ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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| | Page Number |
| Overview | |
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| Critical Accounting Estimates | |
| Net Operating Income At Share by Segment for the Years Ended December 31, 2022 and 2021 | |
| Results of Operations for the Year Ended December 31, 2022 Compared to December 31, 2021 | |
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| Related Party Transactions | |
| Liquidity and Capital Resources | |
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| Funds From Operations for the Years Ended December 31, 2022 and 2021 | |
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Introduction
The following discussion should be read in conjunction with the financial statements and related notes included under Part II, Item 8 of this Annual Report on Form 10-K.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") within this section is focused on the years ended December 31, 2022 and 2021, including year-to-year comparisons between these years. Our MD&A for the year ended December 31, 2020, including year-to-year comparisons between 2021 and 2020, can be found in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
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”) a Delaware limited partnership. Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders are dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of and owned approximately 92% of the common limited partnership interest in the Operating Partnership as of December 31, 2022. All references to the “Company,” “we,” “us” and “our” mean collectively Vornado, the Operating Partnership and those subsidiaries consolidated by Vornado.
We own and operate office and retail properties with a concentration in the New York City metropolitan area. In addition, we have a 32.4% interest in Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX), which owns six properties in the greater New York metropolitan area, as well as interests in other real estate and investments.
Our business objective is to maximize Vornado shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing Vornado’s performance to the FTSE NAREIT Office Index (“Office REIT”) and the MSCI US REIT Index (“MSCI”) for the following periods ended December 31, 2022:
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| | Total Return(1) |
| | Vornado | | Office REIT | | MSCI |
| Three-month | (8.1 | %) | | (1.5 | %) | | 5.2 | % |
| One-year | (46.7 | %) | | (37.6 | %) | | (24.5 | %) |
| Three-year | (62.7 | %) | | (37.9 | %) | | (0.2 | %) |
| Five-year | (64.7 | %) | | (30.3 | %) | | 19.9 | % |
| Ten-year | (45.6 | %) | | 10.7 | % | | 87.3 | % |
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(1)Past performance is not necessarily indicative of future performance.
We intend to achieve this objective by continuing to pursue our investment philosophy and to execute our operating strategies through:
•maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;
•investing in properties in select markets, such as New York City, where we believe there is a high likelihood of capital appreciation;
•acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;
•developing and redeveloping properties to increase returns and maximize value; and
•investing in operating companies that have a significant real estate component.
We expect to finance our growth, acquisitions and investments using internally generated funds and proceeds from asset sales and by accessing the public and private capital markets. We may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire these securities in the future.
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 Item 1A 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.
Vornado Realty Trust
Year Ended December 31, 2022 Financial Results Summary
Net loss attributable to common shareholders for the year ended December 31, 2022 was $408,615,000, or $2.13 per diluted share, compared to net income attributable to common shareholders of $101,086,000, or $0.53 per diluted share, for the year ended December 31, 2021. The years ended December 31, 2022 and 2021 include certain items that impact net (loss) 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 loss attributable to common shareholders by $535,083,000, or $2.79 per diluted share, for the year ended December 31, 2022 and increased net income attributable to common shareholders by $12,933,000, or $0.07 per diluted share, for the year ended December 31, 2021.
Funds from operations ("FFO") attributable to common shareholders plus assumed conversions for the year ended December 31, 2022 was $638,928,000, or $3.30 per diluted share, compared to $571,074,000, or $2.97 per diluted share, for the year ended December 31, 2021. The years ended December 31, 2022 and 2021 include certain items that impact FFO, which are listed in the table on the following page. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by $30,036,000, or $0.15 per diluted share, for the year ended December 31, 2022 and increased FFO by $21,211,000, or $0.11 per diluted share, for the year ended December 31, 2021.
The following table reconciles the difference between our net (loss) income attributable to common shareholders and our net income attributable to common shareholders, as adjusted:
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| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 |
| Certain expense (income) items that impact net (loss) income attributable to common shareholders: | | | |
| Non-cash real estate impairment losses on wholly owned and partially owned assets | $ | 595,488 | | | $ | 7,880 | |
| Hotel Pennsylvania loss (primarily accelerated building depreciation expense) | 71,087 | | | 29,472 | |
| Net gains on disposition of wholly owned and partially owned assets | (62,685) | | | (15,315) | |
| After-tax net gain on sale of 220 Central Park South ("220 CPS") condominium units and ancillary amenities | (35,858) | | | (44,607) | |
| Deferred tax liability on our investment in The Farley Building (held through a taxable REIT subsidiary) | 13,665 | | | 10,868 | |
| Refund of New York City transfer taxes related to the April 2019 transfer to Fifth Avenue and Times Square JV | (13,613) | | | — | |
| Other | 7,289 | | | (2,436) | |
| 575,373 | | | (14,138) | |
| Noncontrolling interests' share of above adjustments | (40,290) | | | 1,205 | |
| Total of certain expense (income) items that impact net (loss) income attributable to common shareholders | $ | 535,083 | | | $ | (12,933) | |
Overview - continued
Year Ended December 31, 2022 Financial Results Summary - continued
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:
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| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 |
| 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 and ancillary amenities | $ | (35,858) | | | $ | (44,607) | |
| Net gains on disposition of wholly owned and partially owned assets | (17,372) | | | (643) | |
| Deferred tax liability on our investment in The Farley Building (held through a taxable REIT subsidiary) | 13,665 | | | 10,868 | |
| Other | 7,289 | | | 12,026 | |
| (32,276) | | | (22,356) | |
| Noncontrolling interests' share of above adjustments | 2,240 | | | 1,145 | |
| Total of certain (income) expense items that impact FFO attributable to common shareholders plus assumed conversions, net | $ | (30,036) | | | $ | (21,211) | |
Same Store Net Operating Income ("NOI") At Share
The percentage increase 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 below.
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| Year Ended December 31, 2022 compared to December 31, 2021: | | Total | | New York | | theMART(1) | | 555
California Street |
| Same store NOI at share % increase | | 7.1 | % | | 3.5 | % | | 64.2 | % | | 2.7 | % |
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| Same store NOI at share - cash basis % increase | | 9.0 | % | | 5.0 | % | | 58.0 | % | | 13.3 | % |
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(1)Increase primarily due to (i) prior period accrual adjustments recorded in 2022 related to changes in the tax-assessed value and property tax rate of theMART and (ii) an increase in tradeshow activity in 2022 compared to 2021.
Calculations of same store NOI at share, reconciliations of our net (loss) 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.
Dispositions
220 CPS
During the year ended December 31, 2022, we closed on the sale of three condominium units and ancillary amenities at 220 CPS for net proceeds of $88,019,000 resulting in a financial statement net gain of $41,874,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with these sales, $6,016,000 of income tax expense was recognized on our consolidated statements of income. From inception to December 31, 2022, we have closed on the sale of 109 units and ancillary amenities for net proceeds of $3,094,915,000 resulting in financial statement net gains of $1,159,129,000. As of December 31, 2022, we are 97% sold.
SoHo Properties
On January 13, 2022, we sold two Manhattan retail properties located at 478-482 Broadway and 155 Spring Street for $84,500,000 and realized net proceeds of $81,399,000. In connection with the sale, we recognized a net gain of $551,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
Center Building (33-00 Northern Boulevard)
On June 17, 2022, we sold the Center Building, an eight-story 498,000 square foot office building located at 33‑00 Northern Boulevard in Long Island City, New York, for $172,750,000. We realized net proceeds of $58,946,000 after repayment of the existing $100,000,000 mortgage loan and closing costs. In connection with the sale, we recognized a net gain of $15,213,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
484-486 Broadway
On December 15, 2022, we sold 484-486 Broadway, a 30,000 square foot retail and residential building for $23,520,000, and realized net proceeds of $22,430,000. In connection with the sale, we recognized a net gain of $2,919,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
40 Fulton Street
On December 21, 2022, we sold 40 Fulton Street, a 251,000 square foot Manhattan office and retail building, for $101,000,000, and realized net proceeds of $96,566,000. In connection with the sale, we recognized a net gain of $31,876,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
Financings
100 West 33rd Street
On June 15, 2022, we completed a $480,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot building comprised of 859,000 square feet of office space and 255,000 square feet of retail space. The interest-only loan bears a rate of SOFR plus 1.65% (5.96% as of December 31, 2022) through March 2024, increasing to SOFR plus 1.85% thereafter. The interest rate on the loan was swapped to a fixed rate of 5.06% through March 2024, and 5.26% through June 2027. The loan matures in June 2027, with two one-year extension options subject to debt service coverage ratio and loan-to-value tests. The loan replaces the previous $580,000,000 loan that bore interest at LIBOR plus 1.55% and was scheduled to mature in April 2024.
770 Broadway
On June 28, 2022, we completed a $700,000,000 refinancing of 770 Broadway, a 1.2 million square foot Class A Manhattan office building. The interest-only loan bears a rate of SOFR plus 2.25% (6.48% as of December 31, 2022) and matures in July 2024 with three one-year extension options (July 2027 as fully extended). The interest rate on the loan was swapped to a fixed rate of 4.98% through July 2027. The loan replaces the previous $700,000,000 loan that bore interest at SOFR plus 1.86% and was scheduled to mature in July 2022.
Unsecured Revolving Credit Facility
On June 30, 2022, we amended and extended one of our two revolving credit facilities. The $1.25 billion amended facility bears interest at a rate of SOFR plus 1.15% (5.47% as of December 31, 2022). The term of the facility was extended from March 2024 to December 2027, as fully extended. The facility fee is 25 basis points. On August 16, 2022, the interest rate on the $575,000,000 drawn on the facility was swapped to a fixed interest rate of 3.88% through August 2027. Our other $1.25 billion revolving credit facility matures in April 2026, as fully extended, and bears a rate of SOFR plus 1.19% with a facility fee of 25 basis points.
Unsecured Term Loan
On June 30, 2022, we extended our $800,000,000 unsecured term loan from February 2024 to December 2027. The extended loan bears interest at a rate of SOFR plus 1.30% (5.62% as of December 31, 2022) and is currently swapped to a fixed rate of 4.05%.
330 West 34th Street land owner joint venture
On August 18, 2022, the joint venture that owns the fee interest in the 330 West 34th Street land, in which we have a 34.8% interest, completed a $100,000,000 refinancing. The interest-only loan bears interest at a fixed rate of 4.55% and matures in September 2032. In connection with the refinancing, we realized net proceeds of $10,500,000. The loan replaces the previous $50,150,000 loan that bore interest at a fixed rate of 5.71%.
Financings - continued
697-703 Fifth Avenue (Fifth Avenue and Times Square JV)
On December 21, 2022, the 697-703 Fifth Avenue $450,000,000 non-recourse mortgage loan matured and was not repaid, at which time the lenders declared an event of default. During December 2022, $29,000,000 of property-level funds were applied by the lenders against the principal balance resulting in a $421,000,000 loan balance as of December 31, 2022. The loan bears default interest at the Prime Rate plus 1.00% (8.50% as of December 31, 2022). The Fifth Avenue and Times Square JV is in negotiations with the lenders regarding a restructuring but there can be no assurance as to the timing and ultimate resolution of these negotiations. We do not believe that the resolution of these negotiations will result in further impairment losses on our investment in the Fifth Avenue and Times Square JV.
Interest Rate Hedging Activities
We entered into the following interest rate swap arrangements during the year ended December 31, 2022. See Note 13 - Fair Value Measurements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our consolidated hedging instruments. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | | Notional Amount | | All-In Swapped Rate | | Swap Expiration Date | | Variable Rate Spread |
| 770 Broadway mortgage loan | | $ | 700,000 | | | 4.98% | | 07/27 | | S+225 |
| Unsecured revolving credit facility | | 575,000 | | 3.88% | | 08/27 | | S+115 |
Unsecured term loan(1) | | 50,000 | | | 4.04% | | 08/27 | | S+130 |
Unsecured term loan (effective 10/23)(1) | | 500,000 | | | 4.39% | | 10/26 | | S+130 |
| 100 West 33rd Street mortgage loan | | 480,000 | | | 5.06% | | 06/27 | | S+165 |
888 Seventh Avenue mortgage loan(2) | | 200,000 | | | 4.76% | | 09/27 | | S+180 |
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(1)On February 7, 2023, we entered into a forward interest rate swap arrangement for $150,000 of the $800,000 unsecured term loan. The unsecured term loan, which matures in December 2027, is subject to various interest rate swap arrangements through August 2027, see below for details:
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| | Swapped Balance | | All-In Swapped Rate | | Unswapped Balance
(bears interest at S+130) |
| Through 10/23 | | $ | 800,000 | | | 4.05% | | $ | — | |
| 10/23 through 7/25 | | 700,000 | | | 4.53% | | 100,000 | |
| 7/25 through 10/26 | | 550,000 | | | 4.36% | | 250,000 | |
| 10/26 through 8/27 | | 50,000 | | | 4.04% | | 750,000 | |
(2)The remaining $77,800 amortizing mortgage loan balance bears interest at a floating rate of SOFR plus 1.80%.
Leasing Activity For the Year Ended December 31, 2022
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 in the 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.
•894,000 square feet of New York Office space (753,000 square feet at share) at an initial rent of $84.51 per square foot and a weighted average lease term of 8.9 years. The changes in the GAAP and cash mark-to-market rent on the 498,000 square feet of second generation space were positive 9.0% and positive 5.4%, respectively. Tenant improvements and leasing commissions were $11.84 per square foot per annum, or 14.0% of initial rent.
•111,000 square feet of New York Retail space (100,000 square feet at share) at an initial rent of $266.25 per square foot and a weighted average lease term of 11.6 years. The changes in the GAAP and cash mark-to-market rent on the 42,000 square feet of second generation space were negative 38.3% and negative 34.2%, respectively. Tenant improvements and leasing commissions were $22.68 per square foot per annum, or 8.5% of initial rent.
•299,000 square feet at theMART (all at share) at an initial rent of $52.40 per square foot and a weighted average lease term of 7.2 years. The changes in the GAAP and cash mark-to-market rent on the 244,000 square feet of second generation space were negative 4.8% and negative 5.4%, respectively. Tenant improvements and leasing commissions were $10.48 per square foot per annum, or 20.0% of initial rent.
•210,000 square feet at 555 California Street (147,000 square feet at share) at an initial rent of $96.40 per square foot and a weighted average lease term of 5.9 years. The changes in the GAAP and cash mark-to-market rent on the 135,000 square feet of second generation space were positive 24.3% and positive 13.6%, respectively. Tenant improvements and leasing commissions were $7.15 per square foot per annum, or 7.4% of initial rent.
Square footage (in service) and Occupancy as of December 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Square feet in thousands) | | | | Square Feet (in service) | | | |
| | Number of
properties | | | Total
Portfolio | | Our
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) |
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| | | | 24,753 | | | 19,371 | | | 90.4 | % | |
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| Other: | | | | | | | | | |
| theMART | 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 | | | | |
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| Total square feet at December 31, 2022 | | | | 32,739 | | | 25,467 | | | | |
________________________________________ See notes below.
Square footage (in service) and Occupancy as of December 31, 2021
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| (Square feet in thousands) | | | | Square Feet (in service) | | | |
| | Number of
properties | | | Total
Portfolio | | Our
Share | | Occupancy % | |
| New York: | | | | | | | | | |
| Office | 32 | (1) | | 19,442 | | | 16,757 | | | 92.2 | % | |
| Retail (includes retail properties that are in the base of our office properties) | 60 | (1) | | 2,267 | | | 1,825 | | | 80.7 | % | |
Residential - 1,986 units(2) | 8 | (1) | | 1,518 | | | 785 | | | 97.0 | % | (2) |
| Alexander's | 6 | | | 2,218 | | | 719 | | | 95.6 | % | (2) |
| | | | 25,445 | | | 20,086 | | | 91.3 | % | |
| | | | | | | | | |
| Other: | | | | | | | | | |
| theMART | 4 | | | 3,692 | | | 3,683 | | | 88.9 | % | |
| 555 California Street | 3 | | | 1,818 | | | 1,273 | | | 93.8 | % | |
| Other | 11 | | | 2,489 | | | 1,154 | | | 92.8 | % | |
| | | | 7,999 | | | 6,110 | | | | |
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| Total square feet at December 31, 2021 | | | | 33,444 | | | 26,196 | | | | |
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(1)Reflects the Office, Retail and Residential space within our 71 and 76 total New York properties as of December 31, 2022 and 2021, respectively.
(2)The Alexander Apartment Tower (312 units) is reflected in Residential unit count and occupancy.
Critical Accounting Estimates
In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Accounting estimates are deemed critical if they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Below is a summary of the critical accounting estimates used in the preparation of our consolidated financial statements. A discussion of our accounting policies is included in Note 2 - Basis of Presentation and Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K.
Acquisitions of Real Estate
Upon the acquisition of real estate, we assess whether the transaction should be accounted for as an asset acquisition or as a business combination. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. Our acquisitions of real estate generally will not meet the definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related identified intangible assets).
We assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and acquired liabilities and we allocate the purchase price on a relative fair value basis. We assess fair value based on estimated cash flow projections based on a number of factors such as historical operating results, known trends, and market/economic conditions and make key assumptions regarding the discount and capitalization rates used in our analyses. The use of different assumptions to value the acquired properties and allocate value between land and building could affect the revenues recognized over the terms of the leases at our properties and the expenses recognized over the property's estimated remaining useful life on our consolidated statements of income.
Impairment Analyses for Investments in Real Estate and Unconsolidated Partially Owned Entities
Our investments in consolidated properties, including any related right-of-use assets and intangible assets, and unconsolidated partially owned entities are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For our unconsolidated partially owned entities, we consider various qualitative factors to determine if a decrease in the value of our investment is other-than-temporary during our intended holding period. Assessing impairment can be complex and involves a high degree of subjectivity in determining if impairment indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset. In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, capital expenditures, discount rates and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions. These estimates can have a significant impact on the undiscounted cash flows or estimated fair value of an asset and could thereby affect the value of our real estate investments on our consolidated balance sheets as well as any potential impairment losses recognized on our consolidated statements of income.
During the year ended December 31, 2022, we recognized non-cash impairment losses totaling $595,488,000, net of noncontrolling interests of $6,822,000, on certain wholly owned and partially owned assets. See Note 5 - Investments in Partially Owned Entities and Note 13 - Fair Value Measurements to our consolidated financial statements in this Annual Report on Form 10-K for further details.
Impairment analyses are based on information available at the time the analyses are prepared. Estimates of future cash flows are subjective and are based, in part, on assumptions regarding future rental revenues, operating expenses, capital expenditures, discount rates and capitalization rates which could differ materially from actual results.
Collectability Assessments for Revenue Recognition
We evaluate on an individual lease basis whether it is probable that we will collect substantially all amounts due from our tenants and recognize changes in the collectability assessment of our operating leases as adjustments to rental revenue. Management exercises judgment in assessing collectability of tenant receivables and considers payment history, current credit status, publicly available information about the financial condition of the tenant, the impact of COVID-19 on tenants’ businesses, and other factors. Our assessment of the collectability of tenant receivables can have a significant impact on the rental revenue recognized in our consolidated statements of income.
Recent Accounting Pronouncements
See Note 2 – Basis of Presentation and Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K for a discussion concerning recent accounting pronouncements.
NOI At Share by Segment for the Years Ended December 31, 2022 and 2021
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 years ended December 31, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, 2022 |
| Total | | New York | | Other |
| Total revenues | $ | 1,799,995 | | | $ | 1,449,442 | | | $ | 350,553 | |
| Operating expenses | (873,911) | | | (716,148) | | | (157,763) | |
| NOI - consolidated | 926,084 | | | 733,294 | | | 192,790 | |
| Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries | (70,029) | | | (45,566) | | | (24,463) | |
| Add: NOI from partially owned entities | 305,993 | | | 293,780 | | | 12,213 | |
| NOI at share | 1,162,048 | | | 981,508 | | | 180,540 | |
| Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other | (10,980) | | | (18,509) | | | 7,529 | |
| NOI at share - cash basis | $ | 1,151,068 | | | $ | 962,999 | | | $ | 188,069 | |
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| (Amounts in thousands) | For the Year Ended December 31, 2021 |
| Total | | New York | | Other |
| Total revenues | $ | 1,589,210 | | | $ | 1,257,599 | | | $ | 331,611 | |
| Operating expenses | (797,315) | | | (626,386) | | | (170,929) | |
| NOI - consolidated | 791,895 | | | 631,213 | | | 160,682 | |
| Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries | (69,385) | | | (38,980) | | | (30,405) | |
| Add: NOI from partially owned entities | 310,858 | | | 300,721 | | | 10,137 | |
| NOI at share | 1,033,368 | | | 892,954 | | | 140,414 | |
| Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other | 1,318 | | | (1,188) | | | 2,506 | |
| NOI at share - cash basis | $ | 1,034,686 | | | $ | 891,766 | | | $ | 142,920 | |
NOI At Share by Segment for the Years Ended December 31, 2022 and 2021 - continued
The elements of our New York and Other NOI at share for the years ended December 31, 2022 and 2021 are summarized below.
| | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, | | |
| 2022 | | 2021 | | |
| New York: | | | | | |
| Office | $ | 718,686 | | | $ | 677,167 | | | |
| Retail | 205,753 | | | 173,363 | | | |
| Residential | 19,600 | | | 17,783 | | | |
| Alexander's | 37,469 | | | 37,318 | | | |
Hotel Pennsylvania(1) | — | | | (12,677) | | | |
| Total New York | 981,508 | | | 892,954 | | | |
| | | | | |
| Other: | | | | | |
theMART(2) | 96,906 | | | 58,909 | | | |
| 555 California Street | 65,692 | | | 64,826 | | | |
| Other investments | 17,942 | | | 16,679 | | | |
| Total Other | 180,540 | | | 140,414 | | | |
| | | | | |
| NOI at share | $ | 1,162,048 | | | $ | 1,033,368 | | | |
________________________________________
See notes below.
The elements of our New York and Other NOI at share - cash basis for the years ended December 31, 2022 and 2021 are summarized below.
| | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, | | |
| 2022 | | 2021 | | |
| New York: | | | | | |
| Office | $ | 715,407 | | | $ | 686,507 | | | |
| Retail | 188,846 | | | 160,801 | | | |
| Residential | 18,214 | | | 16,656 | | | |
| Alexander's | 40,532 | | | 40,525 | | | |
Hotel Pennsylvania(1) | — | | | (12,723) | | | |
| Total New York | 962,999 | | | 891,766 | | | |
| | | | | |
| Other: | | | | | |
theMART(2) | 101,912 | | | 64,389 | | | |
| 555 California Street | 67,813 | | | 60,680 | | | |
| Other investments | 18,344 | | | 17,851 | | | |
| Total Other | 188,069 | | | 142,920 | | | |
| | | | | |
| NOI at share - cash basis | $ | 1,151,068 | | | $ | 1,034,686 | | | |
________________________________________
(1)On April 5, 2021, we permanently closed the Hotel Pennsylvania. Beginning in the third quarter of 2021, we commenced capitalization of carrying costs in connection with our development of the Hotel Pennsylvania site.
(2)Increase primarily due to (i) prior period accrual adjustments recorded in 2022 related to changes in the tax-assessed value and property tax rate of theMART and (ii) an increase in tradeshow activity in 2022 compared to 2021.
Reconciliation of Net (Loss) Income to NOI At Share and NOI At Share - Cash Basis for the Years Ended December 31, 2022 and 2021
Below is a reconciliation of net (loss) income to NOI at share and NOI at share - cash basis for the years ended December 31, 2022 and 2021.
| | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, | | |
| 2022 | | 2021 | | |
| Net (loss) income | $ | (382,612) | | | $ | 207,553 | | | |
| Depreciation and amortization expense | 504,502 | | | 412,347 | | | |
| General and administrative expense | 133,731 | | | 134,545 | | | |
| Impairment losses, transaction related costs and other | 31,722 | | | 13,815 | | | |
| Loss (income) from partially owned entities | 461,351 | | | (130,517) | | | |
| Income from real estate fund investments | (3,541) | | | (11,066) | | | |
| Interest and other investment income, net | (19,869) | | | (4,612) | | | |
| Interest and debt expense | 279,765 | | | 231,096 | | | |
| | | | | |
| | | | | |
| Net gains on disposition of wholly owned and partially owned assets | (100,625) | | | (50,770) | | | |
| Income tax expense (benefit) | 21,660 | | | (10,496) | | | |
| | | | | |
| NOI from partially owned entities | 305,993 | | | 310,858 | | | |
| NOI attributable to noncontrolling interests in consolidated subsidiaries | (70,029) | | | (69,385) | | | |
| NOI at share | 1,162,048 | | | 1,033,368 | | | |
| Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other | (10,980) | | | 1,318 | | | |
| NOI at share - cash basis | $ | 1,151,068 | | | $ | 1,034,686 | | | |
NOI At Share by Region | | | | | | | | | | | | | |
| For the Year Ended December 31, | | |
| 2022 | | 2021 | | |
| Region: | | | | | |
| New York City metropolitan area | 86 | % | | 88 | % | | |
| Chicago, IL | 8 | % | | 6 | % | | |
| San Francisco, CA | 6 | % | | 6 | % | | |
| 100 | % | | 100 | % | | |
Results of Operations – Year Ended December 31, 2022 Compared to December 31, 2021
Revenues
Our revenues were $1,799,995,000 for the year ended December 31, 2022 compared to $1,589,210,000 in the prior year, an increase of $210,785,000. Below are the details of the increase by segment:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | | | | | |
| Increase (decrease) due to: | Total | | New York | | Other |
| Rental revenues: | | | | | |
| Acquisitions, dispositions and other | $ | 10,750 | | | $ | 10,750 | | | $ | — | |
| Development and redevelopment | 69,357 | | | 69,357 | | | — | |
Trade shows(1) | 13,187 | | | — | | | 13,187 | |
| Same store operations | 89,860 | | | 90,840 | | | (980) | |
| | 183,154 | | | 170,947 | | | 12,207 | |
| | | | | |
| Fee and other income: | | | | | |
| BMS cleaning fees | 17,893 | | | 19,639 | | | (1,746) | |
| Management and leasing fees | (686) | | | (532) | | | (154) | |
| Other income | 10,424 | | | 1,789 | | | 8,635 | |
| | 27,631 | | | 20,896 | | | 6,735 | |
| | | | | |
| Total increase in revenues | $ | 210,785 | | | $ | 191,843 | | | $ | 18,942 | |
________________________________________
See notes below.
