while significant capital commitments remain for ongoing development projects - Cash and cash equivalents and restricted cash increased by $192.7 million to end the quarter at $909.6 million[309] - Investing activities were a significant source of cash ($403.3 million), driven by proceeds from the sale of 220 CPS condominium units ($425.5 million) and marketable securities ($167.8 million)[310] - The company has construction commitments of approximately $774 million as of March 31, 2019, related to major development projects like the Farley Office Building and PENN1 redevelopment[192][337] - The development of the 220 CPS residential tower is estimated to cost approximately $1.4 billion (excluding land), with $1.3 billion expended as of March 31, 2019[316] Funds From Operations (FFO) FFO attributable to common shareholders significantly increased to $247.7 million ($1.30 per diluted share) in Q1 2019, reflecting adjustments to net income FFO Reconciliation (Q1 2019 vs Q1 2018) | Metric (in thousands, except per share) | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income (Loss) Attributable to Common Shareholders | $181,488 | $(17,841) | | FFO Adjustments, net | $66,181 | $152,825 | | FFO Attributable to Common Shareholders | $247,669 | $134,984 | | FFO per Diluted Share | $1.30 | $0.71 | Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from $2.48 billion in variable-rate debt, mitigated by interest rate swaps on key loans Interest Rate Risk Exposure (As of March 31, 2019) | Debt Type | Balance (in thousands) | Effect of 1% Rate Change on Annual Net Income (in thousands) | | :--- | :--- | :--- | | Consolidated Variable Rate Debt | $2,475,508 | $24,755 | | Pro Rata Share of Non-Consolidated Variable Rate Debt | $1,266,752 | $12,668 | | Total Change in Annual Net Income Attributable to Vornado | | $34,809 | - The company uses interest rate swaps to fix the rates on several large loans, including a $750 million unsecured term loan, a $700 million mortgage on 770 Broadway, and a $375 million mortgage on 888 Seventh Avenue[345] Controls and Procedures Management concluded that disclosure controls and procedures for both Vornado Realty Trust and L.P. were effective as of March 31, 2019 - Management concluded that as of March 31, 2019, the disclosure controls and procedures for both Vornado Realty Trust and Vornado Realty L.P. were effective[348][350] PART II. Other Information This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings The company is involved in ordinary legal actions, but their outcomes are not expected to materially affect financial condition - The company states that the outcome of current legal actions is not expected to have a material adverse effect on its financial position[353] Risk Factors No material changes to previously disclosed risk factors were reported during the quarter Unregistered Sales of Equity Securities and Use of Proceeds Vornado Realty L.P. issued 762,145 Class A units for equity awards in Q1 2019, generating $11.7 million in cash proceeds - In Q1 2019, Vornado Realty L.P. issued 762,145 Class A units related to equity awards, raising $11.7 million in cash proceeds[356] Exhibits This section lists the exhibits filed with the Form 10-Q, including credit agreements, certification letters, and XBRL data