Vornado Realty Trust’s massive retail deal earlier this month, with net proceeds of about $1.2 billion, adds to the firm’s cash haul from ongoing sales at 220 Central Park South. And the big question on investors’ minds is: What will they do with all of it?
The New York-based real estate investment trust hinted at some answers to that question in its first-quarter earnings call Tuesday morning. (Vornado actually released its report early yesterday “in error” because its service provider “pressed the wrong button,” according to CEO Steve Roth.)
A rendering of Penn Plaza
In addition to paying down existing debt and reserving a portion for a “likely” special capital gains dividend, Roth pointed to “enormously exciting things that we’re doing at Penn Plaza, which we are able to do entirely funded off balance sheet with no new debt.” He had previously said the company’s redevelopments in the area would need no or very little new financing.
“We do have dry powder to use as opportunities arise, and they will come,” Roth said during the Q&A portion of the call.
He then suggested that there may be more structural changes at the company. “The next thing is will we use some of our financial strength to do something in terms of reorganizing our basic corporate structure, and the answer is: that is not impossible either,” he said. When another caller asked for clarification of this point, Roth declined to elaborate.
Vornado had a busy start to 2019, with a significant leadership reshuffle in early April. Michael Franco was appointed the company’s president, while Glen Weiss and Barry Langer were promoted as co-heads of real estate, in addition to their prior roles as executive vice presidents of office leasing and development, respectively.
These internal promotions were followed by the hire of Crown Acquisitions’ Haim Chera, who also advised on the retail portfolio transaction.
“I’ve been trying to get him for years and years,” Roth said of Chera, whom he described as “a rainmaker” in the mold of previous Vornado hires such as Michael Fascitelli (former Vornado president and CEO) and Matt Kelly (CEO of Vornado spin-off JBG Smith).
“This is not a business that we’re exiting, we’re not afraid of it,” Roth said of the retail industry, which he noted presents great opportunity as it goes through a period of disruption. “We are running full tilt into the fire.”
The first retail fire on Vornado’s plate might be at 689 Fifth Avenue, part of its new joint venture portfolio, where Spanish retailer Massimo Dutti’s lease ends this summer.
Roth said there’s been “activity” on the property because of its location, but that the firm isn’t close to a deal.
“Pricing is not what it would have been three years ago, but our job is to be realistic and to hit the market price,” Roth said, adding that the store will likely go vacant before it’s filled.
For the overall business, Vornado reported adjusted earnings of $24.8 million or $0.13 per share for the quarter, down from $0.29 per share for the same period the year before.
“I think you can get from all of our remarks, with respect to stock price, with respect to our balance sheet, that we’re not done yet in terms of producing value,” Roth said at the end of the call.