Expenses
Our expenses were $1,534,249,000 for the year ended December 31, 2022 compared to $1,367,869,000 in the prior year, an increase of $166,380,000. Below are the details of the increase (decrease) by segment:
| | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | | | | | | |
| Increase (decrease) due to: | Total | | New York | | Other | |
| Operating: | | | | | | |
| Acquisitions, dispositions and other | $ | 1,555 | | | $ | 1,555 | | | $ | — | | |
| Development and redevelopment | 28,652 | | | 27,804 | | | 848 | | |
| Non-reimbursable expenses | 27,555 | | | 28,685 | | | (1,130) | | |
Trade shows(1) | 2,607 | | | — | | | 2,607 | | |
Hotel Pennsylvania(2) | (12,677) | | | (12,677) | | | — | | |
| BMS expenses | 16,312 | | | 18,058 | | | (1,746) | | |
| Same store operations | 12,592 | | | 26,337 | | | (13,745) | | |
| | 76,596 | | | 89,762 | | | (13,166) | | |
| | | | | | |
| Depreciation and amortization: | | | | | | |
| Acquisitions, dispositions and other | 63,366 | | | 63,366 | | | — | | |
| Development and redevelopment | 32,823 | | | 32,823 | | | — | | |
| Same store operations | (4,034) | | | (4,932) | | | 898 | | |
| | 92,155 | | | 91,257 | | | 898 | | |
| | | | | | |
| General and administrative | (814) | | | (2,143) | | | 1,329 | | |
| | | | | | |
| Benefit from deferred compensation plan liability | (19,464) | | | — | | | (19,464) | | |
| | | | | | |
| Impairment losses, transaction related costs and other | 17,907 | | | 12,819 | | (3) | 5,088 | | |
| | | | | | |
| Total increase (decrease) in expenses | $ | 166,380 | | | $ | 191,695 | | | $ | (25,315) | | |
________________________________________
(1)We cancelled trade shows at theMART beginning late March of 2020 due to the COVID-19 pandemic and resumed in the third quarter of 2021.
(2)On April 5, 2021, we permanently closed the Hotel Pennsylvania. Beginning in the third quarter of 2021, we commenced capitalization of carrying costs in connection with our development of the Hotel Pennsylvania site.
(3)Primarily due to an increase in impairment losses on wholly owned street retail assets ($19,098 in 2022 and $7,880 in 2021).
Results of Operations – Year Ended December 31, 2022 Compared to December 31, 2021 - continued
(Loss) Income from Partially Owned Entities
Below are the components of (loss) income from partially owned entities.
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Percentage Ownership at December 31, 2022 | | For the Year Ended December 31, |
| | | 2022 | | 2021 |
| Our share of net (loss) income: | | | | | |
| Fifth Avenue and Times Square JV: | | | | | |
Non-cash impairment loss(1) | 51.5% | | $ | (489,859) | | | $ | — | |
| Equity in net income | | | 55,248 | | | 47,144 | |
| Return on preferred equity, net of our share of the expense | | | 37,416 | | | 37,416 | |
| | | (397,195) | | | 84,560 | |
Partially owned office buildings(2) | Various | | (110,261) | | | 6,384 | |
Alexander's(3) | 32.4% | | 22,973 | | | 40,121 | |
Other investments(4) | Various | | 23,132 | | | (548) | |
| | | $ | (461,351) | | | $ | 130,517 | |
________________________________________
(1)See Note 5 - Investments in Partially Owned Entities to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
(2)Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue (consolidated from August 5, 2021), 7 West 34th Street, 512 West 22nd Street, 61 Ninth Avenue, 85 Tenth Avenue and others. 2022 includes a $93,353 impairment loss on our investment in 650 Madison Avenue.
(3)2021 includes our $11,620 share of net gain on the sale of the Paramus, New Jersey property to IKEA Property, Inc., and our $2,956 share of net gain on the sale of a parcel of land in the Bronx, New York.
(4)Includes interests in Independence Plaza, Rosslyn Plaza and others. 2022 includes $17,185 of net gains from dispositions of two investments.
Income from Real Estate Fund Investments
Below is a summary of income from the Vornado Capital Partners Real Estate Fund (“the Fund”) and the Crowne Plaza Times Square Hotel Joint Venture.
| | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, | |
| | 2022 | | 2021 | |
| Previously recorded unrealized loss on exited investments | $ | 59,396 | | | $ | — | | |
| Realized (loss) income on exited investments | (54,255) | | | 1,364 | | |
| Net unrealized (loss) income on held investments | (7,730) | | | 3,257 | | |
| Net investment income | 6,130 | | | 6,445 | | |
| | | | |
| Income from real estate fund investments | 3,541 | | | 11,066 | | |
| Less income attributable to noncontrolling interests in consolidated subsidiaries | (1,870) | | | (7,309) | | |
| Income from real estate fund investments net of noncontrolling interests in consolidated subsidiaries | $ | 1,671 | | | $ | 3,757 | | |
| | | | |
| | | | |
Interest and Other Investment Income, net
The following table sets forth the details of interest and other investment income, net.
| | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 |
| Interest on cash and cash equivalents and restricted cash | $ | 7,553 | | | $ | 284 | |
| Amortization of discount on investments in U.S. Treasury bills | 7,075 | | | — | |
| Interest on loans receivable | 5,006 | | | 2,517 | |
| Other, net | 235 | | | 1,811 | |
| $ | 19,869 | | | $ | 4,612 | |
Results of Operations – Year Ended December 31, 2022 Compared to December 31, 2021 - continued
Interest and Debt Expense
Interest and debt expense was $279,765,000 for the year ended December 31, 2022, compared to $231,096,000 in the prior year, an increase of $48,669,000. This was primarily due to (i) $52,926,000 of higher interest expense resulting from higher average interest rates on our variable rate loans, and (ii) $19,235,000 of lower capitalized interest and debt expense, partially offset by (iii) $23,729,000 of lower interest expense relating to defeasance costs, of which $7,119,000 is attributable to noncontrolling interest, in connection with the refinancing of 1290 Avenue of the Americas in 2021.
Net Gains on Disposition of Wholly Owned and Partially Owned Assets
Net gains on disposition of wholly owned and partially owned assets of $100,625,000 for the year ended December 31, 2022, primarily consists of (i) $41,874,000 from the sale of three condominium units and ancillary amenities at 220 CPS, (ii) $31,876,000 from the sale of 40 Fulton Street, (iii) $15,213,000 from the sale of Center Building located at 33-00 Northern Boulevard in Long Island City, New York, (iv) $13,613,000 from the refund of New York City real property transfer tax paid in connection with the April 2019 Fifth Avenue and Times Square JV transaction, and (v) $2,919,000 from the sale of 484-486 Broadway. Net gains on disposition of wholly owned and partially owned assets of $50,770,000 for the year ended December 31, 2021, primarily consists of net gains from the sale of condominium units and ancillary amenities at 220 CPS.
Income Tax (Expense) Benefit
Income tax expense was $21,660,000 for the year ended December 31, 2022, compared to a benefit of $10,496,000 in the prior year, an increase in expense of $32,156,000. This was primarily due to (i) additional expense in 2022 from book to tax differences on on our investment in The Farley Building and (ii) a higher tax benefit recognized by our taxable REIT subsidiaries in 2021 compared to 2022.
Net Loss (Income) Attributable to Noncontrolling Interests in Consolidated Subsidiaries
Net loss attributable to noncontrolling interests in consolidated subsidiaries was $5,737,000 for the year ended December 31, 2022, compared to net income of $24,014,000 in the prior year, a decrease in income of $29,751,000. This resulted primarily from a net loss in 2022 subject to allocation to the noncontrolling interests of our non-wholly owned consolidated subsidiaries compared to net income in 2021.
Net Loss (Income) Attributable to Noncontrolling Interests in the Operating Partnership (Vornado Realty Trust)
Net loss attributable to noncontrolling interests in the Operating Partnership was $30,376,000 for the year ended December 31, 2022, compared to net income of $7,540,000 in the prior year, a decrease in income of $37,916,000. This resulted primarily from a net loss in 2022 subject to allocation to third party Class A unitholders compared to net income in 2021.
Preferred Share Dividends of Vornado Realty Trust
Preferred share dividends were $62,116,000 for the year ended December 31, 2022, compared to $65,880,000 in the prior year, a decrease of $3,764,000.
Preferred Unit Distributions of Vornado Realty L.P.
Preferred unit distributions were $62,231,000 for the year ended December 31, 2022, compared to $66,035,000 in the prior year, a decrease of $3,804,000.
Preferred Share/Unit Issuance Costs
Preferred share/unit issuance costs for the year ended December 31, 2021 were $9,033,000 representing the previously capitalized issuance costs which were expensed upon calling for redemption of all the outstanding Series K cumulative redeemable preferred shares/units in September 2021.
Results of Operations – Year Ended December 31, 2022 Compared to December 31, 2021 - continued
Same Store Net Operating Income At Share
Same store NOI at share represents NOI at share from operations which are in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is same store 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 present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store NOI at share and same store 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 are reconciliations of NOI at share to same store NOI at share for our New York segment, theMART, 555 California Street and other investments for the year ended December 31, 2022 compared to December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Total | | New York | | theMART | | 555 California Street | | Other |
| NOI at share for the year ended December 31, 2022 | $ | 1,162,048 | | | $ | 981,508 | | | $ | 96,906 | | | $ | 65,692 | | | $ | 17,942 | |
| Less NOI at share from: | | | | | | | | | |
| Change in ownership interest in One Park Avenue | (13,370) | | | (13,370) | | | — | | | — | | | — | |
| Dispositions | (9,494) | | | (9,494) | | | — | | | — | | | — | |
| Development properties | (69,779) | | | (69,779) | | | — | | | — | | | — | |
| Other non-same store income, net | (26,701) | | | (8,557) | | | (202) | | | — | | | (17,942) | |
| Same store NOI at share for the year ended December 31, 2022 | $ | 1,042,704 | | | $ | 880,308 | | | $ | 96,704 | | | $ | 65,692 | | | $ | — | |
| | | | | | | | | |
| NOI at share for the year ended December 31, 2021 | $ | 1,033,368 | | | $ | 892,954 | | | $ | 58,909 | | | $ | 64,826 | | | $ | 16,679 | |
| Less NOI at share from: | | | | | | | | | |
| Dispositions | (13,512) | | | (13,512) | | | — | | | — | | | — | |
| Development properties | (31,291) | | | (30,443) | | | — | | | (848) | | | — | |
| Hotel Pennsylvania (permanently closed on April 5, 2021) | 12,677 | | | 12,677 | | | — | | | — | | | — | |
| Other non-same store income, net | (27,774) | | | (11,095) | | | — | | | — | | | (16,679) | |
| Same store NOI at share for the year ended December 31, 2021 | $ | 973,468 | | | $ | 850,581 | | | $ | 58,909 | | | $ | 63,978 | | | $ | — | |
| | | | | | | | | |
| Increase in same store NOI at share | $ | 69,236 | | | $ | 29,727 | | | $ | 37,795 | | | $ | 1,714 | | | $ | — | |
| | | | | | | | | |
| % increase in same store NOI at share | 7.1 | % | | 3.5 | % | | 64.2 | % | | 2.7 | % | | — | % |
Results of Operations – Year Ended December 31, 2022 Compared to December 31, 2021 - continued
Same Store Net Operating Income At Share - continued
Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for our New York segment, theMART, 555 California Street and other investments for the year ended December 31, 2022 compared to December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Total | | New York | | theMART | | 555 California Street | | Other |
| NOI at share - cash basis for the year ended December 31, 2022 | $ | 1,151,068 | | | $ | 962,999 | | | $ | 101,912 | | | $ | 67,813 | | | $ | 18,344 | |
| Less NOI at share - cash basis from: | | | | | | | | | |
| Change in ownership interest in One Park Avenue | (10,111) | | | (10,111) | | | — | | | — | | | — | |
| Dispositions | (8,719) | | | (8,719) | | | — | | | — | | | — | |
| Development properties | (47,846) | | | (47,846) | | | — | | | — | | | — | |
| Other non-same store income, net | (28,211) | | | (9,665) | | | (202) | | | — | | | (18,344) | |
| Same store NOI at share - cash basis for the year ended December 31, 2022 | $ | 1,056,181 | | | $ | 886,658 | | | $ | 101,710 | | | $ | 67,813 | | | $ | — | |
| | | | | | | | | |
| NOI at share - cash basis for the year ended December 31, 2021 | $ | 1,034,686 | | | $ | 891,766 | | | $ | 64,389 | | | $ | 60,680 | | | $ | 17,851 | |
| Less NOI at share - cash basis from: | | | | | | | | | |
| Dispositions | (13,469) | | | (13,469) | | | — | | | — | | | — | |
| Development properties | (32,453) | | | (31,605) | | | — | | | (848) | | | — | |
| Hotel Pennsylvania (permanently closed on April 5, 2021) | 12,723 | | | 12,723 | | | — | | | — | | | — | |
| Other non-same store income, net | (32,789) | | | (14,938) | | | — | | | — | | | (17,851) | |
| Same store NOI at share - cash basis for the year ended December 31, 2021 | $ | 968,698 | | | $ | 844,477 | | | $ | 64,389 | | | $ | 59,832 | | | $ | — | |
| | | | | | | | | |
| Increase in same store NOI at share - cash basis | $ | 87,483 | | | $ | 42,181 | | | $ | 37,321 | | | $ | 7,981 | | | $ | — | |
| | | | | | | | | |
| % increase in same store NOI at share - cash basis | 9.0 | % | | 5.0 | % | | 58.0 | % | | 13.3 | % | | — | % |
Related Party Transactions
See Note 22 - Related Party Transactions to our consolidated financial statements in this Annual Report on Form 10-K for a discussion concerning related party transactions.
Liquidity and Capital Resources
Our cash requirements include property operating expenses, capital improvements, tenant improvements, debt service, leasing commissions, dividends to our shareholders, distributions to unitholders of the Operating Partnership, as well as acquisition and development and redevelopment costs. The sources of liquidity to fund these cash requirements include rental revenue, which is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties; proceeds from debt financings, including mortgage loans, senior unsecured borrowings, unsecured term loans and unsecured revolving credit facilities; proceeds from the issuance of common and preferred equity; and asset sales.
As of December 31, 2022, we have $3.4 billion of liquidity comprised of $1.0 billion of cash and cash equivalents and restricted cash, $472 million of investments in U.S. Treasury bills and $1.9 billion available on our $2.5 billion revolving credit facilities. The ongoing challenges posed by the increase in interest rates and inflation and the continuing effect of the COVID-19 pandemic could adversely impact our cash flow from continuing operations but we anticipate that cash flow from continuing operations over the next twelve months together with cash balances on hand will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to our shareholders, debt amortization and recurring capital expenditures. Capital requirements for development and redevelopment expenditures and acquisitions may require funding from borrowings, equity offerings and/or asset sales.
We may from time to time purchase or retire outstanding debt securities or redeem our equity securities. Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
Summary of Cash Flows
Cash and cash equivalents and restricted cash was $1,021,157,000 at December 31, 2022, a $909,194,000 decrease from the balance at December 31, 2021.
Our cash flow activities are summarized as follows:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, | | Increase (Decrease) in Cash Flow |
| | 2022 | | 2021 | |
| Net cash provided by operating activities | $ | 798,944 | | | $ | 761,806 | | | $ | 37,138 | |
| Net cash used in investing activities | (906,864) | | | (532,347) | | | (374,517) | |
| Net cash used in financing activities | (801,274) | | | (29,477) | | | (771,797) | |
Operating Activities
Net cash provided by operating activities primarily consists of cash inflows from rental revenues and operating distributions from our non-consolidated partially owned entities less cash outflows for property expenses, general and administrative expenses and interest expense. For the year ended December 31, 2022, net cash provided by operating activities of $798,944,000 was comprised of $711,610,000 of cash from operations, including distributions of income from partially owned entities of $184,501,000 and return of capital from real estate fund investments of $5,141,000, and a net increase of $87,334,000 in cash due to the timing of cash receipts and payments related to changes in operating assets and liabilities.
Liquidity and Capital Resources - continued
Summary of Cash Flows - continued
Investing Activities
Net cash flow used in investing activities is impacted by the timing and extent of our development, capital improvement, acquisition and disposition activities during the year.
The following table details the net cash used in investing activities:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, | | (Decrease) Increase in Cash Flow |
| 2022 | | 2021 | |
| Purchase of U.S. Treasury bills | $ | (1,066,096) | | | $ | — | | | $ | (1,066,096) | |
| Development costs and construction in progress | (737,999) | | | (585,940) | | | (152,059) | |
| Proceeds from maturities of U.S. Treasury bills | 597,499 | | | — | | | 597,499 | |
| Proceeds from sales of real estate | 373,264 | | | 100,024 | | | 273,240 | |
| Additions to real estate | (159,796) | | | (149,461) | | | (10,335) | |
| Proceeds from sale of condominium units and ancillary amenities at 220 Central Park South | 88,019 | | | 137,404 | | | (49,385) | |
| Distributions of capital from partially owned entities | 34,417 | | | 106,005 | | | (71,588) | |
| Investments in partially owned entities | (33,172) | | | (14,997) | | | (18,175) | |
| Acquisitions of real estate and other | (3,000) | | | (3,000) | | | — | |
| Acquisition of additional 45.0% ownership interest in One Park Avenue (inclusive of $5,806 of prorations and net working capital and net of $39,370 of cash and restricted cash balances consolidated upon acquisition) | — | | | (123,936) | | | 123,936 | |
| Proceeds from repayments of loan receivables | — | | | 1,554 | | | (1,554) | |
| Net cash used in investing activities | $ | (906,864) | | | $ | (532,347) | | | $ | (374,517) | |
Financing Activities
Net cash flow used in financing activities is impacted by the timing and extent of issuances of debt and equity securities, distributions paid to common shareholders and unitholders of the Operating Partnership as well as principal and other repayments associated with our outstanding debt.
The following table details the net cash used in financing activities:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, | | Increase (Decrease) in Cash Flow |
| 2022 | | 2021 | |
| Repayments of borrowings | $ | (1,251,373) | | | $ | (1,584,243) | | | $ | 332,870 | |
| Proceeds from borrowings | 1,029,773 | | | 3,248,007 | | | (2,218,234) | |
| Dividends paid on common shares/Distributions to Vornado | (406,562) | | | (406,109) | | | (453) | |
| Distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries | (84,699) | | | (190,876) | | | 106,177 | |
| Dividends paid on preferred shares/Distributions to preferred unitholders | (62,116) | | | (65,880) | | | 3,764 | |
| Debt issuance costs | (32,706) | | | (51,184) | | | 18,478 | |
| Contributions from noncontrolling interests in consolidated subsidiaries | 5,609 | | | 4,052 | | | 1,557 | |
| Proceeds received from exercise of Vornado stock options and other | 885 | | | 899 | | | (14) | |
| Repurchase of shares/Class A units related to stock compensation agreements and related tax withholdings and other | (85) | | | (1,567) | | | 1,482 | |
| Purchase of marketable securities in connection with defeasance of mortgage payable | — | | | (973,729) | | | 973,729 | |
| Redemption of preferred shares/units | — | | | (300,000) | | | 300,000 | |
| Proceeds from the issuance of preferred shares/units | — | | | 291,153 | | | (291,153) | |
| Net cash used in financing activities | $ | (801,274) | | | $ | (29,477) | | | $ | (771,797) | |
Liquidity and Capital Resources - continued
Dividends
On January 18, 2023, Vornado declared a quarterly common dividend of $0.375 per share (an indicated annual rate of $1.50 per common share). This dividend, if declared by the Board of Trustees for all of 2023, would require the Operating Partnership to distribute (i) approximately $288,000,000 of cash to Vornado for distribution to its common shareholders and (ii) $22,000,000 of cash to third party Class A unitholders. Additionally, during 2023, Vornado expects to pay approximately $62,000,000 of cash dividends on outstanding preferred shares.
Debt
We have an effective shelf registration for the offering of our equity and debt securities that is not limited in amount due to our status as a “well-known seasoned issuer.” We have issued senior unsecured notes from a shelf registration statement that contain financial covenants that restrict our ability to incur debt, and that require us to maintain a level of unencumbered assets based on the level of our secured debt. Our unsecured revolving credit facilities and unsecured term loan contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB-. Our unsecured revolving credit facilities and unsecured term loan also contain customary conditions precedent to borrowing, including representations and warranties, and contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal. As of December 31, 2022, we are in compliance with all of the financial covenants required by our senior unsecured notes, our unsecured revolving credit facilities and our unsecured term loan.
A summary of our consolidated debt as of December 31, 2022 and 2021 is presented below.
| | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | As of December 31, 2022 | | As of December 31, 2021 |
| Consolidated debt: | Balance | | Weighted Average Interest Rate(1) | | Balance | | Weighted Average Interest Rate(1) |
| Fixed rate | $ | 6,145,000 | | | 3.59% | | $ | 4,140,000 | | | 3.06% |
| Variable rate | 2,307,615 | | | 5.67% | | 4,534,215 | | | 1.59% |
| Total | 8,452,615 | | | 4.16% | | 8,674,215 | | | 2.29% |
| Deferred financing costs, net and other | (63,572) | | | | | (58,268) | | | |
| Total, net | $ | 8,389,043 | | | | | $ | 8,615,947 | | | |
_______________________________________
(1)Represents the interest rate in effect as of period end based on the appropriate reference rate as of the contractual reset date plus contractual spread, adjusted for hedging instruments, as applicable.
During 2023 and 2024, $21,600,000 and $396,415,000, respectively, of our outstanding consolidated debt matures, assuming the exercise of as-of-right extension options. We may refinance this maturing debt as it comes due or choose to repay it using cash and cash equivalents or our unsecured revolving credit facilities. We may also refinance or prepay other outstanding debt depending on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
Details of 2022 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The contractual principal and interest repayments schedule of our consolidated debt as of December 31, 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Amounts in thousands) | Total | | Less than 1 Year | | 1 – 3 Years | | 3 – 5 Years | | Thereafter |
| Notes and mortgages payable | $ | 7,125,211 | | | $ | 285,403 | | | $ | 1,788,462 | | | $ | 2,451,226 | | | $ | 2,600,120 | |
| Senior unsecured notes due 2025 | 482,156 | | | 15,750 | | | 466,406 | | | — | | | — | |
| Senior unsecured notes due 2026 | 429,431 | | | 8,600 | | | 17,200 | | | 403,631 | | | — | |
| Senior unsecured notes due 2031 | 450,224 | | | 11,900 | | | 23,800 | | | 23,800 | | | 390,724 | |
| Unsecured term loan | 976,841 | | | 34,700 | | | 73,162 | | | 868,979 | | | — | |
| Revolving credit facilities | 686,833 | | | 22,598 | | | 45,258 | | | 618,977 | | | — | |
Total contractual principal(1) and interest(2) repayments | $ | 10,150,696 | | | $ | 378,951 | | | $ | 2,414,288 | | | $ | 4,366,613 | | | $ | 2,990,844 | |
________________________________________
(1)Based on the contractual maturity of our loans, including as-of-right extension options, as of December 31, 2022.
(2)Estimated interest for variable rate debt based on the 1-month LIBOR or Term SOFR curve available as of December 31, 2022.
Liquidity and Capital Resources - continued
Capital Expenditures
Capital expenditures consist of expenditures to maintain and improve assets, tenant improvement allowances and leasing commissions. During 2023, we expect to incur $250,000,000 of capital expenditures for our consolidated properties. We plan to fund these capital expenditures from operating cash flow, existing liquidity, and/or borrowings. Our partially owned non-consolidated subsidiaries typically fund their capital expenditures without any additional equity contribution from us.
Development and Redevelopment Expenditures
Development and redevelopment expenditures consist of all hard and soft costs associated with the development and redevelopment of a property. We plan to fund these development and redevelopment expenditures from operating cash flow, existing liquidity, and/or borrowings. See detailed discussion below for our current development and redevelopment projects.
PENN District
The Farley Building
Our 95% joint venture (5% is owned by the Related Companies ("Related")) is completing the development of The Farley Building, which includes approximately 846,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 116,000 square feet of restaurant and retail space. The total development cost of this project is estimated to be approximately $1,120,000,000 at our 95% share, of which $1,111,493,000 of cash has been expended as of December 31, 2022.
PENN 1
We are redeveloping PENN 1, a 2,546,000 square foot office building located on 34th Street between Seventh and Eighth Avenue. In December 2020, we entered into an agreement with the Metropolitan Transportation Authority (the “MTA”) to oversee the redevelopment of the Long Island Rail Road Concourse at Penn Station (the "Concourse"). Skanska USA Civil Northeast, Inc. is performing the redevelopment under a fixed price contract for $396,000,000 which is being funded by the MTA. In connection with the redevelopment, we entered into an agreement with the MTA which will result in the widening of the Concourse to relieve overcrowding and our trading of 15,000 square feet of back of house space for 22,000 square feet of retail frontage space. Vornado's total development cost of our PENN 1 project is estimated to be $450,000,000, of which $375,810,000 of cash has been expended as of December 31, 2022.
PENN 2
We are redeveloping PENN 2, a 1,795,000 square foot (as expanded) office building, located on the west side of Seventh Avenue between 31st and 33rd Street. The development cost of this project is estimated to be $750,000,000, of which $393,126,000 of cash has been expended as of December 31, 2022.
Hotel Pennsylvania Site
We have permanently closed the Hotel Pennsylvania and plan to develop an office tower on the site. Demolition of the existing building structure commenced in the fourth quarter of 2021.
We are also making districtwide improvements within the PENN District. The development cost of these improvements is estimated to be $100,000,000, of which $41,776,000 of cash has been expended as of December 31, 2022.
We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan including, in particular, the PENN District and 350 Park Avenue.
There can be no assurance that the above projects will be completed, completed on schedule or within budget.
Other Obligations
We have contractual cash obligations for certain properties that are subject to long-term ground and building leases. During 2023, $46,847,000 of lease payments are due, including fair market rent resets accounted for as variable rent. For 2024 and thereafter, we have $2,509,517,000 of future lease payments. We believe that our operating cash flow will be adequate to fund these lease payments.
Liquidity and Capital Resources - continued
Insurance
For our properties, we maintain general liability insurance with limits of $300,000,000 per occurrence and per property, of which $250,000,000 includes communicable disease coverage, and we maintain all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake, excluding communicable disease coverage. Our California properties have earthquake insurance with coverage of $350,000,000 per occurrence and in the aggregate, subject to a deductible in the amount of 5% of the value of the affected property. We maintain coverage for certified terrorism acts with limits of $6.0 billion per occurrence and in the aggregate (as listed below), $1.2 billion for non-certified acts of terrorism, and $5.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by the Terrorism Risk Insurance Act of 2002, as amended to date and which has been extended through December 2027.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $1,774,525 and 20% of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC.
Certain condominiums in which we own an interest (including the Farley Condominiums) maintain insurance policies with different per occurrence and aggregate limits than our policies described above.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism and other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material.
Our debt instruments, consisting of mortgage loans secured by our properties, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance or refinance our properties and expand our portfolio.
Other Commitments and Contingencies
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not currently expected to have a material adverse effect on our financial position, results of operations or cash flows.
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
In July 2018, we leased 78,000 square feet at 345 Montgomery Street in San Francisco, CA, to a subsidiary of Regus PLC, for an initial term of 15 years. The obligations under the lease were guaranteed by Regus PLC in an amount of up to $90,000,000. The tenant purported to terminate the lease prior to space delivery. We commenced a suit on October 23, 2019 seeking to enforce the lease and the guaranty. On May 11, 2021, the court issued a final statement of decision in our favor and on January 31, 2023, the Court of Appeal affirmed the lower court’s decision. On October 9, 2020, the successor to Regus PLC filed for bankruptcy in Luxembourg. We are actively pursuing claims relating to the guaranty against the successor to Regus PLC and its parent in Luxembourg and other jurisdictions.
Our mortgage loans are non-recourse to us, except for the mortgage loans secured by 640 Fifth Avenue, 7 West 34th Street and 435 Seventh Avenue, which we guaranteed and therefore are part of our tax basis. In certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. In addition, we have guaranteed the rent and payments in lieu of real estate taxes due to ESD, an entity of New York State, for The Farley Building. As of December 31, 2022, the aggregate dollar amount of these guarantees and master leases is approximately $1,553,000,000.
