Vector slashes dividends as Elliman’s net income drops over 80%

UPDATED Wednesday Nov. 6, 2019, 1:02 p.m.: Douglas Elliman’s net income plummeted last quarter and its parent company plans to cut back on payouts to investors.

Vector Group will halve its quarterly cash dividend to $0.20 per share starting in the first quarter of 2020 and will no longer pay an annual dividend, CEO Howard Lorber announced Tuesday. He confirmed that investors would receive a dividend of $0.40 per share for the third and fourth quarters.

“The reduced dividend will strengthen the company’s balance sheet and help it maintain its liquidity,” Lorber said on an earnings call.

He added that “hopefully” the cut will “lower the cost of borrowing” leading up to Vector’s April 2020 deadline to repay $232 million in 5.5 percent variable-interest senior convertible notes.

In last year’s annual filings Vector forecasted that 2019 would have “significant liquidity commitments” including outstanding convertible notes and $240 million in dividends. If there wasn’t enough cash on hand, the company had said it would extend its subsidiaries’ credit facilities and liquidate other investments. Vector extended two of its companies’ credit to $60 million on Nov. 1.

The move comes as Elliman reported a net income of $1.9 million for the third quarter, down from $10 million in the same period last year — a stunning 81 percent drop. The brokerage’s quarterly revenue fell by $10.3 million to $201.2 million.

Vector’s CFO J. Bryant Kirkland III said that was “because we’ve made investments in other markets.” In August, Elliman opened a Texas outpost.

Vector reported a slight decrease in quarterly revenue to $504.8 million from Q3 in 2018, but its net income for the quarter soared to $36 million from $12 million in the third quarter of last year.

Elliman’s third quarter results came on the heels of a banner second quarter. The firm had reported an 18 percent increase in revenue following a flurry of high-end sales in New York City before new closing taxes went into effect on July 1.

Lorber noted that when considering the nine months ended Sept. 30, the brokerage’s “adjusted EBITDA” (earnings before interest, taxes, depreciation and amortization, but with other expenses excluded at the company’s discretion) was at the same point as it was last year.

But that’s not necessarily a bellwether for success. In 2018, Elliman’s adjusted EBITDA for the full year was $11.3 million, down from $26.1 million. And the brokerage’s profits plunged by a staggering 75 percent even as revenue grew by 4.4 percent to $754.1 million. Lorber began the year promising “substantial” cost-savings in payroll and office consolidation.

On Tuesday’s call Lorber promised Elliman’s business would turn around, provided there are no further legislative changes.

“Look, I think we’ve somewhat survived,” he said, pointing to the loss of the SALT deduction in 2018, the mansion and transfer taxes introduced by New York State this year and sweeping changes in June to the state’s rent law. “And if nothing else happens, with some cost cutting and so forth, we’re going to be more profitable going forward.”

Editor’s note: The story was updated to note Vector committed to paying a cash dividend of $0.40 per share for the third and fourth quarters of 2019. The reduced quarterly dividend goes into effect in 2020.

Write to Erin Hudson at ekh@therealdeal.com