Bruised from Q3, Vornado to slim down further

From left: 220 Central Park South, Steven Roth and Hotel Pennsylvania
From left: 220 Central Park South, Steven Roth and Hotel Pennsylvania

UPDATED: 11:52 a.m., Nov. 6: Vornado Realty Trust is moving ahead with plans to reposition and renovate its Hotel Pennsylvania in Midtown, and intends to spend up to $300 million on the project, CEO Steven Roth said during the company’s third-quarter earnings call.

Yet overall, the REIT is banking on “simplifying, pruning and focusing the business,” Roth said. “The only market that is giving us heartburn is the acquisitions market for assets that we want to buy … so we are proceeding with great caution.”

The REIT had a rough third quarter, with profits dropping 57 percent to $104.3 million from $241.3 million. Revenues were down to $683.4 million from $703 million in the third quarter of 2012, representing a 2.8 percent decrease year-over-year. Adjusted funds from operations, however, beat analysts’ expectations, rising to $1.27 per share from $1.03 a year ago.

On the bright side, Vornado finally acquired a residential site at 220 Central Park South, where the REIT plans to build a 920-foot-high condominium tower designed by Robert A.M. Stern. Last month, Vornado settled litigation with Gary Barnett’s Extell Development over the site, and Roth said today that the planned 472,000-square-foot tower would have 140 feet of unobstructed Central Park views.

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“It took almost eight years to complete the assemblage, but it was certainly worth the time,” Roth said.

The REIT clinched several big-ticket acquisitions this past quarter, such as the 20.1 percent stake in the 27-story, 600,427-square-foot office and retail tower at 650 Madison Avenue and the $277.5 million it paid for a 92.5 percent interest in a 57,500-square-foot retail and office property at 655 Fifth Avenue.

On the Manhattan leasing front, the REIT signed 37 deals totaling 396,000 square feet of space in the third quarter, compared to 45 leases totaling 546,000 square feet the previous quarter, as The Real Deal reported. Total leasing activity in Manhattan year-to-date was 1.85 million square feet, according to David Greenbaum, Vornado’s head of New York operations, who noted that about a quarter of these tenants were either new or had opted to expand their space.

The REIT had a good quarter in the high-end leasing market, Greenbaum noted. Indeed, out of 50 Manhattan leases that were signed for triple-digit rents, six were in Vornado-owned buildings, he said.