As of December 31, 2022, $15,273,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities. Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB- (our current ratings). Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.
Liquidity and Capital Resources - continued
Other Commitments and Contingencies - continued
Our 95% consolidated joint venture (5% is owned by Related) is completing the development of The Farley Building. In connection with the development of the property, the joint venture admitted a historic Tax Credit Investor partner (the "Tax Credit Investor"). Under the terms of the historic tax credit arrangement, the joint venture is required to comply with various laws, regulations, and contractual provisions. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, may require a refund or reduction of the Tax Credit Investor’s capital contributions. As of December 31, 2022, the Tax Credit Investor has made $92,400,000 in capital contributions. Vornado and Related have guaranteed certain of the joint venture’s obligations to the Tax Credit Investor.
As investment manager of the Fund we are entitled to an incentive allocation after the limited partners have received a preferred return on their invested capital. The incentive allocation is subject to catch-up and clawback provisions. Accordingly, based on the December 31, 2022 fair value of the Fund assets, at liquidation we would be required to make a $26,400,000 payment to the limited partners, net of amounts owed to us, representing a clawback of previously paid incentive allocations, which would have no income statement impact as it was previously accrued.
As of December 31, 2022, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $10,300,000.
As of December 31, 2022, we have construction commitments aggregating approximately $409,000,000.
Funds From Operations
Vornado Realty Trust
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of certain real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are non-GAAP financial measures used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. The Company also uses FFO attributable to common shareholders plus assumed conversions, as adjusted for certain items that impact the comparability of period-to-period FFO, as one of several criteria to determine performance-based compensation for senior management. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in Note 18 – (Loss) Income Per Share/(Loss) Income Per Class A Unit, in our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. Details of certain items that impact FFO are discussed in the financial results summary of our “Overview.”
Below is a reconciliation of net (loss) income attributable to common shareholders to FFO attributable to common shareholders plus assumed conversions for the year ended December 31, 2022 and 2021.
| | | | | | | | | | | |
| (Amounts in thousands, except per share amounts) | For the Year Ended December 31, |
| | 2022 | | 2021 |
| Reconciliation of net (loss) income attributable to common shareholders to FFO attributable to common shareholders plus assumed conversions: | | | |
| Net (loss) income attributable to common shareholders | $ | (408,615) | | | $ | 101,086 | |
| Per diluted share | $ | (2.13) | | | $ | 0.53 | |
| | | |
| FFO adjustments: | | | |
| Depreciation and amortization of real property | $ | 456,920 | | | $ | 373,792 | |
| Real estate impairment losses | 19,098 | | | 7,880 | |
| | | |
| Net gains on sale of real estate | (58,751) | | | — | |
| Proportionate share of adjustments to equity in net (loss) income of partially owned entities to arrive at FFO: | | | |
| Depreciation and amortization of real property | 130,647 | | | 139,247 | |
| Net gains on sale of real estate | (169) | | | (15,675) | |
| Increase in fair value of marketable securities | — | | | (1,155) | |
| Real estate impairment losses | 576,390 | | | — | |
| 1,124,135 | | | 504,089 | |
| Noncontrolling interests' share of above adjustments | (77,912) | | | (34,144) | |
| FFO adjustments, net | $ | 1,046,223 | | | $ | 469,945 | |
| | | |
| FFO attributable to common shareholders | $ | 637,608 | | | $ | 571,031 | |
| Convertible preferred share dividends | 1,320 | | | 43 | |
| FFO attributable to common shareholders plus assumed conversions | $ | 638,928 | | | $ | 571,074 | |
| Per diluted share | $ | 3.30 | | | $ | 2.97 | |
| | | |
| Reconciliation of weighted average shares outstanding: | | | |
| Weighted average common shares outstanding | 191,775 | | | 191,551 | |
| Effect of dilutive securities: | | | |
Convertible securities(1) | 1,545 | | | 26 | |
| Share-based payment awards | 250 | | | 571 | |
| Denominator for FFO per diluted share | 193,570 | | | 192,148 | |
________________________________________
(1)On January 1, 2022, we adopted Accounting Standards Update 2020-06, which requires us to include our Series D-13 cumulative redeemable preferred units and Series G-1 through G-4 convertible preferred units in our dilutive earnings per share calculations, if the effect is dilutive.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
| | | | | |
| | Page
Number |
| Vornado Realty Trust | |
| |
| | |
| Consolidated Balance Sheets at December 31, 2022 and 2021 | |
| |
| Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 | |
| | |
| Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020 | |
| |
| Consolidated Statements of Changes in Equity for the years ended December 31, 2022, 2021 and 2020 | |
| |
| Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 | |
| |
| Vornado Realty L.P. | |
| |
| | |
| Consolidated Balance Sheets at December 31, 2022 and 2021 | |
| | |
| Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 | |
| | |
| Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020 | |
| | |
| Consolidated Statements of Changes in Equity for the years ended December 31, 2022, 2021 and 2020 | |
| | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 | |
| |
| Vornado Realty Trust and Vornado Realty L.P. | |
| |
| |
| |
| |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Trustees
Vornado Realty Trust
New York, New York
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vornado Realty Trust and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with the accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate Impairment – Refer to Notes 2, 5, 13, and 15 to the financial statements
Critical Audit Matter Description
The Company’s real estate properties are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its fair value. The Company also reviews its investments in partially owned entities for impairment when indications of potential impairment exist. An impairment loss for investments in partially owned entities is recorded when there is a decline in the fair value below the carrying value that is other than temporary. Fair value is determined based on estimated cash flow projections that utilize discount and capitalization rates and available market information.
Preparing the Company’s estimated cash flow projections requires management to make significant estimates and assumptions related to future market rental rates, capitalization rates, and discount rates.
For the year ended December 31, 2022, the Company recognized impairment losses of $19,098,000 which are included in “Impairment losses, transaction related costs and other” and $583,212,000 which are included in “(Loss) income from partially owned entities” within the consolidated statements of income.
We identified the impairment of real estate properties as a critical audit matter because of the significant estimates and assumptions related to future market rental rates, capitalization rates and discount rates. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to impairment included the following, among others:
•We tested the effectiveness of controls over management’s evaluation of recoverability of its properties, including those over future market rental rates and capitalization rates used in the assessment.
•We tested the effectiveness of controls over management’s evaluation of impairment of its properties and investments in partially owned entities and measurement of that impairment based on discounted cash flows, including those over the future market rental rates, capitalization rates, and discount rates used in the assessment.
•We evaluated the reasonableness of future market rental rates, capitalization rates, and discount rates used by management with independent market data, focusing on geographical location and property type. In addition, we developed ranges of independent estimates of future market rental rates, capitalization rates, and discount rates and compared those to the amounts used by management.
•We involved our fair value specialists in providing comparable market transaction details to further support the future market rental rates, capitalization rates and discount rates assumptions, as applicable.
•We evaluated the reasonableness of management’s projected future cash flow analyses by comparing management’s projections to the Company’s historical results.
•We evaluated whether the assumptions were consistent with evidence obtained in other areas of the audit.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 13, 2023
We have served as the Company’s auditor since 1976.
VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| (Amounts in thousands, except unit, share and per share amounts) | As of December 31, |
| 2022 | | 2021 |
| ASSETS | | | |
| Real estate, at cost: | | | |
| Land | $ | 2,451,828 | | | $ | 2,540,193 | |
| Buildings and improvements | 9,804,204 | | | 9,839,166 | |
| Development costs and construction in progress | 933,334 | | | 718,694 | |
| | | |
| Leasehold improvements and equipment | 125,389 | | | 119,792 | |
| Total | 13,314,755 | | | 13,217,845 | |
| Less accumulated depreciation and amortization | (3,470,991) | | | (3,376,347) | |
| Real estate, net | 9,843,764 | | | 9,841,498 | |
| Right-of-use assets | 684,380 | | | 337,197 | |
| Cash and cash equivalents | 889,689 | | | 1,760,225 | |
| Restricted cash | 131,468 | | | 170,126 | |
| Investments in U.S. Treasury bills | 471,962 | | | — | |
| Tenant and other receivables | 81,170 | | | 79,661 | |
| Investments in partially owned entities | 2,665,073 | | | 3,297,389 | |
| Real estate fund investments | — | | | 7,730 | |
| 220 Central Park South condominium units ready for sale | 43,599 | | | 57,142 | |
| Receivable arising from the straight-lining of rents | 694,972 | | | 656,318 | |
Deferred leasing costs, net of accumulated amortization of $237,395 and $211,775 | 373,555 | | | 391,693 | |
Identified intangible assets, net of accumulated amortization of $98,139 and $97,186 | 139,638 | | | 154,895 | |
| Other assets | 474,105 | | | 512,714 | |
| | $ | 16,493,375 | | | $ | 17,266,588 | |
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | | |
| Mortgages payable, net | $ | 5,829,018 | | | $ | 6,053,343 | |
| Senior unsecured notes, net | 1,191,832 | | | 1,189,792 | |
| Unsecured term loan, net | 793,193 | | | 797,812 | |
| Unsecured revolving credit facilities | 575,000 | | | 575,000 | |
| Lease liabilities | 735,969 | | | 370,206 | |
| | | |
| | | |
| Accounts payable and accrued expenses | 450,881 | | | 613,497 | |
| Deferred revenue | 39,882 | | | 48,118 | |
| Deferred compensation plan | 96,322 | | | 110,174 | |
| Other liabilities | 268,166 | | | 304,725 | |
| Total liabilities | 9,980,263 | | | 10,062,667 | |
| Commitments and contingencies | | | |
| Redeemable noncontrolling interests: | | | |
Class A units - 14,416,891 and 14,033,438 units outstanding | 345,157 | | | 587,440 | |
Series D cumulative redeemable preferred units - 141,400 units outstanding | 3,535 | | | 3,535 | |
| Total redeemable noncontrolling partnership units | 348,692 | | | 590,975 | |
| Redeemable noncontrolling interest in a consolidated subsidiary | 88,040 | | | 97,708 | |
| Total redeemable noncontrolling interests | 436,732 | | | 688,683 | |
| Shareholders' equity: | | | |
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 48,792,902 shares | 1,182,459 | | | 1,182,459 | |
Common shares of beneficial interest: $0.04 par value per share; authorized 250,000,000 shares; issued and outstanding 191,866,880 and 191,723,608 shares | 7,654 | | | 7,648 | |
| Additional capital | 8,369,228 | | | 8,143,093 | |
| Earnings less than distributions | (3,894,580) | | | (3,079,320) | |
| Accumulated other comprehensive income (loss) | 174,967 | | | (17,534) | |
| Total shareholders' equity | 5,839,728 | | | 6,236,346 | |
| Noncontrolling interests in consolidated subsidiaries | 236,652 | | | 278,892 | |
| Total equity | 6,076,380 | | | 6,515,238 | |
| | $ | 16,493,375 | | | $ | 17,266,588 | |
See notes to the consolidated financial statements.
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per share amounts) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| REVENUES: | | | | | |
| Rental revenues | $ | 1,607,685 | | | $ | 1,424,531 | | | $ | 1,377,635 | |
| Fee and other income | 192,310 | | | 164,679 | | | 150,316 | |
| Total revenues | 1,799,995 | | | 1,589,210 | | | 1,527,951 | |
| EXPENSES: | | | | | |
| Operating | (873,911) | | | (797,315) | | | (789,066) | |
| Depreciation and amortization | (504,502) | | | (412,347) | | | (399,695) | |
| General and administrative | (133,731) | | | (134,545) | | | (181,509) | |
| Benefit (expense) from deferred compensation plan liability | 9,617 | | | (9,847) | | | (6,443) | |
| Impairment losses, transaction related costs and other | (31,722) | | | (13,815) | | | (174,027) | |
| Total expenses | (1,534,249) | | | (1,367,869) | | | (1,550,740) | |
| | | | | |
| (Loss) income from partially owned entities | (461,351) | | | 130,517 | | | (329,112) | |
| Income (loss) from real estate fund investments | 3,541 | | | 11,066 | | | (226,327) | |
| Interest and other investment income (loss), net | 19,869 | | | 4,612 | | | (5,499) | |
| (Loss) income from deferred compensation plan assets | (9,617) | | | 9,847 | | | 6,443 | |
| Interest and debt expense | (279,765) | | | (231,096) | | | (229,251) | |
| Net gains on disposition of wholly owned and partially owned assets | 100,625 | | | 50,770 | | | 381,320 | |
| (Loss) income before income taxes | (360,952) | | | 197,057 | | | (425,215) | |
| Income tax (expense) benefit | (21,660) | | | 10,496 | | | (36,630) | |
| Net (loss) income | (382,612) | | | 207,553 | | | (461,845) | |
| Less net loss (income) attributable to noncontrolling interests in: | | | | | |
| Consolidated subsidiaries | 5,737 | | | (24,014) | | | 139,894 | |
| Operating Partnership | 30,376 | | | (7,540) | | | 24,946 | |
| Net (loss) income attributable to Vornado | (346,499) | | | 175,999 | | | (297,005) | |
| Preferred share dividends | (62,116) | | | (65,880) | | | (51,739) | |
| Series K preferred share issuance costs | — | | | (9,033) | | | — | |
| NET (LOSS) INCOME attributable to common shareholders | $ | (408,615) | | | $ | 101,086 | | | $ | (348,744) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| (LOSS) INCOME PER COMMON SHARE - BASIC: | | | | | |
| Net (loss) income per common share | $ | (2.13) | | | $ | 0.53 | | | $ | (1.83) | |
| Weighted average shares outstanding | 191,775 | | | 191,551 | | | 191,146 | |
| | | | | |
| (LOSS) INCOME PER COMMON SHARE - DILUTED: | | | | | |
| Net (loss) income per common share | $ | (2.13) | | | $ | 0.53 | | | $ | (1.83) | |
| Weighted average shares outstanding | 191,775 | | | 192,122 | | | 191,146 | |
See notes to consolidated financial statements.
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Net (loss) income | $ | (382,612) | | | $ | 207,553 | | | $ | (461,845) | |
| Other comprehensive income (loss): | | | | | |
| Change in fair value of interest rate swaps and other | 190,493 | | | 51,338 | | | (29,971) | |
| Other comprehensive income (loss) of nonconsolidated subsidiaries | 18,874 | | | 10,275 | | | (14,342) | |
| | | | | |
| Comprehensive (loss) income | (173,245) | | | 269,166 | | | (506,158) | |
| Less comprehensive loss (income) attributable to noncontrolling interests | 19,247 | | | (35,602) | | | 174,287 | |
| Comprehensive (loss) income attributable to Vornado | $ | (153,998) | | | $ | 233,564 | | | $ | (331,871) | |
See notes to consolidated financial statements.
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per share amount) | | Common Shares | | Additional
Capital | | Earnings
Less Than
Distributions | | Accumulated
Other
Comprehensive
(Loss) Income | | Non-
controlling
Interests in
Consolidated
Subsidiaries | | Total
Equity |
| | Preferred Shares | | | | | | |
| Shares | | Amount | | Shares | | Amount | | | | | |
| Balance as of December 31, 2021 | | 48,793 | | | $ | 1,182,459 | | | 191,724 | | | $ | 7,648 | | | $ | 8,143,093 | | | $ | (3,079,320) | | | $ | (17,534) | | | $ | 278,892 | | | $ | 6,515,238 | |
| Net loss attributable to Vornado | | — | | | — | | | — | | | — | | | — | | | (346,499) | | | — | | | — | | | (346,499) | |
| Net income attributable to nonredeemable noncontrolling interests in consolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,931 | | | 3,931 | |
Dividends on common shares ($2.12 per share) | | — | | | — | | | — | | | — | | | — | | | (406,562) | | | — | | | — | | | (406,562) | |
Dividends on preferred shares (see Note 11 for dividends per share amounts) | | — | | | — | | | — | | | — | | | — | | | (62,116) | | | — | | | — | | | (62,116) | |
| Common shares issued: | | | | | | | | | | | | | | | | | | |
| Upon redemption of Class A units, at redemption value | | — | | | — | | | 117 | | | 5 | | | 3,519 | | | — | | | — | | | — | | | 3,524 | |
| Under employees' share option plan | | — | | | — | | | — | | | — | | | 7 | | | — | | | — | | | — | | | 7 | |
| Under dividend reinvestment plan | | — | | | — | | | 28 | | | 1 | | | 877 | | | — | | | — | | | — | | | 878 | |
| Contributions | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,609 | | | 5,609 | |
| Distributions | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (54,388) | | | (54,388) | |
| Deferred compensation shares and options | | — | | | — | | | (2) | | | — | | | 588 | | | (85) | | | — | | | — | | | 503 | |
| Other comprehensive income of nonconsolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | — | | | 18,874 | | | — | | | 18,874 | |
| Change in fair value of interest rate swaps and other | | — | | | — | | | — | | | — | | | — | | | — | | | 190,494 | | | — | | | 190,494 | |
| Redeemable Class A unit measurement adjustment | | — | | | — | | | — | | | — | | | 221,145 | | | — | | | — | | | — | | | 221,145 | |
| Noncontrolling interests' share of above adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (16,866) | | | 2,616 | | | (14,250) | |
| Other | | — | | | — | | | — | | | — | | | (1) | | | 2 | | | (1) | | | (8) | | | (8) | |
| Balance as of December 31, 2022 | | 48,793 | | | $ | 1,182,459 | | | 191,867 | | | $ | 7,654 | | | $ | 8,369,228 | | | $ | (3,894,580) | | | $ | 174,967 | | | $ | 236,652 | | | $ | 6,076,380 | |
See notes to consolidated financial statements.
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per share amounts) | | Common Shares | | Additional
Capital | | Earnings
Less Than
Distributions | | Accumulated
Other
Comprehensive
Loss | | Non-
controlling
Interests in
Consolidated
Subsidiaries | | Total
Equity |
| | Preferred Shares | | | | | | |
| Shares | | Amount | | Shares | | Amount | | | | | |
| Balance as of December 31, 2020 | | 48,793 | | | $ | 1,182,339 | | | 191,355 | | | $ | 7,633 | | | $ | 8,192,507 | | | $ | (2,774,182) | | | $ | (75,099) | | | $ | 414,957 | | | $ | 6,948,155 | |
| Net income attributable to Vornado | | — | | | — | | | — | | | — | | | — | | | 175,999 | | | — | | | — | | | 175,999 | |
| Net income attributable to nonredeemable noncontrolling interests in consolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 20,826 | | | 20,826 | |
Dividends on common shares ($2.12 per share) | | — | | | — | | | — | | | — | | | — | | | (406,109) | | | — | | | — | | | (406,109) | |
Dividends on preferred shares (see Note 11 for dividends per share amounts) | | — | | | — | | | — | | | — | | | — | | | (65,880) | | | — | | | — | | | (65,880) | |
Series O cumulative redeemable
preferred shares issuance | | 12,000 | | | 291,153 | | | — | | | — | | | — | | | — | | | — | | | — | | | 291,153 | |
| Common shares issued: | | | | | | | | | | | | | | | | | | |
| Upon redemption of Class A units, at redemption value | | — | | | — | | | 350 | | | 14 | | | 14,562 | | | — | | | — | | | — | | | 14,576 | |
| Under employees' share option plan | | — | | | — | | | 1 | | | — | | | 22 | | | — | | | — | | | — | | | 22 | |
| Under dividend reinvestment plan | | — | | | — | | | 21 | | | 1 | | | 876 | | | — | | | — | | | — | | | 877 | |
| Contributions | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,052 | | | 4,052 | |
| Distributions | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (160,975) | | | (160,975) | |
Conversion of Series A preferred
shares to common shares | | — | | | (13) | | | 1 | | | — | | | 13 | | | — | | | — | | | — | | | — | |
Deferred compensation shares and
options | | — | | | — | | | (4) | | | — | | | 906 | | | (114) | | | — | | | — | | | 792 | |
| Other comprehensive income of nonconsolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | — | | | 10,275 | | | — | | | 10,275 | |
Change in fair value of interest
rate swaps | | — | | | — | | | — | | | — | | | — | | | — | | | 51,337 | | | — | | | 51,337 | |
| Unearned 2018 Out-Performance Plan awards acceleration | | — | | | — | | | — | | | — | | | 10,283 | | | — | | | — | | | — | | | 10,283 | |
| Redeemable Class A unit measurement adjustment | | — | | | — | | | — | | | — | | | (76,073) | | | — | | | — | | | — | | | (76,073) | |
Series K cumulative redeemable
preferred shares called for
redemption | | (12,000) | | | (290,967) | | | — | | | — | | | — | | | (9,033) | | | — | | | — | | | (300,000) | |
Redeemable noncontrolling
interests' share of above
adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (4,048) | | | — | | | (4,048) | |
| Other | | — | | | (53) | | | — | | | — | | | (3) | | | (1) | | | 1 | | | 32 | | | (24) | |
| Balance as of December 31, 2021 | | 48,793 | | | $ | 1,182,459 | | | 191,724 | | | $ | 7,648 | | | $ | 8,143,093 | | | $ | (3,079,320) | | | $ | (17,534) | | | $ | 278,892 | | | $ | 6,515,238 | |
See notes to consolidated financial statements.
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per share amount) | | Common Shares | | Additional
Capital | | Earnings
Less Than
Distributions | | Accumulated
Other
Comprehensive Loss | | Non-
controlling
Interests in
Consolidated
Subsidiaries | | Total
Equity |
| | Preferred Shares | | | | | | |
| Shares | | Amount | | Shares | | Amount | | | | | |
| Balance as of December 31, 2019 | | 36,796 | | | $ | 891,214 | | | 190,986 | | | $ | 7,618 | | | $ | 7,827,697 | | | $ | (1,954,266) | | | $ | (40,233) | | | $ | 578,948 | | | $ | 7,310,978 | |
| Cumulative effect of accounting change | | — | | | — | | | — | | | — | | | — | | | (16,064) | | | — | | | — | | | (16,064) | |
| Net loss attributable to Vornado | | — | | | — | | | — | | | — | | | — | | | (297,005) | | | — | | | — | | | (297,005) | |
| Net loss attributable to noncontrolling interests in consolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (140,438) | | | (140,438) | |
Dividends on common shares ($2.38 per share) | | — | | | — | | | — | | | — | | | — | | | (454,939) | | | — | | | — | | | (454,939) | |
Dividends on preferred shares (see Note 11 for dividends per share amounts) | | — | | | — | | | — | | | — | | | — | | | (51,739) | | | — | | | — | | | (51,739) | |
Series N cumulative redeemable
preferred shares issuance | | 12,000 | | | 291,182 | | | — | | | — | | | — | | | — | | | — | | | — | | | 291,182 | |
| Common shares issued: | | | | | | | | | | | | | | | | | | |
| Upon redemption of Class A units, at redemption value | | — | | | — | | | 236 | | | 9 | | | 9,257 | | | — | | | — | | | — | | | 9,266 | |
| Under employees' share option plan | | — | | | — | | | 69 | | | 3 | | | 3,514 | | | — | | | — | | | — | | | 3,517 | |
| Under dividend reinvestment plan | | — | | | — | | | 47 | | | 2 | | | 2,343 | | | — | | | — | | | — | | | 2,345 | |
| Contributions: | | | | | | | | | | | | | | | | | | |
| Real estate fund investments | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,389 | | | 3,389 | |
| Other | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,305 | | | 4,305 | |
| Distributions | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (33,007) | | | (33,007) | |
Conversion of Series A preferred
shares to common shares | | (3) | | | (57) | | | 4 | | | — | | | 57 | | | — | | | — | | | — | | | — | |
Deferred compensation shares and
options | | — | | | — | | | 13 | | | 1 | | | 1,305 | | | (137) | | | — | | | — | | | 1,169 | |
| Other comprehensive loss of nonconsolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | — | | | (14,342) | | | — | | | (14,342) | |
| Change in fair value of interest rate swaps | | — | | | — | | | — | | | — | | | — | | | — | | | (29,972) | | | — | | | (29,972) | |
| Unearned 2017 Out-Performance Plan awards acceleration | | — | | | — | | | — | | | — | | | 10,824 | | | — | | | — | | | — | | | 10,824 | |
| Redeemable Class A unit measurement adjustment | | — | | | — | | | — | | | — | | | 344,043 | | | — | | | — | | | — | | | 344,043 | |
| Redeemable noncontrolling interests' share of above adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | 2,914 | | | — | | | 2,914 | |
| Other | | — | | | — | | | — | | | — | | | (6,533) | | | (32) | | | 6,534 | | | 1,760 | | | 1,729 | |
| Balance as of December 31, 2020 | | 48,793 | | | $ | 1,182,339 | | | 191,355 | | | $ | 7,633 | | | $ | 8,192,507 | | | $ | (2,774,182) | | | $ | (75,099) | | | $ | 414,957 | | | $ | 6,948,155 | |
See notes to consolidated financial statements.
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Cash Flows from Operating Activities: | | | | | |
| Net (loss) income | $ | (382,612) | | | $ | 207,553 | | | $ | (461,845) | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of deferred financing costs) | 526,306 | | | 432,594 | | | 417,942 | |
| Equity in net loss (income) of partially owned entities | 461,351 | | | (130,517) | | | 329,112 | |
| Distributions of income from partially owned entities | 184,501 | | | 214,521 | | | 175,246 | |
| Net gains on disposition of wholly owned and partially owned assets | (100,625) | | | (50,770) | | | (381,320) | |
| Straight-lining of rents | (46,177) | | | 8,644 | | | 24,404 | |
| Stock-based compensation expense | 29,249 | | | 38,329 | | | 48,677 | |
| Real estate impairment losses | 19,098 | | | 7,880 | | | 236,286 | |
| Change in deferred tax liability | 14,005 | | | 11,243 | | | (96) | |
| Amortization of below-market leases, net | (5,178) | | | (9,249) | | | (16,878) | |
| Return of capital from real estate fund investments | 5,141 | | | 5,104 | | | — | |
| Net realized and unrealized loss (income) on real estate fund investments | 2,589 | | | (4,621) | | | 226,107 | |
| Write-off of lease receivables deemed uncollectible | 872 | | | 7,695 | | | 63,204 | |
| Defeasance cost in connection with refinancing of mortgage payable | — | | | 23,729 | | | — | |
| Non-cash gain on extinguishment of 608 Fifth Avenue lease liability | — | | | — | | | (70,260) | |
| Credit losses on loans receivable | — | | | — | | | 13,369 | |
| Decrease in fair value of marketable securities | — | | | — | | | 4,938 | |
| Other non-cash adjustments | 3,090 | | | (3,875) | | | 6,835 | |
| Changes in operating assets and liabilities: | | | | | |
| Real estate fund investments | — | | | (4,474) | | | (7,197) | |
| Tenant and other receivables | (4,437) | | | (187) | | | (5,330) | |
| Prepaid assets | 104,186 | | | 30,466 | | | (137,452) | |
| Other assets | (34,615) | | | (54,716) | | | (52,832) | |
| Accounts payable and accrued expenses | 5,718 | | | 35,856 | | | 14,868 | |
| Other liabilities | 16,482 | | | (3,399) | | | (3,538) | |
| Net cash provided by operating activities | 798,944 | | | 761,806 | | | 424,240 | |
| | | | | |
| Cash Flows from Investing Activities: | | | | | |
| Purchase of U.S. Treasury bills | (1,066,096) | | | — | | | — | |
| Development costs and construction in progress | (737,999) | | | (585,940) | | | (601,920) | |
| Proceeds from maturities of U.S. Treasury bills | 597,499 | | | — | | | — | |
| Proceeds from sales of real estate | 373,264 | | | 100,024 | | | — | |
| Additions to real estate | (159,796) | | | (149,461) | | | (155,738) | |
| Proceeds from sale of condominium units and ancillary amenities at 220 Central Park South | 88,019 | | | 137,404 | | | 1,044,260 | |
| Distributions of capital from partially owned entities | 34,417 | | | 106,005 | | | 2,389 | |
| Investments in partially owned entities | (33,172) | | | (14,997) | | | (8,959) | |
| Acquisitions of real estate and other | (3,000) | | | (3,000) | | | (1,156) | |
Acquisition of additional 45.0% ownership interest in One Park Avenue (inclusive of $5,806 of prorations and net working capital and net of $39,370 of cash and restricted cash balances consolidated upon acquisition) | — | | | (123,936) | | | — | |
| Proceeds from repayments of loan receivables | — | | | 1,554 | | | — | |
| Moynihan Train Hall expenditures | — | | | — | | | (395,051) | |
| Proceeds from sales of marketable securities | — | | | — | | | 28,375 | |
| Net cash used in investing activities | (906,864) | | | (532,347) | | | (87,800) | |
See notes to consolidated financial statements.
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Cash Flows from Financing Activities: | | | | | |
| Repayments of borrowings | $ | (1,251,373) | | | $ | (1,584,243) | | | $ | (1,067,564) | |
| Proceeds from borrowings | 1,029,773 | | | 3,248,007 | | | 1,056,315 | |
| Dividends paid on common shares | (406,562) | | | (406,109) | | | (827,319) | |
| Distributions to noncontrolling interests | (84,699) | | | (190,876) | | | (91,514) | |
| Dividends paid on preferred shares | (62,116) | | | (65,880) | | | (64,271) | |
| Debt issuance costs | (32,706) | | | (51,184) | | | (10,901) | |
| Contributions from noncontrolling interests | 5,609 | | | 4,052 | | | 100,094 | |
| Proceeds received from exercise of employee share options and other | 885 | | | 899 | | | 5,862 | |
| Repurchase of shares related to stock compensation agreements and related tax withholdings and other | (85) | | | (1,567) | | | (137) | |
| Purchase of marketable securities in connection with defeasance of mortgage payable | — | | | (973,729) | | | — | |
| Redemption of preferred shares | — | | | (300,000) | | | — | |
| Proceeds from the issuance of preferred shares | — | | | 291,153 | | | 291,182 | |
| Moynihan Train Hall reimbursement from Empire State Development | — | | | — | | | 395,051 | |
| Net cash used in financing activities | (801,274) | | | (29,477) | | | (213,202) | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | (909,194) | | | 199,982 | | | 123,238 | |
| Cash and cash equivalents and restricted cash at beginning of period | 1,930,351 | | | 1,730,369 | | | 1,607,131 | |
| Cash and cash equivalents and restricted cash at end of period | $ | 1,021,157 | | | $ | 1,930,351 | | | $ | 1,730,369 | |
| | | | | | | | | | | | | | | | | |
| Reconciliation of Cash and Cash Equivalents and Restricted Cash: | | | | | |
| Cash and cash equivalents at beginning of period | $ | 1,760,225 | | | $ | 1,624,482 | | | $ | 1,515,012 | |
| Restricted cash at beginning of period | 170,126 | | | 105,887 | | | 92,119 | |
| Cash and cash equivalents and restricted cash at beginning of period | $ | 1,930,351 | | | $ | 1,730,369 | | | $ | 1,607,131 | |
| | | | | |
| Cash and cash equivalents at end of period | $ | 889,689 | | | $ | 1,760,225 | | | $ | 1,624,482 | |
| Restricted cash at end of period | 131,468 | | | 170,126 | | | 105,887 | |
| Cash and cash equivalents and restricted cash at end of period | $ | 1,021,157 | | | $ | 1,930,351 | | | $ | 1,730,369 | |
See notes to consolidated financial statements.
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Supplemental Disclosure of Cash Flow Information: | | | | | |
Cash payments for interest, excluding capitalized interest of $19,085, $38,320 and $40,855 | $ | 252,371 | | | $ | 188,587 | | | $ | 210,052 | |
| Cash payments for income taxes | $ | 7,947 | | | $ | 9,155 | | | $ | 15,105 | |
| | | | | |
| Non-Cash Information: | | | | | |
| Additional estimated lease liability arising from the recognition of right-of-use asset | $ | 350,000 | | | $ | — | | | $ | — | |
| Write-off of fully depreciated assets | (278,561) | | | (123,537) | | | (189,250) | |
| Redeemable Class A unit measurement adjustment | 221,145 | | | (76,073) | | | 344,043 | |
| Change in fair value of consolidated interest rate swaps and other | 190,494 | | | 51,337 | | | (29,972) | |
| Accrued capital expenditures included in accounts payable and accrued expenses | 104,750 | | | 291,690 | | | 117,641 | |
| Reclassification of condominium units from "development costs and construction in progress" to "220 Central Park South condominium units ready for sale" | 32,604 | | | 16,014 | | | 388,280 | |
| Increase in assets and liabilities resulting from the consolidation of One Park Avenue: | | | | | |
| Real estate | — | | | 566,013 | | | — | |
| Identified intangible assets | — | | | 139,545 | | | — | |
| Mortgages payable | — | | | 525,000 | | | — | |
| Deferred revenue | — | | | 18,884 | | | — | |
| Marketable securities transferred in connection with the defeasance of mortgage payable | — | | | (973,729) | | | — | |
| Defeasance of mortgage payable | — | | | 950,000 | | | — | |
| Reclassification of assets held for sale (included in "other assets") | — | | | 80,005 | | | — | |
| Decrease in assets and liabilities resulting from the deconsolidation of Moynihan Train Hall: | | | | | |
| Real estate, net | — | | | — | | | (1,291,804) | |
| Moynihan Train Hall Obligation | — | | | — | | | (1,291,804) | |
See notes to consolidated financial statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Partners
Vornado Realty L.P.
New York, New York
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vornado Realty L.P. and subsidiaries (the "Partnership") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with the accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2023, expressed an unqualified opinion on the Partnership's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the Partnership's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate Impairment – Refer to Notes 2, 5, 13, and 15 to the financial statements
Critical Audit Matter Description
The Partnership’s real estate properties are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its fair value. The Partnership also reviews its investments in partially owned entities for impairment when indications of potential impairment exist. An impairment loss for investments in partially owned entities is recorded when there is a decline in the fair value below the carrying value that is other than temporary. Fair value is determined based on estimated cash flow projections that utilize discount and capitalization rates and available market information. Preparing the Partnership’s estimated cash flow projections requires management to make significant estimates and assumptions related to future market rental rates, capitalization rates, and discount rates.
For the year ended December 31, 2022, the Partnership recognized impairment losses of $19,098,000 which are included in “Impairment losses, transaction related costs and other” and $583,212,000 which are included in “(Loss) income from partially owned entities” within the consolidated statements of income.
We identified the impairment of real estate properties as a critical audit matter because of the significant estimates and assumptions related to future market rental rates, capitalization rates and discount rates. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to impairment included the following, among others:
•We tested the effectiveness of controls over management’s evaluation of recoverability of its properties, including those over future market rental rates and capitalization rates used in the assessment.
•We tested the effectiveness of controls over management’s evaluation of impairment of its properties and investments in partially owned entities and measurement of that impairment based on discounted cash flows, including those over the future market rental rates, capitalization rates, and discount rates used in the assessment.
•We evaluated the reasonableness of future market rental rates, capitalization rates, and discount rates used by management with independent market data, focusing on geographical location and property type. In addition, we developed ranges of independent estimates of future market rental rates, capitalization rates, and discount rates and compared those to the amounts used by management.
•We involved our fair value specialists in providing comparable market transaction details to further support the future market rental rates, capitalization rates and discount rates assumptions, as applicable.
•We evaluated the reasonableness of management’s projected future cash flow analyses by comparing management’s projections to the Partnership’s historical results.
•We evaluated whether the assumptions were consistent with evidence obtained in other areas of the audit.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 13, 2023
We have served as the Partnership’s auditor since 1997.
VORNADO REALTY L.P.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| (Amounts in thousands, except unit amounts) | As of December 31, |
| 2022 | | 2021 |
| ASSETS | | | |
| Real estate, at cost: | | | |
| Land | $ | 2,451,828 | | | $ | 2,540,193 | |
| Buildings and improvements | 9,804,204 | | | 9,839,166 | |
| Development costs and construction in progress | 933,334 | | | 718,694 | |
| | | |
| Leasehold improvements and equipment | 125,389 | | | 119,792 | |
| Total | 13,314,755 | | | 13,217,845 | |
| Less accumulated depreciation and amortization | (3,470,991) | | | (3,376,347) | |
| Real estate, net | 9,843,764 | | | 9,841,498 | |
| Right-of-use assets | 684,380 | | | 337,197 | |
| Cash and cash equivalents | 889,689 | | | 1,760,225 | |
| Restricted cash | 131,468 | | | 170,126 | |
| Investments in U.S. Treasury bills | 471,962 | | | — | |
| Tenant and other receivables | 81,170 | | | 79,661 | |
| Investments in partially owned entities | 2,665,073 | | | 3,297,389 | |
| Real estate fund investments | — | | | 7,730 | |
| 220 Central Park South condominium units ready for sale | 43,599 | | | 57,142 | |
| Receivable arising from the straight-lining of rents | 694,972 | | | 656,318 | |
Deferred leasing costs, net of accumulated amortization of $237,395 and $211,775 | 373,555 | | | 391,693 | |
Identified intangible assets, net of accumulated amortization of $98,139 and $97,186 | 139,638 | | | 154,895 | |
| Other assets | 474,105 | | | 512,714 | |
| $ | 16,493,375 | | | $ | 17,266,588 | |
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | | |
| Mortgages payable, net | $ | 5,829,018 | | | $ | 6,053,343 | |
| Senior unsecured notes, net | 1,191,832 | | | 1,189,792 | |
| Unsecured term loan, net | 793,193 | | | 797,812 | |
| Unsecured revolving credit facilities | 575,000 | | | 575,000 | |
| Lease liabilities | 735,969 | | | 370,206 | |
| | | |
| | | |
| Accounts payable and accrued expenses | 450,881 | | | 613,497 | |
| Deferred revenue | 39,882 | | | 48,118 | |
| Deferred compensation plan | 96,322 | | | 110,174 | |
| Other liabilities | 268,166 | | | 304,725 | |
| Total liabilities | 9,980,263 | | | 10,062,667 | |
| Commitments and contingencies | | | |
| Redeemable noncontrolling interests: | | | |
Class A units - 14,416,891 and 14,033,438 units outstanding | 345,157 | | | 587,440 | |
Series D cumulative redeemable preferred units - 141,400 units outstanding | 3,535 | | | 3,535 | |
| Total redeemable noncontrolling partnership units | 348,692 | | | 590,975 | |
| Redeemable noncontrolling interest in a consolidated subsidiary | 88,040 | | | 97,708 | |
| Total redeemable noncontrolling interests | 436,732 | | | 688,683 | |
| Partners' equity: | | | |
| Partners' capital | 9,559,341 | | | 9,333,200 | |
| Earnings less than distributions | (3,894,580) | | | (3,079,320) | |
| Accumulated other comprehensive income (loss) | 174,967 | | | (17,534) | |
| Total partners' equity | 5,839,728 | | | 6,236,346 | |
| Noncontrolling interests in consolidated subsidiaries | 236,652 | | | 278,892 | |
| Total equity | 6,076,380 | | | 6,515,238 | |
| | $ | 16,493,375 | | | $ | 17,266,588 | |
| | | |
See notes to the consolidated financial statements.
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per unit amounts) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| REVENUES: | | | | | |
| Rental revenues | $ | 1,607,685 | | | $ | 1,424,531 | | | $ | 1,377,635 | |
| Fee and other income | 192,310 | | | 164,679 | | | 150,316 | |
| Total revenues | 1,799,995 | | | 1,589,210 | | | 1,527,951 | |
| EXPENSES: | | | | | |
| Operating | (873,911) | | | (797,315) | | | (789,066) | |
| Depreciation and amortization | (504,502) | | | (412,347) | | | (399,695) | |
| General and administrative | (133,731) | | | (134,545) | | | (181,509) | |
| Benefit (expense) from deferred compensation plan liability | 9,617 | | | (9,847) | | | (6,443) | |
| Impairment losses, transaction related costs and other | (31,722) | | | (13,815) | | | (174,027) | |
| Total expenses | (1,534,249) | | | (1,367,869) | | | (1,550,740) | |
| | | | | |
| (Loss) income from partially owned entities | (461,351) | | | 130,517 | | | (329,112) | |
| Income (loss) from real estate fund investments | 3,541 | | | 11,066 | | | (226,327) | |
| Interest and other investment income (loss), net | 19,869 | | | 4,612 | | | (5,499) | |
| (Loss) income from deferred compensation plan assets | (9,617) | | | 9,847 | | | 6,443 | |
| Interest and debt expense | (279,765) | | | (231,096) | | | (229,251) | |
| Net gains on disposition of wholly owned and partially owned assets | 100,625 | | | 50,770 | | | 381,320 | |
| (Loss) income before income taxes | (360,952) | | | 197,057 | | | (425,215) | |
| Income tax (expense) benefit | (21,660) | | | 10,496 | | | (36,630) | |
| Net (loss) income | (382,612) | | | 207,553 | | | (461,845) | |
| Less net loss (income) attributable to noncontrolling interests in consolidated subsidiaries | 5,737 | | | (24,014) | | | 139,894 | |
| Net (loss) income attributable to Vornado Realty L.P. | (376,875) | | | 183,539 | | | (321,951) | |
| Preferred unit distributions | (62,231) | | | (66,035) | | | (51,904) | |
| Series K preferred unit issuance costs | — | | | (9,033) | | | — | |
| NET (LOSS) INCOME attributable to Class A unitholders | $ | (439,106) | | | $ | 108,471 | | | $ | (373,855) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| (LOSS) INCOME PER CLASS A UNIT - BASIC: | | | | | |
| Net (loss) income per Class A unit | $ | (2.15) | | | $ | 0.52 | | | $ | (1.86) | |
| Weighted average units outstanding | 205,315 | | | 204,728 | | | 203,503 | |
| | | | | |
| (LOSS) INCOME PER CLASS A UNIT - DILUTED: | | | | | |
| Net (loss) income per Class A unit | $ | (2.15) | | | $ | 0.51 | | | $ | (1.86) | |
| Weighted average units outstanding | 205,315 | | | 205,644 | | | 203,503 | |
See notes to consolidated financial statements.
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net (loss) income | $ | (382,612) | | | $ | 207,553 | | | $ | (461,845) | |
| Other comprehensive income (loss): | | | | | |
| Change in fair value of interest rate swaps and other | 190,493 | | | 51,338 | | | (29,971) | |
| Other comprehensive income (loss) of nonconsolidated subsidiaries | 18,874 | | | 10,275 | | | (14,342) | |
| | | | | |
| Comprehensive (loss) income | (173,245) | | | 269,166 | | | (506,158) | |
| Less comprehensive loss (income) attributable to noncontrolling interests in consolidated subsidiaries | 3,121 | | | (24,014) | | | 139,894 | |
| Comprehensive (loss) income attributable to Vornado Realty L.P. | $ | (170,124) | | | $ | 245,152 | | | $ | (366,264) | |
See notes to consolidated financial statements.
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per unit amount) | | | | | | | | | | | | | | Non-
controlling
Interests in
Consolidated
Subsidiaries | | |
| | Preferred Units | | Class A Units
Owned by Vornado | | Earnings
Less Than
Distributions | | Accumulated
Other
Comprehensive
(Loss) Income | | | Total
Equity |
| Units | | Amount | | Units | | Amount | | | | |
| Balance as of December 31, 2021 | | 48,793 | | | $ | 1,182,459 | | | 191,724 | | | $ | 8,150,741 | | | $ | (3,079,320) | | | $ | (17,534) | | | $ | 278,892 | | | $ | 6,515,238 | |
| Net loss attributable to Vornado Realty L.P. | | — | | | — | | | — | | | — | | | (376,875) | | | — | | | — | | | (376,875) | |
| Net loss attributable to redeemable partnership units | | — | | | — | | | — | | | — | | | 30,376 | | | — | | | — | | | 30,376 | |
| Net income attributable to nonredeemable noncontrolling interests in consolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | — | | | 3,931 | | | 3,931 | |
Distributions to Vornado ($2.12 per unit) | | — | | | — | | | — | | | — | | | (406,562) | | | — | | | — | | | (406,562) | |
Distributions to preferred unitholders (see Note 11 for distributions per unit amounts) | | — | | | — | | | — | | | — | | | (62,116) | | | — | | | — | | | (62,116) | |
| Class A Units issued to Vornado: | | | | | | | | | | | | | | | | |
| Upon redemption of redeemable Class A units, at redemption value | | — | | | — | | | 117 | | | 3,524 | | | — | | | — | | | — | | | 3,524 | |
| Under Vornado's employees' share option plan | | — | | | — | | | — | | | 7 | | | — | | | — | | | — | | | 7 | |
| Under Vornado's dividend reinvestment plan | | — | | | — | | | 28 | | | 878 | | | — | | | — | | | — | | | 878 | |
| Contributions | | — | | | — | | | — | | | — | | | — | | | — | | | 5,609 | | | 5,609 | |
| Distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (54,388) | | | (54,388) | |
| Deferred compensation units and options | | — | | | — | | | (2) | | | 588 | | | (85) | | | — | | | — | | | 503 | |
| Other comprehensive income of nonconsolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | 18,874 | | | — | | | 18,874 | |
| Change in fair value of interest rate swaps and other | | — | | | — | | | — | | | — | | | — | | | 190,494 | | | — | | | 190,494 | |
| Redeemable Class A unit measurement adjustment | | — | | | — | | | — | | | 221,145 | | | — | | | — | | | — | | | 221,145 | |
| Redeemable partnership units' share of above adjustments | | — | | | — | | | — | | | — | | | — | | | (16,866) | | | 2,616 | | | (14,250) | |
| Other | | — | | | — | | | — | | | (1) | | | 2 | | | (1) | | | (8) | | | (8) | |
| Balance as of December 31, 2022 | | 48,793 | | | $ | 1,182,459 | | | 191,867 | | | $ | 8,376,882 | | | $ | (3,894,580) | | | $ | 174,967 | | | $ | 236,652 | | | $ | 6,076,380 | |
See notes to consolidated financial statements.
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per unit amounts) | | | | | | | | | | | | | | Non-
controlling
Interests in
Consolidated
Subsidiaries | | |
| | Preferred Units | | Class A Units
Owned by Vornado | | Earnings
Less Than
Distributions | | Accumulated
Other
Comprehensive
Loss | | | Total
Equity |
| Units | | Amount | | Units | | Amount | | | | |
| Balance as of December 31, 2020 | | 48,793 | | | $ | 1,182,339 | | | 191,355 | | | $ | 8,200,140 | | | $ | (2,774,182) | | | $ | (75,099) | | | $ | 414,957 | | | $ | 6,948,155 | |
| Net income attributable to Vornado Realty L.P. | | — | | | — | | | — | | | — | | | 183,539 | | | — | | | — | | | 183,539 | |
| Net income attributable to redeemable partnership units | | — | | | — | | | — | | | — | | | (7,540) | | | — | | | — | | | (7,540) | |
| Net income attributable to nonredeemable noncontrolling interests in consolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | — | | | 20,826 | | | 20,826 | |
Distributions to Vornado ($2.12 per unit) | | — | | | — | | | — | | | — | | | (406,109) | | | — | | | — | | | (406,109) | |
Distributions to preferred unitholders (see Note 11 for distributions per unit amounts) | | — | | | — | | | — | | | — | | | (65,880) | | | — | | | — | | | (65,880) | |
| Series O cumulative redeemable preferred units issuance | | 12,000 | | | 291,153 | | | — | | | — | | | — | | | — | | | — | | | 291,153 | |
| Class A Units issued to Vornado: | | | | | | | | | | | | | | | | |
| Upon redemption of redeemable Class A units, at redemption value | | — | | | — | | | 350 | | | 14,576 | | | — | | | — | | | — | | | 14,576 | |
| Under Vornado's employees' share option plan | | — | | | — | | | 1 | | | 22 | | | — | | | — | | | — | | | 22 | |
| Under Vornado's dividend reinvestment plan | | — | | | — | | | 21 | | | 877 | | | — | | | — | | | — | | | 877 | |
| Contributions | | — | | | — | | | — | | | — | | | — | | | — | | | 4,052 | | | 4,052 | |
| Distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (160,975) | | | (160,975) | |
| Conversion of Series A preferred units to Class A units | | — | | | (13) | | | 1 | | | 13 | | | — | | | — | | | — | | | — | |
| Deferred compensation units and options | | — | | | — | | | (4) | | | 906 | | | (114) | | | — | | | — | | | 792 | |
| Other comprehensive income of nonconsolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | 10,275 | | | — | | | 10,275 | |
| Change in fair value of interest rate swaps | | — | | | — | | | — | | | — | | | — | | | 51,337 | | | — | | | 51,337 | |
| Unearned 2018 Out-Performance Plan awards acceleration | | — | | | — | | | — | | | 10,283 | | | — | | | — | | | — | | | 10,283 | |
| Redeemable Class A unit measurement adjustment | | — | | | — | | | — | | | (76,073) | | | — | | | — | | | — | | | (76,073) | |
| Series K cumulative redeemable preferred units called for redemption | | (12,000) | | | (290,967) | | | — | | | — | | | (9,033) | | | — | | | — | | | (300,000) | |
| Redeemable partnership units' share of above adjustments | | — | | | — | | | — | | | — | | | — | | | (4,048) | | | — | | | (4,048) | |
| Other | | — | | | (53) | | | — | | | (3) | | | (1) | | | 1 | | | 32 | | | (24) | |
| Balance as of December 31, 2021 | | 48,793 | | | $ | 1,182,459 | | | 191,724 | | | $ | 8,150,741 | | | $ | (3,079,320) | | | $ | (17,534) | | | $ | 278,892 | | | $ | 6,515,238 | |
See notes to consolidated financial statements.
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per unit amount) | | | | | | | | | | | | | | Non-
controlling
Interests in
Consolidated
Subsidiaries | | |
| | Preferred Units | | Class A Units
Owned by Vornado | | Earnings
Less Than
Distributions | | Accumulated
Other
Comprehensive
Loss | | | Total
Equity |
| Units | | Amount | | Units | | Amount | | | | |
| Balance as of December 31, 2019 | | 36,796 | | | $ | 891,214 | | | 190,986 | | | $ | 7,835,315 | | | $ | (1,954,266) | | | $ | (40,233) | | | $ | 578,948 | | | $ | 7,310,978 | |
| Cumulative effect of accounting change | | — | | | — | | | — | | | — | | | (16,064) | | | — | | | — | | | (16,064) | |
| Net loss attributable to Vornado Realty L.P. | | — | | | — | | | — | | | — | | | (321,951) | | | — | | | — | | | (321,951) | |
| Net loss attributable to redeemable partnership units | | — | | | — | | | — | | | — | | | 24,946 | | | — | | | — | | | 24,946 | |
| Net loss attributable to nonredeemable noncontrolling interests in consolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | — | | | (140,438) | | | (140,438) | |
Distributions to Vornado ($2.38 per unit) | | — | | | — | | | — | | | — | | | (454,939) | | | — | | | — | | | (454,939) | |
Distributions to preferred unitholders (see Note 11 for distributions per unit amounts) | | — | | | — | | | — | | | — | | | (51,739) | | | — | | | — | | | (51,739) | |
| Series N cumulative redeemable preferred units issuance | | 12,000 | | | 291,182 | | | — | | | — | | | — | | | — | | | — | | | 291,182 | |
Class A Units issued to Vornado: | | | | | | | | | | | | | | | | |
| Upon redemption of redeemable Class A units, at redemption value | | — | | | — | | | 236 | | | 9,266 | | | — | | | — | | | — | | | 9,266 | |
| Under Vornado's employees' share option plan | | — | | | — | | | 69 | | | 3,517 | | | — | | | — | | | — | | | 3,517 | |
| Under Vornado's dividend reinvestment plan | | — | | | — | | | 47 | | | 2,345 | | | — | | | — | | | — | | | 2,345 | |
Contributions: | | | | | | | | | | | | | | | | |
Real estate fund investments | | — | | | — | | | — | | | — | | | — | | | — | | | 3,389 | | | 3,389 | |
Other | | — | | | — | | | — | | | — | | | — | | | — | | | 4,305 | | | 4,305 | |
| Distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (33,007) | | | (33,007) | |
Conversion of Series A preferred units to Class A units | | (3) | | | (57) | | | 4 | | | 57 | | | — | | | — | | | — | | | — | |
Deferred compensation units and options | | — | | | — | | | 13 | | | 1,306 | | | (137) | | | — | | | — | | | 1,169 | |
| Other comprehensive loss of nonconsolidated subsidiaries | | — | | | — | | | — | | | — | | | — | | | (14,342) | | | — | | | (14,342) | |
| Change in fair value of interest rate swaps | | — | | | — | | | — | | | — | | | — | | | (29,972) | | | — | | | (29,972) | |
| Unearned 2017 Out-Performance Plan awards acceleration | | — | | | — | | | — | | | 10,824 | | | — | | | — | | | — | | | 10,824 | |
| Redeemable Class A unit measurement adjustment | | — | | | — | | | — | | | 344,043 | | | — | | | — | | | — | | | 344,043 | |
Redeemable partnership units' share of above adjustments | | — | | | — | | | — | | | — | | | — | | | 2,914 | | | — | | | 2,914 | |
Other | | — | | | — | | | — | | | (6,533) | | | (32) | | | 6,534 | | | 1,760 | | | 1,729 | |
| Balance as of December 31, 2020 | | 48,793 | | | $ | 1,182,339 | | | 191,355 | | | $ | 8,200,140 | | | $ | (2,774,182) | | | $ | (75,099) | | | $ | 414,957 | | | $ | 6,948,155 | |
See notes to consolidated financial statements.
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Cash Flows from Operating Activities: | | | | | |
| Net (loss) income | $ | (382,612) | | | $ | 207,553 | | | $ | (461,845) | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of deferred financing costs) | 526,306 | | | 432,594 | | | 417,942 | |
| Equity in net loss (income) of partially owned entities | 461,351 | | | (130,517) | | | 329,112 | |
| Distributions of income from partially owned entities | 184,501 | | | 214,521 | | | 175,246 | |
| Net gains on disposition of wholly owned and partially owned assets | (100,625) | | | (50,770) | | | (381,320) | |
| Straight-lining of rents | (46,177) | | | 8,644 | | | 24,404 | |
| Stock-based compensation expense | 29,249 | | | 38,329 | | | 48,677 | |
| Real estate impairment losses | 19,098 | | | 7,880 | | | 236,286 | |
| Change in deferred tax liability | 14,005 | | | 11,243 | | | (96) | |
| Amortization of below-market leases, net | (5,178) | | | (9,249) | | | (16,878) | |
| Return of capital from real estate fund investments | 5,141 | | | 5,104 | | | — | |
| Net realized and unrealized loss (income) on real estate fund investments | 2,589 | | | (4,621) | | | 226,107 | |
| Write-off of lease receivables deemed uncollectible | 872 | | | 7,695 | | | 63,204 | |
| Defeasance cost in connection with refinancing of mortgage payable | — | | | 23,729 | | | — | |
| Non-cash gain on extinguishment of 608 Fifth Avenue lease liability | — | | | — | | | (70,260) | |
| Credit losses on loans receivable | — | | | — | | | 13,369 | |
| Decrease in fair value of marketable securities | — | | | — | | | 4,938 | |
| Other non-cash adjustments | 3,090 | | | (3,875) | | | 6,835 | |
| Changes in operating assets and liabilities: | | | | | |
| Real estate fund investments | — | | | (4,474) | | | (7,197) | |
| Tenant and other receivables | (4,437) | | | (187) | | | (5,330) | |
| Prepaid assets | 104,186 | | | 30,466 | | | (137,452) | |
| Other assets | (34,615) | | | (54,716) | | | (52,832) | |
| Accounts payable and accrued expenses | 5,718 | | | 35,856 | | | 14,868 | |
| Other liabilities | 16,482 | | | (3,399) | | | (3,538) | |
| Net cash provided by operating activities | 798,944 | | | 761,806 | | | 424,240 | |
| | | | | |
| Cash Flows from Investing Activities: | | | | | |
| Purchase of U.S. Treasury bills | (1,066,096) | | | — | | | — | |
| Development costs and construction in progress | (737,999) | | | (585,940) | | | (601,920) | |
| Proceeds from maturities of U.S. Treasury bills | 597,499 | | | — | | | — | |
| Proceeds from sales of real estate | 373,264 | | | 100,024 | | | — | |
| Additions to real estate | (159,796) | | | (149,461) | | | (155,738) | |
| Proceeds from sale of condominium units and ancillary amenities at 220 Central Park South | 88,019 | | | 137,404 | | | 1,044,260 | |
| Distributions of capital from partially owned entities | 34,417 | | | 106,005 | | | 2,389 | |
| Investments in partially owned entities | (33,172) | | | (14,997) | | | (8,959) | |
| Acquisitions of real estate and other | (3,000) | | | (3,000) | | | (1,156) | |
Acquisition of additional 45.0% ownership interest in One Park Avenue (inclusive of $5,806 of prorations and net working capital and net of $39,370 of cash and restricted cash balances consolidated upon acquisition) | — | | | (123,936) | | | — | |
| Proceeds from repayments of loan receivables | — | | | 1,554 | | | — | |
| Moynihan Train Hall expenditures | — | | | — | | | (395,051) | |
| Proceeds from sales of marketable securities | — | | | — | | | 28,375 | |
| Net cash used in investing activities | (906,864) | | | (532,347) | | | (87,800) | |
See notes to consolidated financial statements.
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Cash Flows from Financing Activities: | | | | | |
| Repayments of borrowings | $ | (1,251,373) | | | $ | (1,584,243) | | | $ | (1,067,564) | |
| Proceeds from borrowings | 1,029,773 | | | 3,248,007 | | | 1,056,315 | |
| Distributions to Vornado | (406,562) | | | (406,109) | | | (827,319) | |
| Distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries | (84,699) | | | (190,876) | | | (91,514) | |
| Distributions to preferred unitholders | (62,116) | | | (65,880) | | | (64,271) | |
| Debt issuance costs | (32,706) | | | (51,184) | | | (10,901) | |
| Contributions from noncontrolling interests in consolidated subsidiaries | 5,609 | | | 4,052 | | | 100,094 | |
| Proceeds received from exercise of Vornado stock options and other | 885 | | | 899 | | | 5,862 | |
| Repurchase of Class A units related to stock compensation agreements and related tax withholdings and other | (85) | | | (1,567) | | | (137) | |
| Purchase of marketable securities in connection with defeasance of mortgage payable | — | | | (973,729) | | | — | |
| Redemption of preferred units | — | | | (300,000) | | | — | |
| Proceeds from the issuance of preferred units | — | | | 291,153 | | | 291,182 | |
| Moynihan Train Hall reimbursement from Empire State Development | — | | | — | | | 395,051 | |
| Net cash used in financing activities | (801,274) | | | (29,477) | | | (213,202) | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | (909,194) | | | 199,982 | | | 123,238 | |
| Cash and cash equivalents and restricted cash at beginning of period | 1,930,351 | | | 1,730,369 | | | 1,607,131 | |
| Cash and cash equivalents and restricted cash at end of period | $ | 1,021,157 | | | $ | 1,930,351 | | | $ | 1,730,369 | |
| | | | | | | | | | | | | | | | | |
| Reconciliation of Cash and Cash Equivalents and Restricted Cash: | | | | | |
| Cash and cash equivalents at beginning of period | $ | 1,760,225 | | | $ | 1,624,482 | | | $ | 1,515,012 | |
| Restricted cash at beginning of period | 170,126 | | | 105,887 | | | 92,119 | |
| Cash and cash equivalents and restricted cash at beginning of period | $ | 1,930,351 | | | $ | 1,730,369 | | | $ | 1,607,131 | |
| | | | | |
| Cash and cash equivalents at end of period | $ | 889,689 | | | $ | 1,760,225 | | | $ | 1,624,482 | |
| Restricted cash at end of period | 131,468 | | | 170,126 | | | 105,887 | |
| Cash and cash equivalents and restricted cash at end of period | $ | 1,021,157 | | | $ | 1,930,351 | | | $ | 1,730,369 | |
See notes to consolidated financial statements.
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Supplemental Disclosure of Cash Flow Information: | | | | | |
Cash payments for interest, excluding capitalized interest of $19,085, $38,320 and $40,855 | $ | 252,371 | | | $ | 188,587 | | | $ | 210,052 | |
| Cash payments for income taxes | $ | 7,947 | | | $ | 9,155 | | | $ | 15,105 | |
| | | | | |
| Non-Cash Information: | | | | | |
| Additional estimated lease liability arising from the recognition of right-of-use asset | $ | 350,000 | | | $ | — | | | $ | — | |
| Write-off of fully depreciated assets | (278,561) | | | (123,537) | | | (189,250) | |
| Redeemable Class A unit measurement adjustment | 221,145 | | | (76,073) | | | 344,043 | |
| Change in fair value of consolidated interest rate swaps and other | 190,494 | | | 51,337 | | | (29,972) | |
| Accrued capital expenditures included in accounts payable and accrued expenses | 104,750 | | | 291,690 | | | 117,641 | |
| Reclassification of condominium units from "development costs and construction in progress" to "220 Central Park South condominium units ready for sale" | 32,604 | | | 16,014 | | | 388,280 | |
| Increase in assets and liabilities resulting from the consolidation of One Park Avenue: | | | | | |
| Real estate | — | | | 566,013 | | | — | |
| Identified intangible assets | — | | | 139,545 | | | — | |
| Mortgages payable | — | | | 525,000 | | | — | |
| Deferred revenue | — | | | 18,884 | | | — | |
| Marketable securities transferred in connection with the defeasance of mortgage payable | — | | | (973,729) | | | — | |
| Defeasance of mortgage payable | — | | | 950,000 | | | — | |
| Reclassification of assets held for sale (included in "other assets") | — | | | 80,005 | | | — | |
| Decrease in assets and liabilities resulting from the deconsolidation of Moynihan Train Hall: | — | | | — | | | — | |
| Real estate, net | — | | | — | | | (1,291,804) | |
| Moynihan Train Hall Obligation | — | | | — | | | (1,291,804) | |
See notes to consolidated financial statements.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
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”), a Delaware limited partnership. Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders are dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of and owned approximately 92% of the common limited partnership interest in the Operating Partnership as of December 31, 2022. All references to the “Company,” “we,” “us” and “our” mean, collectively, Vornado, the Operating Partnership and those subsidiaries consolidated by Vornado.
We currently own all or portions of:
New York:
•62 Manhattan operating properties consisting of:
•19.9 million square feet of office space in 30 of the properties;
•2.6 million square feet of street retail space in 56 of the properties;
•1,664 units in six Manhattan residential properties;
•Multiple development sites, including 350 Park Avenue and the Hotel Pennsylvania site;
•A 32.4% interest in Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX), which owns six properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.1 million square foot Bloomberg, L.P. headquarters building, and The Alexander, a 312-unit apartment tower in Queens;
•Signage throughout the Penn District and Times Square; and
•Building Maintenance Services LLC ("BMS"), a wholly owned subsidiary, which provides cleaning and security services for our buildings and third parties.
Other Real Estate and Investments:
•The 3.7 million square foot theMART in Chicago;
•A 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet; and
•Other real estate and investments.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership and their consolidated subsidiaries. All inter-company amounts have been eliminated. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. In addition, certain prior year balances have been reclassified in order to conform to the current period presentation.
Recently Issued Accounting Literature
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04 establishing Accounting Standards Codification ("ASC") Topic 848, Reference Rate Reform, and in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, "ASC 848"). ASC 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASC 848 is optional and may be elected over time as reference rate reform activities occur. We have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”) which was issued to defer the sunset date of ASC 848 to December 31, 2024. ASU 2022-06 is effective immediately for all companies. ASU 2022-06 will have no impact on the Company’s consolidated financial statements for the year ended December 31, 2022. We continue to evaluate the impact of ASC 848 and may apply other elections as applicable as additional changes in the market occur.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies - continued
Recently Issued Accounting Literature - continued
In August 2020, the FASB issued an update ("ASU 2020-06") Debt - Debt with Conversion and Other Options (ASC Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (ASC Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. We adopted this update effective January 1, 2022 using the modified retrospective approach which did not have a material impact on our consolidated financial statements and disclosures.
In July 2021, the FASB issued an update ("ASU 2021-05") Lessors - Certain Leases with Variable Lease Payments to ASC Topic 842, Leases ("ASC 842"). ASU 2021-05 provides additional ASC 842 classification guidance as it relates to a lessor's accounting for certain leases with variable lease payments. ASU 2021-05 requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss. ASU 2021-05 is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. We adopted this update effective January 1, 2022 which did not have an impact on our consolidated financial statements and disclosures.
Significant Accounting Policies
Real Estate: Real estate is carried at cost, net of accumulated depreciation and amortization. Betterments, major renewals and certain costs directly related to the improvement and leasing of real estate are capitalized. Maintenance and repairs are expensed as incurred. For redevelopment of existing operating properties, the net book value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment, including interest and debt expense, are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when complete. If the cost of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of the redeveloped property, the excess is charged to expense. Depreciation is recognized on a straight-line basis over the estimated useful lives of these assets which range from 7 to 40 years. Tenant allowances are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets.
Upon the acquisition of real estate, we assess whether the transaction should be accounted for as an asset acquisition or as a business combination. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. Our acquisitions of real estate generally will not meet the definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related identified intangible assets).
We assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and acquired liabilities and we allocate the purchase price based on these assessments which are on a relative fair value basis. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired.
Our properties, including any related right-of-use ("ROU") assets and intangible assets, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value. Impairment analyses are based on information available at the time the analyses are prepared. Estimates of future cash flows are subjective and are based, in part, on assumptions regarding future rental revenues, operating expenses, capital expenditures, discount rates and capitalization rates which could differ materially from actual results.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies - continued
Significant Accounting Policies - continued
Partially Owned Entities: We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider (i) whether the entity is a variable interest entity (“VIE”) in which we are the primary beneficiary or (ii) whether the entity is a voting interest entity in which we have a majority of the voting interests of the entity. We are deemed to be the primary beneficiary of a VIE when we have (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. We generally do not control a partially owned entity if the approval of all of the partners/members is contractually required with respect to decisions that most significantly impact the performance of the partially owned entity. This includes decisions regarding operating/capital budgets, and the placement of new or additional financing secured by the assets of the venture, among others. We account for investments under the equity method when the requirements for consolidation are not met, and we have significant influence over the operations of the investee. Equity method investments are initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. Equity investments that do not qualify for consolidation or equity method accounting are recorded at fair value in accordance with ASC Topic 321, Investments-Equity Securities ("ASC 321") or, if fair value is not readily determinable, are initially recognized at cost and subsequently remeasured if there is an orderly transaction in an identical or similar investment of the same issuer or if the investment is impaired.
Investments in unconsolidated partially owned entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recorded when there is a decline in the fair value of an investment below its carrying value and we conclude that the decline is other-than-temporary during our intended holding period. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on information available at the time the analyses are prepared. Estimates of future cash flows are subjective and are based, in part, on assumptions regarding future rental revenues, operating expenses, capital expenditures, discount rates and capitalization rates which could differ materially from actual results.
220 Central Park South Condominium Units Ready For Sale: Our 220 Central Park South (“220 CPS”) residential condominium units are reclassified from “development costs and construction in progress” to “220 Central Park South condominium units ready for sale” upon receipt of the unit’s temporary certificate of occupancy. These units are substantially complete and ready for sale. Each unit is carried at the lower of its carrying amount or fair value less costs to sell. We have used the relative sales value method to allocate costs to individual condominium units. GAAP income is recognized when legal title transfers upon closing of the condominium unit sales and is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. As of December 31, 2022 and 2021, none of the 220 CPS condominium units ready for sale had a carrying value that exceeded fair value.
Cash and Cash Equivalents: Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less and are carried at cost, which approximates fair value due to their short-term maturities. The majority of our cash and cash equivalents consists of (i) deposits at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation limit and (ii) Certificate of Deposits placed through an Account Registry Service.
Restricted Cash: Restricted cash consists of security deposits, cash restricted for the purposes of facilitating a Section 1031 Like-Kind exchange, cash restricted in connection with our deferred compensation plan and cash escrowed under loan agreements, including for debt service, real estate taxes, property insurance and capital improvements.
Investments in U.S. Treasury Bills: Treasury bills are short-term debt obligations with maturities of one year or less issued by the U.S. Treasury Department and backed by the U.S. Government. Treasury bills yield no interest, but are issued at a discount to the redemption price. We classify our investments in U.S. Treasury bills as available-for-sale debt investments. We use quoted market prices to determine the fair value of our investments in U.S. Treasury bills.
Deferred Charges: Direct financing costs are deferred and amortized over the terms of the related agreements as a component of interest expense. Direct and incremental costs related to successful leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. All other deferred charges are amortized on a straight-line basis, which approximates the effective interest rate method, in accordance with the terms of the agreements to which they relate.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies - continued
Significant Accounting Policies - continued
Revenue Recognition:
•Rental revenues include revenues from the leasing of space at our properties to tenants, trade shows, tenant services and parking garage revenues.
•Revenues from the leasing of space at our properties to tenants include (i) lease components, including fixed and variable lease payments, and nonlease components which include reimbursement of common area maintenance expenses, and (ii) reimbursement of real estate taxes and insurance expenses. As lessor, we have elected to combine the lease and nonlease components of our operating lease agreements and account for the components as a single lease component in accordance with ASC 842.
•Revenues from fixed lease payments for operating leases are recognized on a straight-line basis over the non-cancelable term of the lease, together with renewal options that are reasonably certain of being exercised. We commence revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use.
•Revenues derived from the reimbursement of real estate taxes, insurance expenses and common area maintenance expenses are generally recognized in the same period as the related expenses are incurred.
•We recognize amortization of acquired below-market leases as an increase to rental revenues and amortization of acquired above-market leases as a decrease to rental revenues over the term of the lease (see Note 8 - Identified Intangible Assets and Liabilities).
•Revenues from the operation of trade shows at our properties, primarily derived from booth rentals, are recognized when the trade show booths are made available for use by the exhibitors, in accordance with ASC 842.
•Revenues derived from sub-metered electric, elevator, trash removal and other services provided to our tenants at their request are recognized as the services are transferred in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606").
•Revenues derived from the operations of our parking facilities, which charge hourly or monthly fees to provide parking services to customers, are recognized as the services are transferred in accordance with ASC 606.
•We classify revenues derived from management, leasing and other contractual agreements (including BMS cleaning, engineering and security services) with third parties or with partially owned entities as “fee and other income” and recognize revenue as the services are transferred in accordance with ASC 606.
We evaluate on an individual lease basis whether it is probable that we will collect substantially all amounts due from our tenants and recognize changes in the collectability assessment of our operating leases as adjustments to rental revenue. Management exercises judgment in assessing collectability of tenant receivables and considers payment history, current credit status and publicly available information about the financial condition of the tenant, the impact of COVID-19 on tenants' businesses, and other factors. Tenant receivables, including receivables arising from the straight-lining of rents, are written off when management deems that the collectability of substantially all future lease payments from a specific lease is not probable of collection, at which point, the Company will limit future rental revenues to cash received.
We have made a policy election in accordance with the FASB Staff Q&A which provides relief in accounting for leases during the COVID-19 pandemic, allowing us to continue recognizing rental revenue on a straight-line basis for rent deferrals, with no impact to revenue recognition, and to recognize rent abatements as a reduction to rental revenue in the period granted.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies - continued
Significant Accounting Policies - continued
Income Taxes: Vornado operates in a manner intended to enable it to continue to qualify as a REIT under Sections 856‑860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. Vornado distributes to its shareholders 100% of its REIT taxable income and therefore, no provision for Federal income taxes is required. Dividends distributed for the year ended December 31, 2022 were characterized, for federal income tax purposes, as ordinary income under Section 199A of the Internal Revenue Code. Dividends distributed for the year ended December 31, 2021 were characterized for federal income tax purposes as 84.2% ordinary income under Section 199A of the Internal Revenue Code and 15.8% qualified dividend income (taxed as long-term capital gain). Dividends distributed for the year ended December 31, 2020 were characterized for federal income tax purposes as ordinary income under Section 199A of the Internal Revenue Code.
We have elected to treat certain consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries pursuant to an amendment to the Internal Revenue Code that became effective January 1, 2001. Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to Federal and State income tax at regular corporate tax rates. The Farley Building and our 220 CPS condominium project are held through taxable REIT subsidiaries.
As of December 31, 2022 and 2021, our taxable REIT subsidiaries had deferred tax assets, net of valuation allowances, of $7,944,000 and $8,582,000, respectively, which are included in “other assets” on our consolidated balance sheets. As of December 31, 2022 and 2021, our taxable REIT subsidiaries had deferred tax liabilities of $54,597,000 and $40,591,000, respectively, which are included in "other liabilities" on our consolidated balance sheets. The deferred tax assets relate to net operating loss carry forwards and temporary differences between the book and tax basis of our assets. The deferred tax liabilities relate to temporary differences between the book and tax basis of our assets.
As of December 31, 2022, our taxable REIT subsidiaries have an estimated $166,000,000 of federal net operating loss ("NOL") carryforwards and $208,000,000 of state and local NOL carryforwards, which are reduced by valuation allowances of $145,000,000 for federal NOL carryforwards and $186,000,000 for state and local NOL carryforwards. The NOL carryforwards are subject to certain limitations.
For the year ended December 31, 2022, we recognized $21,660,000 of income tax expense based on a negative effective tax rate of approximately 6.0%. For the years ended December 31, 2021 and 2020, we recognized $10,496,000 of income tax benefit and $36,630,000 of income tax expense, based on negative effective tax rates of approximately 5.3% and 8.6%, respectively. Income tax (expense) benefit recorded in each of the years primarily relates to our consolidated taxable REIT subsidiaries, and certain state, local, and franchise taxes. The year ended December 31, 2022 included $13,665,000 of income tax expense resulting from book to tax differences (primarily straight-line rent adjustments and depreciation) on our investment in The Farley Building and $6,016,000 of income tax expense recognized on the sale of 220 CPS condominium units. The year ended December 31, 2021 included $27,910,000 of income tax benefit recognized by our taxable REIT subsidiaries, $10,868,000 of income tax expense resulting from book to tax differences (primarily straight-line rent adjustments and depreciation) on our investment in The Farley Building and $5,711,000 of income tax expense recognized on the sale of 220 CPS condominium units. The year ended December 31, 2020 included $49,221,000 of income tax expense recognized on the sale of 220 CPS condominium units. The Company has no uncertain tax positions recognized as of December 31, 2022 and 2021.
The Operating Partnership’s partners are required to report their respective share of taxable income on their individual tax returns.
The estimated taxable income attributable to Vornado common shareholders (unaudited) for the years ended December 31, 2022, 2021 and 2020 was approximately $398,644,000, $413,026,000, and $419,812,000, respectively. The book to tax differences between net (loss) income and estimated taxable income primarily result from differences in the income recognition or deductibility of depreciation and amortization, gain or loss from the sale of real estate and other capital transactions, impairment losses, straight-line rent adjustments, stock option expense and repairs expense related to the tangible property regulations.
The net basis of Vornado’s assets and liabilities for tax reporting purposes is approximately $1.6 billion lower than the amounts reported in Vornado’s consolidated balance sheet as of December 31, 2022.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Revenue Recognition
Below is a summary of our revenues by segment. Additional financial information related to these reportable segments for the years ended December 31, 2022, 2021 and 2020 is set forth in Note 23 - Segment Information.
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, 2022 |
| Total | | New York | | Other | |
| Property rentals | $ | 1,510,648 | | | $ | 1,230,851 | | | $ | 279,797 | | |
| | | | | | |
Trade shows(1) | 32,669 | | | — | | | 32,669 | | |
Lease revenues(2) | 1,543,317 | | | 1,230,851 | | | 312,466 | | |
| Tenant services | 45,211 | | | 33,351 | | | 11,860 | | |
| Parking revenues | 19,157 | | | 15,979 | | | 3,178 | | |
Rental revenues | 1,607,685 | | | 1,280,181 | | | 327,504 | | |
| BMS cleaning fees | 137,673 | | | 146,530 | | | (8,857) | | (3) |
| Management and leasing fees | 11,039 | | | 11,645 | | | (606) | | |
| Other income | 43,598 | | | 11,086 | | | 32,512 | | |
Fee and other income | 192,310 | | | 169,261 | | | 23,049 | | |
Total revenues | $ | 1,799,995 | | | $ | 1,449,442 | | | $ | 350,553 | | |
____________________
See notes on following page.
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, 2021 |
| Total | | New York | | Other | |
| Property rentals | $ | 1,354,209 | | | $ | 1,071,816 | | | $ | 282,393 | | |
Trade shows(1) | 19,482 | | | — | | | 19,482 | | |
Lease revenues(2) | 1,373,691 | | | 1,071,816 | | | 301,875 | | |
| Tenant services | 37,449 | | | 26,048 | | | 11,401 | | |
| Parking revenues | 13,391 | | | 11,370 | | | 2,021 | | |
Rental revenues | 1,424,531 | | | 1,109,234 | | | 315,297 | | |
| BMS cleaning fees | 119,780 | | | 126,891 | | | (7,111) | | (3) |
| Management and leasing fees | 11,725 | | | 12,177 | | | (452) | | |
| Other income | 33,174 | | | 9,297 | | | 23,877 | | |
Fee and other income | 164,679 | | | 148,365 | | | 16,314 | | |
Total revenues | $ | 1,589,210 | | | $ | 1,257,599 | | | $ | 331,611 | | |
____________________
See notes on following page.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Revenue Recognition - continued
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, 2020 | |
| Total | | New York | | Other | |
| Property rentals | $ | 1,323,347 | | | $ | 1,051,009 | | | $ | 272,338 | | |
Hotel Pennsylvania(4) | 8,741 | | | 8,741 | | | — | | |
Trade shows(1) | 11,303 | | | — | | | 11,303 | | |
Lease revenues(2) | 1,343,391 | | | 1,059,750 | | | 283,641 | | |
| Tenant services | 34,244 | | | 23,750 | | | 10,494 | | |
Rental revenues | 1,377,635 | | | 1,083,500 | | | 294,135 | | |
| BMS cleaning fees | 105,536 | | | 112,112 | | | (6,576) | | (3) |
| Management and leasing fees | 19,416 | | | 19,508 | | | (92) | | |
| Other income | 25,364 | | | 6,628 | | | 18,736 | | |
Fee and other income | 150,316 | | | 138,248 | | | 12,068 | | |
Total revenues | $ | 1,527,951 | | | $ | 1,221,748 | | | $ | 306,203 | | |
________________________________________
(1)We cancelled trade shows at theMART beginning late March of 2020 due to the COVID-19 pandemic and resumed in the third quarter of 2021.
(2)The components of lease revenues were as follows:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Fixed billings | $ | 1,376,527 | | | $ | 1,277,645 | | | $ | 1,292,174 | |
| Variable billings | 122,947 | | | 108,850 | | | 126,907 | |
| Total contractual operating lease billings | 1,499,474 | | | 1,386,495 | | | 1,419,081 | |
| Adjustment for straight-line rents and amortization of acquired below-market leases and other, net | 44,715 | | | (5,109) | | | (12,486) | |
| Less: write-off of straight-line rent and tenant receivables deemed uncollectible | (872) | | | (7,695) | | | (63,204) | |
| Lease revenues | $ | 1,543,317 | | | $ | 1,373,691 | | | $ | 1,343,391 | |
(3)Represents the elimination of BMS cleaning fees related to theMART and 555 California Street which are included as income in the New York segment.
(4)We permanently closed the Hotel Pennsylvania on April 5, 2021 and plan to develop an office tower on the site.
4. Real Estate Fund Investments
We are the general partner and investment manager of Vornado Capital Partners Real Estate Fund (the “Fund”) and own a 25.0% interest in the Fund. The Fund had an initial eight-year term ending February 2019, which has been extended to December 2023, by which time the Fund intends to dispose of its remaining investments and wind down its business. The Fund's three-year investment period ended in July 2013. The Fund is accounted for under ASC Topic 946, Financial Services – Investment Companies (“ASC 946”) and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings. We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.
We are the general partner and investment manager of the Crowne Plaza Times Square Hotel Joint Venture (the “Crowne Plaza Joint Venture”) and own a 57.1% interest in the joint venture which owns the 24.3% interest in the Crowne Plaza Times Square Hotel not owned by the Fund. Through our interests in the Fund and the Crowne Plaza Joint Venture, in total we own an indirect, minority 32.8% interest in the Crowne Plaza Times Square Hotel. The Crowne Plaza Joint Venture is also accounted for under ASC 946 and we consolidate the accounts of the joint venture into our consolidated financial statements, retaining the fair value basis of accounting. As of December 31, 2022, our total investment in the Crowne Plaza Times Square Hotel had a carrying value of zero on our consolidated balance sheet. On June 9, 2020, the Fund and the Crowne Plaza Joint Venture (collectively, the “Crowne Plaza Co-Investors”) defaulted on the $274,355,000 non-recourse loan on the Crowne Plaza Times Square Hotel.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Real Estate Fund Investments - continued
In 2021, the mezzanine lender to the Crowne Plaza Co-Investors exercised its right under the loan documents and appointed an independent director to certain subsidiaries of the Crowne Plaza Co-Investors. Since then, neither we nor the Fund control Crowne Plaza Times Square Hotel nor have we or the Fund been involved in making any operating decisions relating to Crowne Plaza Times Square Hotel. In December 2022, the Fund entered into a Restructuring Support Agreement with certain subsidiaries and the lender of the loan on the Crowne Plaza Times Square Hotel, pursuant to which the independent director caused the subsidiaries to enter into a Chapter 11 bankruptcy restructuring process and the Fund agreed to work consensually with such subsidiaries and the lender to effectuate a transfer of ownership of the hotel property through a court supervised auction process, or an equitization of the secured loans held by the lender. We expect that, following the Chapter 11 restructuring, neither we nor the Fund will have any continuing ownership or other interest in the property and neither we nor the Fund will receive any proceeds or have any liability as a result of the restructuring.
On May 20, 2022, 1100 Lincoln Road was conveyed to the lender pursuant to a deed-in-lieu of foreclosure agreement in exchange for a $5,672,000 payment to the Fund. From the inception of this investment through its disposition, the Fund realized a $54,255,000 net loss.
As of December 31, 2022, we had two real estate fund investments through the Fund and the Crowne Plaza Joint Venture carried at zero on our consolidated balance sheet, $276,390,000 below cost, and had remaining unfunded commitments of $28,465,000, of which our share was $8,849,000. As of December 31, 2021, we had three real estate fund investments with an aggregate fair value of $7,730,000.
Below is a summary of income (loss) from the Fund and the Crowne Plaza Joint Venture.
| | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
| Previously recorded unrealized loss on exited investments | $ | 59,396 | | | $ | — | | | $ | — | | |
| Realized (loss) income on exited investments | (54,255) | | | 1,364 | | | — | | |
| Net unrealized (loss) income on held investments | (7,730) | | | 3,257 | | | (226,107) | | |
| Net investment income (loss) | 6,130 | | | 6,445 | | | (220) | | |
| Income (loss) from real estate fund investments | 3,541 | | | 11,066 | | | (226,327) | | |
| Less (income) loss attributable to noncontrolling interests in consolidated subsidiaries | (1,870) | | | (7,309) | | | 163,213 | | |
| Income (loss) from real estate fund investments net of noncontrolling interests in consolidated subsidiaries | $ | 1,671 | | | $ | 3,757 | | | $ | (63,114) | | |
| | | | | | |
| | | | | | |
The table below summarizes the changes in the fair value of the Fund and the Crowne Plaza Joint Venture.
| | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 |
| Beginning balance | $ | 7,730 | | | $ | 3,739 | |
| Previously recorded unrealized loss on exited investments | 59,396 | | | — | |
| Realized (loss) income on exited investments | (54,255) | | | 1,364 | |
| Net unrealized (loss) income on held investments | (7,730) | | | 3,257 | |
| Dispositions | (5,141) | | | (5,104) | |
| Purchases/additional fundings | — | | | 4,474 | |
| | | |
| Ending balance | $ | — | | | $ | 7,730 | |
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Investments in Partially Owned Entities
Fifth Avenue and Times Square JV
As of December 31, 2022, we own a 51.5% common interest in a joint venture ("Fifth Avenue and Times Square JV") which owns interests in properties located at 640 Fifth Avenue, 655 Fifth Avenue, 666 Fifth Avenue, 689 Fifth Avenue, 697-703 Fifth Avenue, 1535 Broadway and 1540 Broadway (collectively, the "Properties"). The remaining 48.5% common interest in the joint venture is owned by a group of institutional investors (the "Investors"). Our 51.5% common interest in the joint venture represents an effective 51.0% interest in the Properties. The 48.5% common interest in the joint venture owned by the Investors represents an effective 47.2% interest in the Properties.
We also own $1.828 billion of preferred equity security interests in certain of the properties. The preferred equity has an annual coupon of 4.25% through April 2024, increasing to 4.75% for the subsequent five years and thereafter at a formulaic rate. It can be redeemed under certain conditions on a tax deferred basis.
Fifth Avenue and Times Square JV was formed in April 2019, when we contributed our interests in the Properties to the joint venture and transferred a 48.5% common interest in the joint venture to the Investors (the “Transaction”). The Transaction valued the Properties at $5.556 billion, resulting in a $2.571 billion net gain, before noncontrolling interests of $11,945,000, including a gain related to the step up in our basis of the retained portion of the assets to fair value. During 2020, Manhattan street retail suffered negative market conditions, which was further stressed by the COVID-19 pandemic, resulting in our recognition of other-than-temporary impairment losses of $413,349,000, before noncontrolling interests of $4,289,000, for the year ended December 31, 2020. While the Manhattan street retail market has since stabilized, the recovery of rental rates is likely to be further elongated and stabilize at lower levels than previously expected. These factors have resulted in a further decline in the value of our investment, which we determined was other-than-temporary based on our inability to forecast a recovery over our anticipated holding period. Accordingly, we recognized an impairment loss of $489,859,000, before noncontrolling interests of $6,822,000, for the year ended December 31, 2022 which is included in “(loss) income from partially owned entities” on our consolidated statements of income. In determining the fair value of our investment, we considered, among other factors, a discounted cash flow analysis based upon market conditions and expectations of growth.
As of December 31, 2022, the carrying amount of our investment in the joint venture was less than our share of the equity in the net assets of the joint venture by approximately $864,317,000, the basis difference primarily resulting from the non-cash impairment losses discussed above. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Fifth Avenue and Times Square JV’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as a reduction to depreciation expense over their estimated useful lives.
We receive an annual fee for managing the Properties equal to 2% of the gross revenues from the Properties. In addition, we are entitled to a development fee of 5% of development costs, plus reimbursement of certain costs, for development projects performed by us. We are entitled to 1.5% of development costs, plus reimbursement of certain costs, as a supervisory fee for development projects not performed by us. We provide leasing services for fees calculated based on a percentage of rents, less any commissions paid to third-party real estate brokers, if applicable. We jointly provide leasing services for the retail space with Crown Retail Services LLC, and exclusively provide leasing services for the office space. We recognized property management fee income, included in "fee and other income" on our consolidated statements of income, of $4,397,000, $4,297,000 and $3,982,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
BMS, our wholly-owned subsidiary, supervises cleaning, security and engineering services at certain of the Properties. We recognized income for these services, included in "fee and other income" on our consolidated statements of income, of $4,571,000, $3,993,000 and $3,595,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
We believe, based on comparable fees charged by other real estate companies, that the fees described above are consistent with the market.
On April 18, 2022, we received a $13,613,000 refund of New York City real property transfer tax that we previously paid in connection with the transfer of the Properties to Fifth Avenue and Times Square JV in April 2019. The receipt of the refund was recognized in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income for the year ended December 31, 2022.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Investments in Partially Owned Entities - continued
Fifth Avenue and Times Square JV - continued
On December 21, 2022, the 697-703 Fifth Avenue $450,000,000 non-recourse mortgage loan matured and was not repaid, at which time the lenders declared an event of default. During December 2022, $29,000,000 of property-level funds were applied by the lenders against the principal balance resulting in a $421,000,000 loan balance as of December 31, 2022. The loan bears default interest at the Prime Rate plus 1.00% (8.50% as of December 31, 2022). The Fifth Avenue and Times Square JV is in negotiations with the lenders regarding a restructuring but there can be no assurance as to the timing and ultimate resolution of these negotiations.
Alexander’s, Inc
As of December 31, 2022, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, develop and lease Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of December 31, 2022 and 2021, Alexander’s owed us an aggregate of $801,000 and $879,000, respectively, pursuant to such agreements.
As of December 31, 2022, the market value (“fair value” pursuant to ASC Topic 820, Fair Value Measurements ("ASC 820")) of our investment in Alexander’s, based on Alexander’s December 31, 2022 closing share price of $220.06, was $363,994,000, or $276,198,000 in excess of the carrying amount on our consolidated balance sheet. As of December 31, 2022, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $29,972,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income.
Management, Development, Leasing and Other Agreements
We receive an annual fee for managing Alexander’s and all of its properties equal to the sum of (i) $2,800,000, (ii) 2% of the gross revenue from the Rego Park II Shopping Center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue, and (iv) $354,000, escalating at 3% per annum, for managing the common area of 731 Lexington Avenue. In addition, we are entitled to a development fee of 6% of development costs, as defined.
We provide Alexander’s with leasing services for a fee of 3% of rent for the first ten years of a lease term, 2% of rent for the eleventh through twentieth year of a lease term and 1% of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by Alexander’s tenants. In the event third-party real estate brokers are used, our fee increases by 1% and we are responsible for the fees to the third-parties. We are also entitled to a commission upon the sale of any of Alexander’s assets equal to 3% of gross proceeds, as defined, for asset sales less than $50,000,000, and 1% of gross proceeds, as defined, for asset sales of $50,000,000 or more.
BMS, our wholly-owned subsidiary, supervises (i) cleaning, engineering and security services at Alexander’s 731 Lexington Avenue property and (ii) security services at Alexander’s Rego Park I, Rego Park II properties and The Alexander apartment tower. During the years ended December 31, 2022, 2021 and 2020, we recognized $4,601,000, $4,234,000 and $3,613,000 of income, respectively, for these services.
330 West 34th Street land owner joint venture
On August 18, 2022, the joint venture that owns the fee interest in the 330 West 34th Street land, in which we have a 34.8% interest, completed a $100,000,000 refinancing. The interest-only loan bears interest at a fixed rate of 4.55% and matures in September 2032. In connection with the refinancing, we realized net proceeds of $10,500,000. The loan replaces the previous $50,150,000 loan that bore interest at a fixed rate of 5.71%.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Investments in Partially Owned Entities – continued
Below is a schedule of our investments in partially owned entities.
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Percentage Ownership at December 31, 2022 | | Balance as of December 31, |
| | 2022 | | 2021 |
| Investments: | | | | | |
Fifth Avenue and Times Square JV (see page 89 for details) | 51.5% | | $ | 2,272,320 | | | $ | 2,770,633 | |
Partially owned office buildings/land(1) | Various | | 182,180 | | | 299,101 | |
Alexander’s (see page 90 for details) | 32.4% | | 87,796 | | | 91,405 | |
Other investments(2) | Various | | 122,777 | | | 136,250 | |
| | | $ | 2,665,073 | | | $ | 3,297,389 | |
Investments in partially owned entities included in other liabilities(3): | | | | | |
| 7 West 34th Street | 53.0% | | $ | (65,522) | | | $ | (60,918) | |
| 85 Tenth Avenue | 49.9% | | (16,006) | | | (18,067) | |
| | | $ | (81,528) | | | $ | (78,985) | |
________________________________________
(1)Includes interests in 280 Park Avenue, 650 Madison Avenue (balance reduced to zero in 2022), 512 West 22nd Street, 61 Ninth Avenue and others.
(2)Includes interests in Independence Plaza, Rosslyn Plaza and others.
(3)Our negative basis results from distributions in excess of our investment.
Below is a schedule of (loss) income from partially owned entities.
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Percentage Ownership at December 31, 2022 | | For the Year Ended December 31, | |
| | 2022 | | 2021 | | 2020 | |
| Our share of net (loss) income: | | | | | | | | |
Fifth Avenue and Times Square JV (see page 89 for details) | | | | | | | | |
| Non-cash impairment loss | 51.5% | | $ | (489,859) | | | $ | — | | | $ | (413,349) | | |
Equity in net income(1) | | | 55,248 | | | 47,144 | | | 21,063 | | |
| Return on preferred equity, net of our share of the expense | | | 37,416 | | | 37,416 | | | 37,357 | | |
| | | (397,195) | | | 84,560 | | | (354,929) | | |
| | | | | | | | |
Alexander's (see page 90 for details): | | | | | | | | |
Equity in net income(2) | 32.4% | | 18,439 | | | 20,116 | | | 13,326 | | |
| Net gain on sale of land | | | — | | | 14,576 | | | — | | |
| Management, leasing and development fees | | | 4,534 | | | 5,429 | | | 5,309 | | |
| | | 22,973 | | | 40,121 | | | 18,635 | | |
| | | | | | | | |
Partially owned office buildings(3) | Various | | (110,261) | | | 6,384 | | | 11,943 | | |
| | | | | | | | |
Other investments(4) | Various | | 23,132 | | | (548) | | | (4,761) | | |
| | | | | | | | |
| | | $ | (461,351) | | | $ | 130,517 | | | $ | (329,112) | | |
________________________________________
(1)Our share of depreciation and amortization expense in 2022 and 2021 was reduced compared to 2020 primarily due to non-cash impairment losses recognized in 2020.
(2)2020 includes our $4,846 share of write-offs of lease receivables deemed uncollectible.
(3)Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue (consolidated from August 5, 2021), 7 West 34th Street, 512 West 22nd Street, 61 Ninth Avenue, 85 Tenth Avenue and others. 2022 includes a $93,353 impairment loss on our investment in 650 Madison Avenue.
(4)Includes interests in Independence Plaza, Rosslyn Plaza and others. 2022 includes $17,185 of net gains from dispositions of two investments.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Investments in Partially Owned Entities - continued
Below is a summary of the debt of our partially owned entities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Percentage Ownership at December 31, 2022 | | Maturity | | Weighted Average Interest Rate at December 31, 2022(1) | | 100% Partially Owned Entities’ Debt(2) at December 31, |
| | | | | 2022 | | 2021 |
| Mortgages Payable: | | | | | | | | | |
Partially owned office buildings(3) | Various | | 2023-2029 | | 4.82% | | $ | 3,288,977 | | | $ | 3,297,999 | |
| Alexander's | 32.4% | | 2024-2027 | | 4.12% | | 1,096,544 | | | 1,096,544 | |
Fifth Avenue and Times Square JV(4) | 51.5% | | 2022-2024 | | 5.55% | | 921,000 | | | 950,000 | |
Other(5) | Various | | 2023-2032 | | 5.14% | | 1,377,492 | | | 1,342,162 | |
________________________________________
(1)Represents the interest rate in effect as of period end based on the appropriate reference rate as of the contractual reset date plus contractual spread, adjusted for hedging instruments, as applicable.
(2)All amounts are non-recourse to us except (i) the $500,000 mortgage loan on 640 Fifth Avenue, included in the Fifth Avenue and Times Square JV, and (ii) the $300,000 mortgage loan on 7 West 34th Street.
(3)Includes interests in 280 Park Avenue, 650 Madison Avenue, 7 West 34th Street, 512 West 22nd Street, 61 Ninth Avenue, 85 Tenth Avenue and others.
(4)Includes the 697-703 Fifth Avenue mortgage loan which was not repaid upon its December 2022 maturity, resulting in an event of default. See page 90 for details. (5)Includes interests in Independence Plaza, Rosslyn Plaza and others.
Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $2,697,226,000 and $2,699,405,000 as of December 31, 2022 and 2021, respectively.
Summary of Condensed Combined Financial Information
The following is a summary of condensed combined financial information for all of our partially owned entities.
| | | | | | | | | | | |
| (Amounts in thousands) | As of December 31, |
| | 2022 | | 2021 |
| Balance Sheet: | | | |
| Assets | $ | 12,012,000 | | | $ | 12,689,000 | |
| Liabilities | 7,519,000 | | | 7,553,000 | |
| Noncontrolling interests | 2,095,000 | | | 2,069,000 | |
| Equity | 2,398,000 | | | 3,067,000 | |
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Income Statement: | | | | | |
| Total revenue | $ | 1,189,000 | | | $ | 1,184,000 | | | $ | 1,163,000 | |
| Net (loss) income | (404,000) | | | 190,000 | | | 45,000 | |
| Net (loss) income attributable to the entities | (483,000) | | | 114,000 | | | (33,000) | |
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. 220 Central Park South
During the year ended December 31, 2022, we closed on the sale of three condominium units and ancillary amenities at 220 CPS for net proceeds of $88,019,000 resulting in a financial statement net gain of $41,874,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with these sales, $6,016,000 of income tax expense was recognized on our consolidated statements of income. From inception to December 31, 2022, we have closed on the sale of 109 units and ancillary amenities for net proceeds of $3,094,915,000 resulting in financial statement net gains of $1,159,129,000. As of December 31, 2022, we are 97% sold.
7. Dispositions
SoHo Properties
On January 13, 2022, we sold two Manhattan retail properties located at 478-482 Broadway and 155 Spring Street for $84,500,000 and realized net proceeds of $81,399,000. In connection with the sale, we recognized a net gain of $551,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
Center Building (33-00 Northern Boulevard)
On June 17, 2022, we sold the Center Building, an eight-story 498,000 square foot office building located at 33‑00 Northern Boulevard in Long Island City, New York, for $172,750,000. We realized net proceeds of $58,946,000 after repayment of the existing $100,000,000 mortgage loan and closing costs. In connection with the sale, we recognized a net gain of $15,213,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
484-486 Broadway
On December 15, 2022, we sold 484-486 Broadway, a 30,000 square foot retail and residential building for $23,520,000, and realized net proceeds of $22,430,000. In connection with the sale, we recognized a net gain of $2,919,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
40 Fulton Street
On December 21, 2022, we sold 40 Fulton Street, a 251,000 square foot Manhattan office and retail building, for $101,000,000, and realized net proceeds of $96,566,000. In connection with the sale, we recognized a net gain of $31,876,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Identified Intangible Assets and Liabilities
The following summarizes our identified intangible assets (primarily above-market leases) and liabilities (primarily below-market leases).
| | | | | | | | | | | |
| (Amounts in thousands) | Balance as of December 31, |
| | 2022 | | 2021 |
| Identified intangible assets: | | | |
| Gross amount | $ | 237,777 | | | $ | 252,081 | |
| Accumulated amortization | (98,139) | | | (97,186) | |
| Total, net | $ | 139,638 | | | $ | 154,895 | |
| Identified intangible liabilities (included in deferred revenue): | | | |
| Gross amount | $ | 244,396 | | | $ | 256,065 | |
| Accumulated amortization | (208,592) | | | (212,245) | |
| Total, net | $ | 35,804 | | | $ | 43,820 | |
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental revenues of $5,178,000, $9,249,000 and $16,878,000 for the years ended December 31, 2022, 2021 and 2020, respectively. Estimated annual amortization for each of the five succeeding years commencing January 1, 2023 is below:
| | | | | |
| (Amounts in thousands) | |
| 2023 | $ | 5,471 | |
| 2024 | 2,352 | |
| 2025 | 941 | |
| 2026 | 299 | |
| 2027 | (148) | |
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $10,516,000, $7,330,000 and $6,507,000 for the years ended December 31, 2022, 2021 and 2020, respectively. Estimated annual amortization for each of the five succeeding years commencing January 1, 2023 is below:
| | | | | |
| (Amounts in thousands) | |
| 2023 | $ | 7,948 | |
| 2024 | 7,128 | |
| 2025 | 6,077 | |
| 2026 | 5,884 | |
| 2027 | 5,449 | |
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Debt
Secured Debt
On June 15, 2022, we completed a $480,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot building comprised of 859,000 square feet of office space and 255,000 square feet of retail space. The interest-only loan bears a rate of SOFR plus 1.65% (5.96% as of December 31, 2022) through March 2024, increasing to SOFR plus 1.85% thereafter. The interest rate on the loan was swapped to a fixed rate of 5.06% through March 2024, and 5.26% through June 2027. The loan matures in June 2027, with two one-year extension options subject to debt service coverage ratio and loan-to-value tests. The loan replaces the previous $580,000,000 loan that bore interest at LIBOR plus 1.55% and was scheduled to mature in April 2024.
On June 28, 2022, we completed a $700,000,000 refinancing of 770 Broadway, a 1.2 million square foot Class A Manhattan office building. The interest-only loan bears a rate of SOFR plus 2.25% (6.48% as of December 31, 2022) and matures in July 2024 with three one-year extension options (July 2027 as fully extended). The interest rate on the loan was swapped to a fixed rate of 4.98% through July 2027. The loan replaces the previous $700,000,000 loan that bore interest at SOFR plus 1.86% and was scheduled to mature in July 2022.
Unsecured Revolving Credit Facility
On June 30, 2022, we amended and extended one of our two revolving credit facilities. The $1.25 billion amended facility bears interest at a rate of SOFR plus 1.15% (5.47% as of December 31, 2022). The term of the facility was extended from March 2024 to December 2027, as fully extended. The facility fee is 25 basis points. On August 16, 2022, the interest rate on the $575,000,000 drawn on the facility was swapped to a fixed interest rate of 3.88% through August 2027. Our other $1.25 billion revolving credit facility matures in April 2026, as fully extended, and bears a rate of SOFR plus 1.19% with a facility fee of 25 basis points.
Unsecured Term Loan
On June 30, 2022, we extended our $800,000,000 unsecured term loan from February 2024 to December 2027. The extended loan bears interest at a rate of SOFR plus 1.30% (5.62% as of December 31, 2022) and is currently swapped to a fixed rate of 4.05%.
Interest Rate Hedging Activities
We entered into the following interest rate swap arrangements during the year ended December 31, 2022. See Note 13 - Fair Value Measurements for further information on our consolidated hedging instruments.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | | Notional Amount | | All-In Swapped Rate | | Swap Expiration Date | | Variable Rate Spread |
| 770 Broadway mortgage loan | | $ | 700,000 | | | 4.98% | | 07/27 | | S+225 |
| Unsecured revolving credit facility | | 575,000 | | 3.88% | | 08/27 | | S+115 |
Unsecured term loan(1)(2) | | 50,000 | | | 4.04% | | 08/27 | | S+130 |
Unsecured term loan (effective 10/23)(2) | | 500,000 | | | 4.39% | | 10/26 | | S+130 |
| 100 West 33rd Street mortgage loan | | 480,000 | | | 5.06% | | 06/27 | | S+165 |
888 Seventh Avenue mortgage loan(3) | | 200,000 | | | 4.76% | | 09/27 | | S+180 |
________________________________________
(1)Together with the existing $750,000 interest rate swap arrangement expiring October 2023, the $800,000 unsecured term loan balance currently bears interest at a fixed rate of 4.05%.
(2)On February 7, 2023, we entered into a forward interest rate swap arrangement for $150,000 of the $800,000 unsecured term loan, effective October 2023 and expiring July 2025.
(3)The remaining $77,800 amortizing mortgage loan balance bears interest at a floating rate of SOFR plus 1.80%.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Debt - continued
The following is a summary of our debt:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Weighted Average Interest Rate at December 31, 2022(1) | | Balance as of December 31, |
| | | 2022 | | 2021 |
| Mortgages Payable: | | | | | |
| Fixed rate | 3.63% | | $ | 3,570,000 | | | $ | 2,190,000 | |
Variable rate(2) | 5.67% | | 2,307,615 | | | 3,909,215 | |
| Total | 4.43% | | 5,877,615 | | | 6,099,215 | |
| Deferred financing costs, net and other | | | (48,597) | | | (45,872) | |
| Total, net | | | $ | 5,829,018 | | | $ | 6,053,343 | |
| Unsecured Debt: | | | | | |
| Senior unsecured notes | 3.02% | | $ | 1,200,000 | | | $ | 1,200,000 | |
| Deferred financing costs, net and other | | | (8,168) | | | (10,208) | |
| Senior unsecured notes, net | | | 1,191,832 | | | 1,189,792 | |
| | | | | |
| Unsecured term loan | 4.05% | | 800,000 | | | 800,000 | |
| Deferred financing costs, net and other | | | (6,807) | | | (2,188) | |
| Unsecured term loan, net | | | 793,193 | | | 797,812 | |
| | | | | |
| Unsecured revolving credit facilities | 3.88% | | 575,000 | | | 575,000 | |
| | | | | |
| Total, net | | | $ | 2,560,025 | | | $ | 2,562,604 | |
________________________________________
(1)Represents the interest rate in effect as of period end based on the appropriate reference rate as of the contractual reset date plus contractual spread, adjusted for hedging instruments, as applicable.
(2)As of December 31, 2022, our variable rate debt is subject to interest rate cap arrangements with a total notional amount of $1,649,120. The interest rate cap arrangements have a weighted average strike rate of 4.14% and a weighted average remaining term of nine months. These amounts exclude the forward cap we entered into in December 2022 for the $525,000 One Park Avenue mortgage loan effective upon the March 2023 expiration of the existing cap. The forward cap has a SOFR strike rate of 3.89% and expires in March 2024.
The net carrying amount of properties collateralizing the above indebtedness amounted to $5.6 billion as of December 31, 2022.
As of December 31, 2022, the principal maturities of mortgages payable and unsecured debt, including as-of-right extension options, for the next five years and thereafter are as follows:
| | | | | | | | | | | |
| (Amounts in thousands) | Mortgages Payable | | Unsecured Debt |
| Year Ended December 31, | | | |
| 2023 | $ | 21,600 | | | $ | — | |
| 2024 | 396,415 | | | — | |
| 2025 | 854,600 | | | 450,000 | |
| 2026 | 525,000 | | | 400,000 | |
| 2027 | 1,580,000 | | | 1,375,000 | |
| Thereafter | 2,500,000 | | | 350,000 | |
10. Redeemable Noncontrolling Interests
Redeemable Noncontrolling Partnership Units
Redeemable noncontrolling partnership units are primarily comprised of Class A Operating Partnership units held by third parties and are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period-to-period are charged to “additional capital” in Vornado’s consolidated statements of changes in equity and to “partners’ capital” on the consolidated balance sheets of the Operating Partnership. Class A units may be tendered for redemption to the Operating Partnership for cash; Vornado, at its option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis. Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Redeemable Noncontrolling Interests - continued
Redeemable Noncontrolling Partnership Units - continued
Below are the details of redeemable noncontrolling partnership units.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except units and per unit amounts) | | Balance as of December 31, | | Units Outstanding as of December 31, | | Per Unit
Liquidation
Preference | | Preferred or
Annual
Distribution
Rate |
| Unit Series | | 2022 | | 2021 | | 2022 | | 2021 | | |
| Common: | | | | | | | | | | | | |
| Class A units held by third parties | | $ | 345,157 | | (1) | $ | 587,440 | | (2) | 14,416,891 | | | 14,033,438 | | | n/a | | $ | 2.12 | |
| | | | | | | | | | | | |
| Perpetual Preferred/Redeemable Preferred: | | | | | | | | | | | | |
3.25% D-17 Cumulative Redeemable(3) | | $ | 3,535 | | | $ | 3,535 | | | 141,400 | | | 141,400 | | | $ | 25.00 | | | $ | 0.8125 | |
________________________________________
(1)Aggregate redemption value was based on carrying amount.
(2)Aggregate redemption value was based on Vornado's year-end closing common share price.
(3)Holders may tender units for redemption to the Operating Partnership for cash at their stated redemption amount; Vornado, at its option, may assume that obligation and pay the holders either cash or Vornado preferred shares on a one-for-one basis. These units are redeemable at Vornado's option at any time.
Below is a table summarizing the activity of redeemable noncontrolling partnership units.
| | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| 2022 | | 2021 |
| Beginning balance | $ | 590,975 | | | $ | 511,747 | |
| Net (loss) income | (30,376) | | | 7,540 | |
| Other comprehensive income | 14,250 | | | 4,048 | |
| Distributions | (30,311) | | | (29,901) | |
| Redemption of Class A units for Vornado common shares, at redemption value | (3,524) | | | (14,576) | |
| Redeemable Class A unit measurement adjustment | (221,145) | | | 76,073 | |
| Other, net | 28,823 | | | 36,044 | |
| Ending balance | $ | 348,692 | | | $ | 590,975 | |
Redeemable noncontrolling partnership units exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC Topic 480, Distinguishing Liabilities and Equity. Accordingly, the fair value of these units is included as a component of "other liabilities" on our consolidated balance sheets and aggregated $49,383,000 and $49,659,000 as of December 31, 2022 and 2021, respectively. Changes in the value from period-to-period, if any, are charged to “interest and debt expense” on our consolidated statements of income.
Redeemable Noncontrolling Interest in a Consolidated Subsidiary
A consolidated joint venture in which we own a 95% interest is completing development of The Farley Building (the "Project"). During 2020, a historic tax credit investor (the "Tax Credit Investor") funded $92,400,000 of capital contributions and is expected to make additional capital contributions in future periods.
The arrangement includes a put option whereby the joint venture may be obligated to purchase the Tax Credit Investor’s ownership interest in the Project at a future date. The put price is calculated based on a pre-determined formula. As exercise of the put option is outside of the joint venture’s control, the Tax Credit Investor’s interest, together with the put option, have been recorded to “redeemable noncontrolling interest in a consolidated subsidiary” on our consolidated balance sheets. The redeemable noncontrolling interest is recorded at the greater of the carrying amount or redemption value at the end of each reporting period. Changes in the value from period-to-period are charged to “additional capital” in Vornado’s consolidated statements of changes in equity and to “partners’ capital” on the consolidated balance sheets of the Operating Partnership. There was no adjustment required for the years ended December 31, 2022 and 2021.
Below is a table summarizing the activity of the redeemable noncontrolling interest in a consolidated subsidiary.
| | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
| (Amounts in thousands) | | 2022 | | 2021 |
| Beginning balance | | $ | 97,708 | | | $ | 94,520 | |
| Net (loss) income | | (9,668) | | | 3,188 | |
| | | | |
| | | | |
| Ending balance | | $ | 88,040 | | | $ | 97,708 | |
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Shareholders' Equity/Partners' Capital
Common Shares (Vornado Realty Trust)
As of December 31, 2022, there were 191,866,880 common shares outstanding. During 2022, we paid an aggregate of $406,562,000 of common dividends comprised of quarterly common dividends of $0.53 per share.
Class A Units (Vornado Realty L.P.)
As of December 31, 2022, there were 191,866,880 Class A units outstanding that were held by Vornado. These units are classified as “partners’ capital” on the consolidated balance sheets of the Operating Partnership. As of December 31, 2022, there were 14,416,891 Class A units outstanding, that were held by third parties. These units are classified outside of “partners’ capital” as “redeemable partnership units” on the consolidated balance sheets of the Operating Partnership (See Note 10 – Redeemable Noncontrolling Interests). During 2022, the Operating Partnership paid an aggregate of $406,562,000 of distributions to Vornado comprised of quarterly common distributions of $0.53 per unit.
Preferred Shares/Units
The following table sets forth the details of our preferred shares of beneficial interest and the preferred units of the Operating Partnership outstanding as of December 31, 2022 and 2021. During 2022, preferred dividends were $62,116,000.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except share/unit and per share/per unit amounts) | | | | | | | | | | |
| | | | | | | | Per Share/Unit | |
| Preferred Shares/Units | | | Balance | | | Shares/Units Outstanding | | Liquidation
Preference | | Annual
Dividend/
Distribution(1) | |
| Convertible Preferred: | | | | | | | | | | | |
6.5% Series A: authorized 12,902 shares/units(2) | | | $ | 920 | | | | 12,902 | | | $ | 50.00 | | | $ | 3.25 | | |
Cumulative Redeemable Preferred(3): | | | | | | | | | | | |
5.40% Series L: authorized 13,800,000 shares/units | | | 290,306 | | | | 12,000,000 | | | 25.00 | | | 1.35 | | |
5.25% Series M: authorized 13,800,000 shares/units | | | 308,946 | | | | 12,780,000 | | | 25.00 | | | 1.3125 | | |
5.25% Series N: authorized 12,000,000 shares/units | | | 291,134 | | | | 12,000,000 | | | 25.00 | | | 1.3125 | | |
4.45% Series O: authorized 12,000,000 shares/units | | | 291,153 | | | | 12,000,000 | | | 25.00 | | | 1.1125 | | |
| | | $ | 1,182,459 | | | | 48,792,902 | | | | | | |
________________________________________
(1)Dividends on preferred shares and distributions on preferred units are cumulative and are payable quarterly in arrears.
(2)Redeemable at the option of Vornado under certain circumstances, at a redemption price of 1.9531 common shares/Class A units per Series A Preferred Share/Unit plus accrued and unpaid dividends/distributions through the date of redemption, or convertible at any time at the option of the holder for 1.9531 common shares/Class A units per Series A Preferred Share/Unit.
(3)Series L and Series M preferred shares/units are redeemable at Vornado's option at a redemption price of $25.00 per share/unit, plus accrued and unpaid dividends/distributions through the date of redemption. Series N preferred shares/units are redeemable commencing November 2025 and Series O preferred shares/units are redeemable commencing September 2026.
12. Variable Interest Entities
Unconsolidated VIEs
As of December 31, 2022 and 2021, we had several unconsolidated VIEs. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance. We account for our investment in these entities under the equity method (see Note 5 – Investments in Partially Owned Entities). As of December 31, 2022 and 2021, the net carrying amount of our investments in these entities was $68,223,000 and $69,435,000, respectively, and our maximum exposure to loss in these entities is limited to the carrying amount of our investments.
Consolidated VIEs
Our most significant consolidated VIEs are the Operating Partnership (for Vornado), the Farley joint venture and certain properties that have noncontrolling interests. These entities are VIEs because the noncontrolling interests do not have substantive kick-out or participating rights. We consolidate these entities because we control all significant business activities.
As of December 31, 2022, the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, were $4,423,995,000 and $2,345,726,000 respectively. As of December 31, 2021, the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, were $4,564,621,000 and $2,517,652,000, respectively.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Fair Value Measurements
ASC 820 defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities as well as certain U.S. Treasury securities that are highly liquid and are actively traded in secondary markets; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) investments in U.S. Treasury bills (classified as available-for-sale), (ii) real estate fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheets), (iv) loans receivable for which we have elected the fair value option under ASC Subtopic 825-10, Financial Instruments ("ASC 825-10"), (v) interest rate swaps and caps and (vi) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units). The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | As of December 31, 2022 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
Investments in U.S. Treasury bills (1) | $ | 471,962 | | | $ | 471,962 | | | $ | — | | | $ | — | |
| | | | | | | |
Deferred compensation plan assets ($7,763 included in restricted cash and $88,559 in other assets) | 96,322 | | | 57,406 | | | — | | | 38,916 | |
Loans receivable ($50,091 included in investments in partially owned entities and $4,306 in other assets) | 54,397 | | | — | | | — | | | 54,397 | |
| Interest rate swaps and caps (included in other assets) | 183,804 | | | — | | | 183,804 | | | — | |
| Total assets | $ | 806,485 | | | $ | 529,368 | | | $ | 183,804 | | | $ | 93,313 | |
| | | | | | | |
| Mandatorily redeemable instruments (included in other liabilities) | $ | 49,383 | | | $ | 49,383 | | | $ | — | | | $ | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | As of December 31, 2021 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| Real estate fund investments | $ | 7,730 | | | $ | — | | | $ | — | | | $ | 7,730 | |
Deferred compensation plan assets ($9,104 included in restricted cash and $101,070 in other assets) | 110,174 | | | 65,158 | | | — | | | 45,016 | |
Loans receivable ($46,444 included in investments in partially owned entities and $3,738 in other assets) | 50,182 | | | — | | | — | | | 50,182 | |
| Interest rate swaps (included in other assets) | 18,929 | | | — | | | 18,929 | | | — | |
| Total assets | $ | 187,015 | | | $ | 65,158 | | | $ | 18,929 | | | $ | 102,928 | |
| | | | | | | |
| Mandatorily redeemable instruments (included in other liabilities) | $ | 49,659 | | | $ | 49,659 | | | $ | — | | | $ | — | |
| Interest rate swaps (included in other liabilities) | 32,837 | | | — | | | 32,837 | | | — | |
| Total liabilities | $ | 82,496 | | | $ | 49,659 | | | $ | 32,837 | | | $ | — | |
________________________________________
(1) During the year ended December 31, 2022, we purchased $1,066,096 in U.S. Treasury bills with an aggregate par value of $1,077,000 and realized net proceeds of $600,000 from maturing U.S. Treasury bills. As of December 31, 2022, our investments in U.S. Treasury bills have an aggregate accreted cost of $473,171 and have remaining maturities of less than one year.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Fair Value Measurements - continued
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
Deferred Compensation Plan Assets
Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties. We receive quarterly financial reports that provide net asset values on a fair value basis from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund. The period of time over which these underlying assets are expected to be liquidated is unknown. The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements.
The table below summarizes the changes in the fair value of deferred compensation plan assets that are classified as Level 3.
| | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 |
| Beginning balance | $ | 45,016 | | | $ | 39,928 | |
| Purchases | 4,507 | | | 5,705 | |
| Sales | (9,941) | | | (4,766) | |
| Realized and unrealized (losses) gains | (3,781) | | | 2,250 | |
| Other, net | 3,115 | | | 1,899 | |
| Ending balance | $ | 38,916 | | | $ | 45,016 | |
Loans Receivable
Loans receivable consist of loan investments in real estate related assets for which we have elected the fair value option under ASC 825-10. These investments are classified as Level 3.
Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, current and anticipated market conditions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these loans receivable.
| | | | | | | | | | | | | | | |
| As of December 31, | | |
| Unobservable Quantitative Input | 2022 | | 2021 | | | | |
| Discount rates | 7.5% | | 6.5% | | | | |
| Terminal capitalization rates | 5.5% | | 5.0% | | | | |
The table below summarizes the changes in fair value of loans receivable that are classified as Level 3.
| | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, |
| (Amounts in thousands) | | | 2022 | | 2021 |
| Beginning balance | | | $ | 50,182 | | | $ | 47,743 | |
| | | | | |
| Interest accrual | | | 4,748 | | | 3,714 | |
| Paydowns | | | (533) | | | (1,275) | |
| Ending balance | | | $ | 54,397 | | | $ | 50,182 | |
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Fair Value Measurements - continued
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
Derivatives and Hedging
We recognize the fair values of all derivatives in "other assets" or "other liabilities" on our consolidated balance sheets. Derivatives that are not hedges are adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. Reported net income and equity may increase or decrease prospectively, depending on future levels of interest rates and other variables affecting the fair values of hedging instruments and hedged items, but will have no effect on cash flows.
The following table summarizes our consolidated hedging instruments, all of which hedge variable rate debt, as of December 31, 2022 and 2021, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | | Fair Value
Asset (Liability) as of | | |
| | December 31, | | As of December 31, 2022 |
| | 2022 | | 2021 | | Notional Amount | | All-In Swapped Rate | | Swap Expiration Date |
| Interest Rate Swaps: | | | | | | | | | | |
| 555 California Street mortgage loan | | $ | 49,888 | | | $ | 11,814 | | | $ | 840,000 | | (1) | 2.26% | | 05/24 |
| 770 Broadway mortgage loan | | 29,226 | | | — | | | 700,000 | | | 4.98% | | 07/27 |
| PENN 11 mortgage loan | | 26,587 | | | 6,565 | | | 500,000 | | | 2.22% | | 03/24 |
| Unsecured revolving credit facility | | 24,457 | | | — | | | 575,000 | | | 3.88% | | 08/27 |
| Unsecured term loan | | 14,694 | | | (28,976) | | | 800,000 | | | 4.05% | | (2) |
| 100 West 33rd Street mortgage loan | | 6,886 | | | — | | | 480,000 | | | 5.06% | | 06/27 |
| 888 Seventh Avenue mortgage loan | | 6,544 | | | — | | | 200,000 | | (3) | 4.76% | | 09/27 |
| Unsecured term loan (effective October 2023) | | 6,330 | | | — | | | 500,000 | | | 4.39% | | 10/26 |
| 4 Union Square South mortgage loan | | 4,050 | | | (3,861) | | | 100,000 | | (4) | 3.74% | | 01/25 |
| Interest Rate Caps: | | | | | | | | | | |
| 1290 Avenue of the Americas mortgage loan | | 7,590 | | | 411 | | | 950,000 | | | (5) | | 11/23 |
| One Park Avenue mortgage loan | | 5,472 | | | — | | | 525,000 | | | (6) | | 03/24 |
| Various mortgage loans | | 2,080 | | | 139 | | | | | | | |
| | | | | | | | | | |
| Included in other assets | | $ | 183,804 | | | $ | 18,929 | | | | | | | |
| Included in other liabilities | | $ | — | | | $ | 32,837 | | | | | | | |
________________________________________
(1)Represents our 70.0% share of the $1.2 billion mortgage loan.
(2)Comprised of a $750,000 interest rate swap arrangement expiring October 2023 and a $50,000 interest rate swap arrangement expiring August 2027.
(3)The remaining $77,800 amortizing mortgage loan balance bears interest at a floating rate of SOFR plus 1.80% (5.92% as of December 31, 2022).
(4)Upon the sale of 33-00 Northern Boulevard in June 2022, the $100,000 corporate-level interest rate swap was reallocated and now hedges the interest rate on $100,000 of the 4 Union Square South mortgage loan through January 2025. The remaining $20,000 mortgage loan balance bears interest at a floating rate of SOFR plus 1.50% (5.62% as of December 31, 2022).
(5)LIBOR cap strike rate of 4.00%.
(6)SOFR cap strike rate of 4.39%. In December 2022, we entered into a forward cap for the $525,000 One Park Avenue mortgage loan effective upon the March 2023 expiration of the existing cap. The forward cap has a SOFR strike rate of 3.89% and expires in March 2024.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Fair Value Measurements - continued
Fair Value Measurements on a Nonrecurring Basis
As of December 31, 2022, we had assets measured at fair value on a nonrecurring basis on our consolidated balance sheets with an aggregate fair value of $2,352,328,000, representing real estate investments, including our investment in Fifth Avenue and Times Square JV as well as wholly owned street retail assets, that have been written down to estimated fair value for impairment purposes. These investments are classified as Level 3. Our estimate of the fair value of these assets was measured using discounted cash flow analyses based upon market conditions and expectations of growth and utilized unobservable quantitative inputs including capitalization rates and discount rates. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these real estate assets.
| | | | | | | | | | | |
| December 31, 2022 |
| Unobservable Quantitative Input | Range | | Weighted Average
(based on fair value of investments) |
| Discount rates | 7.50% - 8.00% | | 7.52% |
| Terminal capitalization rates | 4.75% - 5.50% | | 4.78% |
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), and our secured and unsecured debt. Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value of cash equivalents and borrowings under our unsecured revolving credit facilities and unsecured term loan are classified as Level 1. The fair value of our secured debt and unsecured debt are classified as Level 2. The table below summarizes the carrying amounts and fair value of these financial instruments.
| | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | As of December 31, 2022 | | As of December 31, 2021 |
| | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| Cash equivalents | $ | 402,903 | | | $ | 403,000 | | | $ | 1,346,684 | | | $ | 1,347,000 | |
| Debt: | | | | | | | |
| Mortgages payable | $ | 5,877,615 | | | $ | 5,697,000 | | | $ | 6,099,215 | | | $ | 6,052,000 | |
| Senior unsecured notes | 1,200,000 | | | 1,021,000 | | | 1,200,000 | | | 1,230,000 | |
| Unsecured term loan | 800,000 | | | 800,000 | | | 800,000 | | | 800,000 | |
| Unsecured revolving credit facilities | 575,000 | | | 575,000 | | | 575,000 | | | 575,000 | |
| Total | $ | 8,452,615 | | (1) | $ | 8,093,000 | | | $ | 8,674,215 | | (1) | $ | 8,657,000 | |
________________________________________
(1)Excludes $63,572 and $58,268 of deferred financing costs, net and other as of December 31, 2022 and 2021, respectively.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Stock-based Compensation
Vornado's 2019 Omnibus Share Plan (the “Plan") provides the Compensation Committee of Vornado's Board of Trustees (the "Committee") the ability to grant incentive and nonqualified Vornado stock options, restricted stock, restricted Operating Partnership units ("OP units"), out-performance plan awards ("OPPs"), appreciation-only long-term incentive plan units (“AO LTIP Units”), performance conditioned appreciation-only long-term incentive plan units ("Performance Conditioned AO LTIP Units") and long-term performance plan LTIP units ("LTPP Units") to certain of our employees and officers. Awards may be granted up to a maximum 5,500,000 shares, if all awards granted are Full Value awards, as defined in the Plan, and up to 11,000,000 shares, if all of the awards granted are Not Full Value Awards, as defined in the Plan. Full Value Awards are awards of securities, such as restricted shares, that, if all vesting requirements are met, do not require the payment of an exercise price or strike price to acquire the securities. Not Full Value Awards are awards of securities, such as options, that do require the payment of an exercise price or strike price. As of December 31, 2022, Vornado has approximately 2,803,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined.
We account for all equity-based compensation in accordance with ASC Topic 718, Compensation - Stock Compensation. Below is a summary of our stock-based compensation expense, a component of "general and administrative" expense on our consolidated statements of income.
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| OP Units | $ | 21,086 | | | $ | 27,698 | | | $ | 33,431 | |
| LTPP Units | 5,145 | | | — | | | — | |
| OPPs | 1,906 | | | 8,629 | | | 9,579 | |
| AO LTIP Units | 430 | | | 877 | | | 3,955 | |
| Vornado stock options | 296 | | | 456 | | | 656 | |
| Vornado restricted stock | 292 | | | 450 | | | 649 | |
| Performance Conditioned AO LTIP Units | 94 | | | 219 | | | 407 | |
| $ | 29,249 | | | $ | 38,329 | | | $ | 48,677 | |
Below is a summary of unrecognized compensation expense for the year ended December 31, 2022.
| | | | | | | | | | | |
| (Amounts in thousands) | As of
December 31, 2022 | | Weighted-Average
Remaining Contractual Term |
| OP Units | $ | 7,834 | | | 1.4 |
| OPPs | 3,198 | | | 1.6 |
| LTPP Units | 2,702 | | | 1.8 |
| Vornado stock options | 175 | | | 1.0 |
| Vornado restricted stock | 172 | | | 1.0 |
| AO LTIP Units | 131 | | | 1.0 |
| | | |
| $ | 14,212 | | | 1.5 |
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Stock-based Compensation - continued
LTPP Units
On January 12, 2022, the Committee approved the 2022 LTPP, a multi-year, LTIP units-based performance equity compensation plan. Awards under the 2022 LTPP are bifurcated between operational performance (50%) and relative performance (50%) measurements and may be earned at specified threshold, target and maximum levels.
The operational component awards may be earned based on Vornado’s 2022 operational performance in the following categories:
• FFO, as adjusted per share (75% weighting); and
• ESG performance metrics consisting of greenhouse emissions reductions, Global Real Estate Sustainability Benchmark ("GRESB") score and Green Building Certification (LEED) achievements (aggregate 25% weighting).
Any LTTP award units tentatively earned based on Vornado’s 2022 operational performance are subject to an absolute return modifier pursuant to which such award units are subject to a potential reduction (but not increase) of up to 30% if Vornado’s aggregate total three-year shareholder return (“TSR”) for 2022-2025 is below specified levels.
Awards under relative components may be earned based on Vornado’s three-year TSR, measured against the Dow Jones U.S. Real Estate Office Index (50% weighting) and a Northeast peer group custom index (50% weighting). Awards earned under the relative component of the LTPP are subject to reductions of up to 30% if Vornado’s three-year TSR is below specified levels.
If the designated performance objectives are achieved, awards earned under 2022 LTPP will vest 50% in January 2025 and 50% in January 2026. In addition, the Chief Executive Officer is required to hold any earned and vested awards for three years following each such vesting date and all other award recipients are required to hold such awards for one year following each such vesting date. Dividends on awards granted under the 2022 LTPP accrue during the applicable performance period and are paid to participants if awards are ultimately earned based on the achievement of the designated performance objectives. LTPP Units, if earned, become convertible into Class A units of the Operating Partnership (and ultimately into Vornado common shares) following vesting.
LTPP Units granted during the year ended December 31, 2022 had a total notional value of $17,025,000 and a fair value of $7,847,000, of which $4,033,000 was immediately expensed on the respective grant date due to acceleration of vesting for employees who are retirement eligible (have reached age 65 or age 60 with at least 20 years of service).
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Stock-based Compensation – continued
OPPs
OPPs are multi-year, performance-based equity compensation plans under which participants have the opportunity to earn a class of units (“OPP units”) of the Operating Partnership if, and only if, Vornado outperforms a predetermined total shareholder return (“TSR”) and/or outperforms the market with respect to a relative TSR during the three-year or four-year performance period. OPP units, if earned, become convertible into Class A units of the Operating Partnership (and ultimately into Vornado common shares) following vesting.
Below is the summary of the OPP units granted during the years December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Plan Year | | Total Plan
Notional Amount | | Percentage of Notional
Amount Granted | | Grant Date Fair Value(1) | | OPP Units Earned |
| 2021 | | $ | 30,000,000 | | | 99.1 | % | | $ | 9,950,000 | | | To be determined in 2025 |
| 2020 | | 35,000,000 | | | 94.0 | % | | 11,700,000 | | | To be determined in 2023 |
| | | | | | | | |
________________________________________
(1) During the years ended December 31, 2021 and 2020 $6,140,000 and $7,583,000, respectively, was immediately expensed on the respective grant date due to acceleration of vesting for employees who are retirement eligible (have reached age 65 or age 60 with at least 20 years of service).
Vornado Stock Options
Vornado stock options are granted at an exercise price equal to the average of the high and low market price of Vornado’s common shares on the NYSE on the date of grant, generally vest over four years and expire ten years from the date of grant. Compensation expense related to Vornado stock option awards is recognized on a straight-line basis over the vesting period.
Below is a summary of Vornado’s stock option activity for the year ended December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted-
Average
Exercise
Price | | Weighted-
Average
Remaining
Contractual
Term | | Aggregate
Intrinsic
Value |
| Outstanding as of December 31, 2021 | 191,933 | | | $ | 65.27 | | | | | |
| | | | | | | |
| Exercised | (197) | | | 36.72 | | | | | |
| Forfeited | (1,413) | | | 53.42 | | | | | |
| Expired | (13,618) | | | 65.86 | | | | | |
| Outstanding as of December 31, 2022 | 176,705 | | | $ | 65.35 | | | 4.99 | | $ | — | |
| Options exercisable as of December 31, 2022 | 140,031 | | | $ | 68.25 | | | 4.48 | | $ | — | |
There were no Vornado stock options granted during the years ended December 31, 2022 and 2021. The fair value of each option grant is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions for grants in the year ended December 31, 2020.
| | | | | | | | | |
| | | | | As of December 31, 2020 |
| | | | | |
| Expected volatility | | | | | 35% - 36% |
| Expected life | | | | | 5.0 years |
| Risk free interest rate | | | | | 0.57% - 1.76% |
| Expected dividend yield | | | | | 3.2% - 3.4% |
The weighted average grant date fair value per share for options granted during the year ended December 31, 2020 was $12.28. Cash received from option exercises for the years ended December 31, 2022, 2021 and 2020 was $7,000, $22,000 and $3,516,000, respectively. The total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $842, $5,500 and $859,000, respectively.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Stock-based Compensation – continued
Performance Conditioned AO LTIP Units
Performance Conditioned AO LTIP Units are AO LTIP Units that require the achievement of certain performance conditions by a specified date or they are forfeited. The performance-based condition is met if Vornado common shares trade at or above 110% of the grant price per share for any 20 consecutive days on or before the fourth anniversary following the date of grant. If the performance conditions are not met, the awards are forfeited. If the performance conditions are met, once vested, the awards may be converted into Class A Operating Partnership units in the same manner as AO LTIP Units until ten years from the date of grant. On January 14, 2023, the outstanding Performance AO LTIPs, which were issued in 2019, were forfeited as the performance conditions were not satisfied.
AO LTIP Units
AO LTIP Units are a class of partnership interests in the Operating Partnership that are intended to qualify as “profits interests” for federal income tax purposes and generally only allow the recipient to realize value to the extent the fair market value of a Vornado common share exceeds the threshold level set at the time the AO LTIP Units are granted, subject to any vesting conditions applicable to the award. The threshold level is intended to be equal to 100% of the then fair market value of a Vornado common share on the date of grant. The value of vested AO LTIP Units is realized through conversion of the AO LTIP Units into Class A Operating Partnership units. AO LTIP Units have a term of ten years from the grant date. Each holder will generally receive special income allocations in respect of an AO LTIP Unit equal to 10% (or such other percentage specified in the applicable award agreement) of the income allocated in respect of a Class A Unit. Upon conversion of AO LTIP Units to Class A Units, holders will be entitled to receive in respect of each such AO LTIP Unit, on a per unit basis, a special distribution equal to 10% (or such other percentage specified in the applicable award agreement) of the distributions received by a holder of an equivalent number of Class A Units during the period from the grant date of the AO LTIP Units through the date of conversion.
Below is a summary of AO LTIP Units activity for the year ended December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted-
Average
Exercise
Price | | Weighted-
Average
Remaining
Contractual
Term | | Aggregate
Intrinsic
Value |
| Outstanding as of December 31, 2021 | 567,739 | | | $ | 59.91 | | | | | |
| | | | | | | |
| | | | | | | |
| Forfeited | (886) | | | 54.16 | | | | | |
| Expired | (1,189) | | | 56.29 | | | | | |
| Outstanding as of December 31, 2022 | 565,664 | | | $ | 59.93 | | | 6.29 | | $ | — | |
| Options exercisable as of December 31, 2022 | 437,372 | | | $ | 61.39 | | | 6.12 | | $ | — | |
There were no AO LTIP Units granted during the years ended December 31, 2022 and 2021. AO LTIP Units granted during the year ended December 31, 2020 had a fair value of $4,319,000. The fair value of each AO LTIP Unit granted is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions for grants in the year ended December 31, 2020.
| | | | | | | | | |
| | | | | As of December 31, 2020 |
| | | | | |
| Expected volatility | | | | | 35% - 36% |
| Expected life | | | | | 5.0 years |
| Risk free interest rate | | | | | 0.57% - 1.76% |
| Expected dividend yield | | | | | 3.2% - 3.4% |
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Stock-based Compensation – continued
OP Units
OP Units are granted at the average of the high and low market price of Vornado’s common shares on the NYSE on the date of grant, vest ratably over four years and are subject to a taxable book-up event, as defined. Compensation expense related to OP Units is recognized ratably over the vesting period using a graded vesting attribution model. Distributions paid on unvested OP Units amounted to $2,197,000, $2,634,000 and $5,316,000 in the years ended December 31, 2022, 2021 and 2020, respectively.
Below is a summary of restricted OP unit activity for the year ended December 31, 2022.
| | | | | | | | | | | | | | |
| Unvested Units | | Units | | Weighted-Average
Grant-Date
Fair Value |
| Unvested as of December 31, 2021 | | 1,083,087 | | | $ | 53.99 | |
| Granted | | 501,169 | | | 30.82 | |
| Vested | | (597,292) | | | 42.12 | |
| Forfeited | | (1,048) | | | 44.25 | |
| | | | |
| Unvested as of December 31, 2022 | | 985,916 | | | 49.41 | |
OP Units granted in 2022, 2021 and 2020 had a fair value of $15,446,000, $26,194,000 and $18,013,000, respectively. The fair value of OP Units that vested during the years ended December 31, 2022, 2021 and 2020 was $25,158,000, $36,541,000 and $24,373,000, respectively
Vornado Restricted Stock
Vornado restricted stock awards are granted at the average of the high and low market price of Vornado’s common shares on the NYSE on the date of grant and generally vest over four years. Compensation expense related to Vornado’s restricted stock awards is recognized on a straight-line basis over the vesting period. Dividends paid on unvested Vornado restricted stock are charged directly to retained earnings and amounted to $18,000, $35,000 and $98,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
Below is a summary of Vornado’s restricted stock activity for the year ended December 31, 2022.
| | | | | | | | | | | | | | |
| Unvested Shares | | Shares | | Weighted-Average
Grant-Date
Fair Value |
| Unvested as of December 31, 2021 | | 15,774 | | | $ | 57.82 | |
| | | | |
| Vested | | (7,069) | | | 60.57 | |
| Forfeited | | (326) | | | 54.55 | |
| Unvested as of December 31, 2022 | | 8,379 | | | 55.64 | |
There were no Vornado restricted stock awards granted during the years ended December 31, 2022 and 2021. Vornado restricted stock awards granted in 2020 had a fair value of $853,000. The fair value of restricted stock that vested during the years ended December 31, 2022, 2021 and 2020 was $428,000, $567,000 and $602,000, respectively.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. Impairment losses, Transaction Related Costs and Other
The following table sets forth the details of impairment losses, transaction related costs and other:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Real estate impairment losses(1) | $ | 19,098 | | | $ | 7,880 | | | $ | 236,286 | |
| Transaction related costs and other | 12,624 | | | 5,935 | | | 8,001 | |
| 608 Fifth Avenue lease liability extinguishment gain | — | | | — | | | (70,260) | |
| $ | 31,722 | | | $ | 13,815 | | | $ | 174,027 | |
________________________________________(1)See Note 13 - Fair Value Measurements for additional information.
16. Interest and Other Investment Income (Loss), Net
The following table sets forth the details of interest and other investment income (loss), net:
| | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Interest on cash and cash equivalents and restricted cash | $ | 7,553 | | | $ | 284 | | | $ | 5,793 | | |
| Amortization of discount on investments in U.S. Treasury bills | 7,075 | | | — | | | — | | |
| Interest on loans receivable | 5,006 | | | 2,517 | | | 3,384 | | |
| Credit losses on loans receivable | — | | | — | | | (13,369) | | |
| Market-to-market decrease in the fair value of marketable security (sold on January 23, 2020) | — | | | — | | | (4,938) | | |
| | | | | | |
| Other, net | 235 | | | 1,811 | | | 3,631 | | |
| $ | 19,869 | | | $ | 4,612 | | | $ | (5,499) | | |
17. Interest and Debt Expense
The following table sets forth the details of interest and debt expense:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
Interest expense(1) | $ | 277,046 | | | $ | 249,169 | | | $ | 251,847 | |
| Amortization of Deferred Financing Fees | 21,804 | | | 20,247 | | | 18,460 | |
| Capitalized Interest & Debt Expense | (19,085) | | | (38,320) | | | (41,056) | |
| $ | 279,765 | | | $ | 231,096 | | | $ | 229,251 | |
________________________________________
(1)2021 includes $23,729 of defeasance costs, of which $7,119 is attributable to noncontrolling interests, in connection with the refinancing of 1290 Avenue of the Americas, a property in which we own a 70% controlling interest.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. (Loss) Income Per Share/(Loss) Income Per Class A Unit
Vornado Realty Trust
The following table presents the calculations of (i) basic (loss) income per common share which includes the weighted average number of common shares outstanding without regard to dilutive potential common shares and (ii) diluted (loss) income per common share which includes weighted average common shares outstanding and dilutive share equivalents. Unvested share-based payment awards that contain nonforfeitable rights to dividends, whether paid or unpaid, are accounted for as participating securities. Earnings are allocated to participating securities, which include restricted stock awards, based on the two-class method. Our share-based payment awards, including employee stock options, OP Units, OPPs, AO LTIP Units, Performance Conditioned AO LTIP Units and LTPP Units, are included in the calculation of diluted income per share using the treasury stock method if dilutive. Our convertible securities, including our Series A convertible preferred shares, Series G-1 through G-4 convertible preferred units and Series D-13 redeemable preferred units, are reflected in diluted income per share by application of the if-converted method if dilutive.
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per share amounts) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Numerator: | | | | | |
| | | | | |
| | | | | |
| Net (loss) income attributable to Vornado | $ | (346,499) | | | $ | 175,999 | | | $ | (297,005) | |
| Preferred share dividends | (62,116) | | | (65,880) | | | (51,739) | |
| Series K preferred share issuance costs | — | | | (9,033) | | | — | |
| Net (loss) income attributable to common shareholders | (408,615) | | | 101,086 | | | (348,744) | |
| Earnings allocated to unvested participating securities | (18) | | | (34) | | | (99) | |
| Numerator for basic (loss) income per share | $ | (408,633) | | | $ | 101,052 | | | $ | (348,843) | |
| | | | | |
| | | | | |
| | | | | |
| Denominator: | | | | | |
| Denominator for basic (loss) income per share – weighted average shares | 191,775 | | 191,551 | | 191,146 |
Effect of dilutive securities(1): | | | | | |
| Share-based payment awards | — | | | 571 | | | — | |
| | | | | |
| Denominator for diluted (loss) income per share – weighted average shares and assumed conversions | 191,775 | | 192,122 | | 191,146 |
| | | | | |
| (LOSS) INCOME PER COMMON SHARE - BASIC: | | | | | |
| | | | | |
| | | | | |
| Net (loss) income per common share | $ | (2.13) | | | $ | 0.53 | | | $ | (1.83) | |
| | | | | |
| (LOSS) INCOME PER COMMON SHARE - DILUTED: | | | | | |
| | | | | |
| | | | | |
| Net (loss) income per common share | $ | (2.13) | | | $ | 0.53 | | | $ | (1.83) | |
________________________________________
(1)The effect of dilutive securities excluded an aggregate of 16,252, 13,835 and 14,007 weighted average common share equivalents in the years ended December 31, 2022, 2021 and 2020, respectively, as their effect was anti-dilutive.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. (Loss) Income Per Share/(Loss) Income Per Class A Unit – continued
Vornado Realty L.P.
The following table presents the calculations of (i) basic (loss) income per Class A unit which includes the weighted average number of Class A units outstanding without regard to dilutive potential Class A units and (ii) diluted (loss) income per Class A unit which includes the weighted average Class A units outstanding and dilutive Class A unit equivalents. Unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are accounted for as participating securities. Earnings are allocated to participating securities, which include Vornado restricted stock awards and our OP Units, based on the two-class method. Our other share-based payment awards, including Vornado stock options, OPPs, AO LTIP Units, Performance Conditioned AO LTIP Units and LTPP Units, are included in the calculation of diluted income per Class A unit using the treasury stock method if dilutive. Our convertible securities, including our Series A convertible preferred units, Series G-1 through G-4 convertible preferred units and Series D-13 redeemable preferred units, are reflected in diluted income per Class A unit by application of the if-converted method if dilutive.
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per unit amounts) | For the Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Numerator: | | | | | |
| | | | | |
| | | | | |
| Net (loss) income attributable to Vornado Realty L.P. | $ | (376,875) | | | $ | 183,539 | | | $ | (321,951) | |
| Preferred unit distributions | (62,231) | | | (66,035) | | | (51,904) | |
| Series K preferred unit issuance costs | — | | | (9,033) | | | — | |
| Net (loss) income attributable to Class A unitholders | (439,106) | | | 108,471 | | | (373,855) | |
| Earnings allocated to unvested participating securities | (2,215) | | | (2,668) | | | (5,417) | |
| Numerator for basic (loss) income per Class A unit | $ | (441,321) | | | $ | 105,803 | | | $ | (379,272) | |
| | | | | |
| | | | | |
| | | | | |
| Denominator: | | | | | |
| Denominator for basic (loss) income per Class A unit – weighted average units | 205,315 | | | 204,728 | | | 203,503 | |
Effect of dilutive securities(1): | | | | | |
| Share-based payment awards | — | | | 916 | | | — | |
| | | | | |
| Denominator for diluted (loss) income per Class A unit – weighted average units and assumed conversions | 205,315 | | | 205,644 | | | 203,503 | |
| | | | | |
| (LOSS) INCOME PER CLASS A UNIT - BASIC: | | | | | |
| | | | | |
| | | | | |
| Net (loss) income per Class A unit | $ | (2.15) | | | $ | 0.52 | | | $ | (1.86) | |
| | | | | |
| (LOSS) INCOME PER CLASS A UNIT - DILUTED: | | | | | |
| | | | | |
| | | | | |
| Net (loss) income per Class A unit | $ | (2.15) | | | $ | 0.51 | | | $ | (1.86) | |
________________________________________
(1)The effect of dilutive securities excluded an aggregate of 2,712, 313 and 1,650 weighted average Class A unit equivalents for the years ended December 31, 2022, 2021 and 2020, respectively, as their effect was anti-dilutive.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. Leases
As lessor
We lease space to tenants under operating leases. Most of the leases provide for the payment of fixed base rent payable monthly in advance. Leases typically provide for periodic step‑ups in rent over the term of the lease and pass through to tenants their share of increases in real estate taxes and operating expenses over a base year. Certain leases also require additional variable rent payments based on a percentage of the tenants’ sales. Electricity is provided to tenants on a sub-metered basis or included in rent based on surveys and adjusted for subsequent utility rate increases. Leases also typically provide for free rent and tenant improvement allowances for all or a portion of the tenant’s initial construction costs of its premises.
As of December 31, 2022, future undiscounted cash flows under non-cancelable operating leases were as follows:
| | | | | |
| (Amounts in thousands) | As of December 31, 2022 |
| For the year ended December 31, | |
| 2023 | $ | 1,304,777 | |
| 2024 | 1,200,544 | |
| 2025 | 1,102,476 | |
| 2026 | 1,053,948 | |
| 2027 | 950,515 | |
| Thereafter | 6,515,202 | |
As lessee
We have a number of ground leases which are classified as operating leases. As of December 31, 2022, our ROU assets and lease liabilities were $684,380,000 and $735,969,000, respectively. As of December 31, 2021, our ROU assets and lease liabilities were $337,197,000 and $370,206,000, respectively.
In January 2022, we exercised a 25-year renewal option on our PENN 1 ground lease extending the term through June 2073. As a result of the exercise, we remeasured the related ground lease liability to include our 25-year extension option and recorded an estimated incremental right-of-use asset and lease liability of approximately $350,000,000 which is included in "right-of-use assets" and "lease liabilities", respectively, on our consolidated balance sheets. The ground lease is subject to fair market value resets every 25 years over the lease term, with the next reset occurring in June 2023.
When the rate implicit in a lease is not readily determinable, the discount rate applied to measure each ROU asset and lease liability is based on our incremental borrowing rate ("IBR"). We consider the general economic environment and our credit rating and factor in various financing and asset specific adjustments to ensure the IBR is appropriate to the intended use of the underlying lease. Certain of our ground leases offer renewal options which we assess against relevant economic factors to determine whether we are reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that we are reasonably certain will be exercised are included in the measurement of the lease liability and corresponding ROU asset.
Certain of our ground leases are subject to fair market rent resets based on a percentage of the appraised value of the underlying assets at specified future dates. Fair market rent resets occurring during the lease term do not give rise to remeasurement of the related ROU assets and lease liabilities. Fair market rent resets occurring during the lease term, which may be material, will be recognized in the periods in which they are incurred as variable rent expense.
The following table sets forth information related to the measurement of our lease liabilities as of December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Weighted average remaining lease term (in years) | 48.4 | | 44.4 | | 44.8 |
| Weighted average discount rate | 5.54 | % | | 4.85 | % | | 4.91 | % |
| Cash paid for operating leases | $ | 21,861 | | | $ | 22,382 | | | $ | 23,932 | |
We recognize rent expense as a component of "operating" expenses on our consolidated statements of income. Rent expense is comprised of fixed and variable lease payments. The following table sets forth the details of rent expense for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Fixed rent expense | $ | 45,211 | | | $ | 24,901 | | | $ | 28,503 | |
| Variable rent expense | 14,180 | | | 13,078 | | | 1,178 | |
| Rent expense | $ | 59,391 | | | $ | 37,979 | | | $ | 29,681 | |
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. Leases - continued
As lessee - continued
As of December 31, 2022, future lease payments under operating ground leases were as follows:
| | | | | |
| (Amounts in thousands) | As of December 31, 2022 |
| For the year ended December 31, | |
| 2023 | $ | 34,782 | |
| 2024 | 46,859 | |
| 2025 | 47,227 | |
| 2026 | 47,616 | |
| 2027 | 48,027 | |
| Thereafter | 1,949,551 | |
| Total undiscounted cash flows | 2,174,062 | |
| Present value discount | (1,438,093) | |
Lease liabilities | $ | 735,969 | |
The Farley Building
The future lease payments detailed above exclude the ground and building lease at The Farley Building. The consolidated joint venture, in which we own a 95% controlling interest, has a 99-year triple-net lease with Empire State Development ("ESD") for 846,000 rentable square feet of commercial space at the property, comprised of approximately 730,000 square feet of office space and approximately 116,000 square feet of restaurant and retail space. Our lease of the commercial space at the property is accounted for as a “failed sale-leaseback” as a result of us being deemed the "accounting owner" during development of the property in accordance with ASC 842-40-55 and the lease subsequently meeting "finance lease" classification pursuant to ASC 842-40-25 upon substantial completion. The lease calls for annual rent payments and fixed payments in lieu of real estate taxes ("PILOT") through June 2030. Following the fixed PILOT payment period, the PILOT is calculated in a manner consistent with buildings subject to New York City real estate taxes and assessments. As of December 31, 2022, future rent and fixed PILOT payments are $535,188,000.
20. Multiemployer Benefit Plans
Our subsidiaries make contributions to certain multiemployer defined benefit plans (“Multiemployer Pension Plans”) and health plans (“Multiemployer Health Plans”) for our union represented employees, pursuant to the respective collective bargaining agreements.
Multiemployer Pension Plans
Multiemployer Pension Plans differ from single-employer pension plans in that (i) contributions to multiemployer plans may be used to provide benefits to employees of other participating employers and (ii) if other participating employers fail to make their contributions, each of our participating subsidiaries may be required to bear its then pro rata share of unfunded obligations. If a participating subsidiary withdraws from a plan in which it participates, it may be subject to a withdrawal liability. As of December 31, 2022, our subsidiaries’ participation in these plans was not significant to our consolidated financial statements.
In the years ended December 31, 2022, 2021 and 2020, we contributed $7,761,000, $19,851,000 and $7,049,000, respectively, towards Multiemployer Pension Plans, which is included as a component of “operating” expenses on our consolidated statements of income. During the year ended December 31, 2021, the Company funded its pension withdrawal liability in relation to the permanent closure of Hotel Pennsylvania which resulted in the Company funding more than 5% of total employer contributions to the related plan for the year. For our other Multiemployer Pension Plans, our subsidiaries’ contributions did not represent more than 5% of total employer contributions for the years ended December 31, 2022, 2021 and 2020.
Multiemployer Health Plans
Multiemployer Health Plans in which our subsidiaries participate provide health benefits to eligible active and retired employees. In the years ended December 31, 2022, 2021 and 2020, our subsidiaries contributed $26,514,000, $23,431,000 and $26,938,000, respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of income.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. Commitments and Contingencies
Insurance
For our properties, we maintain general liability insurance with limits of $300,000,000 per occurrence and per property, of which $250,000,000 includes communicable disease coverage, and we maintain all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake, excluding communicable disease coverage. Our California properties have earthquake insurance with coverage of $350,000,000 per occurrence and in the aggregate, subject to a deductible in the amount of 5% of the value of the affected property. We maintain coverage for certified terrorism acts with limits of $6.0 billion per occurrence and in the aggregate (as listed below), $1.2 billion for non-certified acts of terrorism, and $5.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by the Terrorism Risk Insurance Act of 2002, as amended to date and which has been extended through December 2027.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $1,774,525 and 20% of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC.
Certain condominiums in which we own an interest (including the Farley Condominiums) maintain insurance policies with different per occurrence and aggregate limits than our policies described above.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism and other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material.
Our debt instruments, consisting of mortgage loans secured by our properties, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance or refinance our properties and expand our portfolio.
Other Commitments and Contingencies
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not currently expected to have a material adverse effect on our financial position, results of operations or cash flows.
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
In July 2018, we leased 78,000 square feet at 345 Montgomery Street in San Francisco, CA, to a subsidiary of Regus PLC, for an initial term of 15 years. The obligations under the lease were guaranteed by Regus PLC in an amount of up to $90,000,000. The tenant purported to terminate the lease prior to space delivery. We commenced a suit on October 23, 2019 seeking to enforce the lease and the guaranty. On May 11, 2021, the court issued a final statement of decision in our favor and on January 31, 2023, the Court of Appeal affirmed the lower court’s decision. On October 9, 2020, the successor to Regus PLC filed for bankruptcy in Luxembourg. We are actively pursuing claims relating to the guaranty against the successor to Regus PLC and its parent in Luxembourg and other jurisdictions.
Our mortgage loans are non-recourse to us, except for the mortgage loans secured by 640 Fifth Avenue, 7 West 34th Street and 435 Seventh Avenue, which we guaranteed and therefore are part of our tax basis. In certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. In addition, we have guaranteed the rent and payments in lieu of real estate taxes due to ESD, an entity of New York State, for The Farley Building. As of December 31, 2022, the aggregate dollar amount of these guarantees and master leases is approximately $1,553,000,000.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. Commitments and Contingencies – continued
Other Commitments and Contingencies - continued
As of December 31, 2022, $15,273,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities. Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB- (our current ratings). Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.
Our 95% consolidated joint venture (5% is owned by Related Companies ("Related")) is completing the development of The Farley Building. In connection with the development of the property, the joint venture admitted a historic Tax Credit Investor partner. Under the terms of the historic tax credit arrangement, the joint venture is required to comply with various laws, regulations, and contractual provisions. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, may require a refund or reduction of the Tax Credit Investor’s capital contributions. As of December 31, 2022, the Tax Credit Investor has made $92,400,000 in capital contributions. Vornado and Related have guaranteed certain of the joint venture’s obligations to the Tax Credit Investor.
As investment manager of the Fund we are entitled to an incentive allocation after the limited partners have received a preferred return on their invested capital. The incentive allocation is subject to catch-up and clawback provisions. Accordingly, based on the December 31, 2022 fair value of the Fund assets, at liquidation we would be required to make a $26,400,000 payment to the limited partners, net of amounts owed to us, representing a clawback of previously paid incentive allocations, which would have no income statement impact as it was previously accrued.
As of December 31, 2022, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $10,300,000.
As of December 31, 2022, we have construction commitments aggregating approximately $409,000,000.
22. Related Party Transactions
Alexander’s, Inc.
We own 32.4% of Alexander’s. Steven Roth, the Chairman of Vornado’s Board of Trustee’s and its Chief Executive Officer, is also the Chairman of the Board of Directors and Chief Executive Officer of Alexander’s. We provide various services to Alexander’s in accordance with management, development and leasing agreements. These agreements are described in Note 5 - Investments in Partially Owned Entities.
Interstate Properties (“Interstate”)
Interstate is a general partnership in which Mr. Roth is the managing general partner. David Mandelbaum and Russell B. Wight, Jr., Trustees of Vornado and Directors of Alexander’s, respectively, are Interstate’s two other general partners. As of December 31, 2022, Interstate and its partners beneficially owned an aggregate of approximately 7.0% of the common shares of beneficial interest of Vornado and 26.0% of Alexander’s common stock.
We manage and lease the real estate assets of Interstate pursuant to a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent. The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term. We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are consistent with the market. We earned $204,000, $203,000, and $203,000 of management fees under the agreement for the years ended December 31, 2022, 2021 and 2020, respectively.
Fifth Avenue and Times Square JV
We provide various services to Fifth Avenue and Times Square JV in accordance with management, development, leasing and other agreements. These agreements are described in Note 5 - Investments in Partially Owned Entities. Haim Chera, Executive Vice President - Head of Retail, has an investment in Crown Acquisitions Inc. and Crown Retail Services LLC (collectively, "Crown"), companies controlled by Mr. Chera's family. Crown has a nominal minority interest in Fifth Avenue and Times Square JV. Additionally, we have other investments with Crown.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23. Segment Information
We operate in two reportable segments, New York and Other, which is based on how we manage our business.
Net operating income ("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. Asset information by segment is not reported as we do not use this measure to assess segment performance or to make resource allocation decisions.
Below is a summary of NOI at share and NOI at share - cash basis by segment for the years ended December 31, 2022, 2021 and 2020.
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, 2022 |
| Total | | New York | | Other |
| Total revenues | $ | 1,799,995 | | | $ | 1,449,442 | | | $ | 350,553 | |
| Operating expenses | (873,911) | | | (716,148) | | | (157,763) | |
| NOI - consolidated | 926,084 | | | 733,294 | | | 192,790 | |
| Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries | (70,029) | | | (45,566) | | | (24,463) | |
| Add: NOI from partially owned entities | 305,993 | | | 293,780 | | | 12,213 | |
| NOI at share | 1,162,048 | | | 981,508 | | | 180,540 | |
| Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other | (10,980) | | | (18,509) | | | 7,529 | |
| NOI at share - cash basis | $ | 1,151,068 | | | $ | 962,999 | | | $ | 188,069 | |
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, 2021 |
| Total | | New York | | Other |
| Total revenues | $ | 1,589,210 | | | $ | 1,257,599 | | | $ | 331,611 | |
| Operating expenses | (797,315) | | | (626,386) | | | (170,929) | |
| NOI - consolidated | 791,895 | | | 631,213 | | | 160,682 | |
| Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries | (69,385) | | | (38,980) | | | (30,405) | |
| Add: NOI from partially owned entities | 310,858 | | | 300,721 | | | 10,137 | |
| NOI at share | 1,033,368 | | | 892,954 | | | 140,414 | |
| Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other | 1,318 | | | (1,188) | | | 2,506 | |
| NOI at share - cash basis | $ | 1,034,686 | | | $ | 891,766 | | | $ | 142,920 | |
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, 2020 |
| Total | | New York | | Other |
| Total revenues | $ | 1,527,951 | | | $ | 1,221,748 | | | $ | 306,203 | |
| Operating expenses | (789,066) | | | (640,531) | | | (148,535) | |
| NOI - consolidated | 738,885 | | | 581,217 | | | 157,668 | |
| Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries | (72,801) | | | (43,773) | | | (29,028) | |
| Add: NOI from partially owned entities | 306,495 | | | 296,447 | | | 10,048 | |
| NOI at share | 972,579 | | | 833,891 | | | 138,688 | |
| Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other | 46,246 | | | 36,715 | | | 9,531 | |
| NOI at share - cash basis | $ | 1,018,825 | | | $ | 870,606 | | | $ | 148,219 | |
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23. Segment Information - continued
Below is a reconciliation of net (loss) income to NOI at share for the years ended December 31, 2022, 2021 and 2020.
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net (loss) income | $ | (382,612) | | | $ | 207,553 | | | $ | (461,845) | |
| Depreciation and amortization expense | 504,502 | | | 412,347 | | | 399,695 | |
| General and administrative expense | 133,731 | | | 134,545 | | | 181,509 | |
| Impairment losses, transaction related costs and other | 31,722 | | | 13,815 | | | 174,027 | |
| Loss (income) from partially owned entities | 461,351 | | | (130,517) | | | 329,112 | |
| (Income) loss from real estate fund investments | (3,541) | | | (11,066) | | | 226,327 | |
| Interest and other investment (income) loss, net | (19,869) | | | (4,612) | | | 5,499 | |
| Interest and debt expense | 279,765 | | | 231,096 | | | 229,251 | |
| | | | | |
| Net gains on disposition of wholly owned and partially owned assets | (100,625) | | | (50,770) | | | (381,320) | |
| Income tax expense (benefit) | 21,660 | | | (10,496) | | | 36,630 | |
| | | | | |
| NOI from partially owned entities | 305,993 | | | 310,858 | | | 306,495 | |
| NOI attributable to noncontrolling interests in consolidated subsidiaries | (70,029) | | | (69,385) | | | (72,801) | |
| NOI at share | 1,162,048 | | | 1,033,368 | | | 972,579 | |
| Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other | (10,980) | | | 1,318 | | | 46,246 | |
| NOI at share - cash basis | $ | 1,151,068 | | | $ | 1,034,686 | | | $ | 1,018,825 | |
24. Subsequent Events
150 West 34th Street Loan Participation
On January 9, 2023, our $105,000,000 participation in the $205,000,000 mortgage loan on 150 West 34th Street was repaid, which reduced “other assets” and “mortgages payable, net” on our consolidated balance sheets by $105,000,000 in the first quarter of 2023. 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 in May 2024.
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Subsequent Events - continued
350 Park Avenue
On January 24, 2023, we and the Rudin family (“Rudin”) completed agreements with Citadel Enterprise Americas LLC (“Citadel”) and with an affiliate of Kenneth C. Griffin, Citadel’s Founder and CEO (“KG”), for a series of transactions relating to 350 Park Avenue and 40 East 52nd Street.
Citadel will master lease 350 Park Avenue, a 585,000 square foot Manhattan 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 is being provided. Citadel will also master lease Rudin’s adjacent property at 40 East 52nd Street (390,000 square feet).
In addition, we have entered into a joint venture with Rudin (“Vornado/Rudin”) to purchase 39 East 51st Street for $40,000,000 and, upon formation of the KG joint venture described below, will combine that property with 350 Park Avenue and 40 East 52nd Street to create a premier development site (collectively, the “Site”).
From October 2024 to June 2030, KG will have the option to either:
•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 in New York City;
◦the rent for Citadel’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 $1.4 billion ($1.085 billion to Vornado and $315,000,000 to Rudin), in which case Vornado/Rudin would not participate in the new development.
Further, Vornado/Rudin will have the option from October 2024 to September 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.
2023 LTPP
On January 11, 2023, the Compensation Committee approved the 2023 Long-Term Performance Plan (“2023 LTPP”), a multi-year, LTIP units-based performance equity compensation plan. Awards under the 2023 LTPP are bifurcated between operational performance (50%) and relative performance (50%) measurements and may be earned at specified threshold, target and maximum levels.
The operational component awards may be earned based on Vornado’s 2023 operational performance in the following categories:
•FFO, as adjusted per share (75% weighting); and
•ESG performance metrics consisting of greenhouse emissions reductions, GRESB score and Green Building Certification (LEED) achievements (aggregate 25% weighting).
Any LTPP award units tentatively earned based on Vornado’s 2023 operational performance are subject to an absolute return modifier pursuant to which such award units are subject to a potential reduction (but not increase) of up to 30% if Vornado’s aggregate total three-year TSR is below specified levels.
Awards under relative components may be earned based on Vornado’s three-year TSR, measured against the Dow Jones U.S. Real Estate Office Index (50% weighting) and a Northeast peer group custom index (50% weighting). Awards earned under the relative component of the 2023 LTPP are subject to reductions of up to 30% if Vornado’s three-year TSR is below specified levels.
If the designated performance objectives are achieved, awards earned under 2023 LTPP will vest 50% in January 2026 and 50% in January 2027. In addition, the Chief Executive Officer is required to hold any earned and vested awards for three years following each such vesting date and all other award recipients are required to hold such awards for one year following each such vesting date. Dividends on awards granted under the 2023 LTPP accrue during the applicable performance period and are paid to participants if awards are ultimately earned based on the achievement of the designated performance objectives.
