Vornado Reports Strong Office Leasing as NYU Master Leases 770 Broadway

Steven Roth’s Vornado Real Estate reported lower cash flow in the third quarter of 2024 than it generated in the previous year’s third quarter, but the real estate investment trust emphasized its improving office leasing numbers — with New York University agreeing to master lease 1.1 million-square-feet at 770 Broadway —  with high rents as it winds down the year. 

During Tuesday’s third quarter earnings call, Vornado reported funds from operations reached $99.25 million in the third quarter of 2024, down from $119.48 in the previous year’s third quarter. Moreover, funds from operations for the first nine months of the year hit $352.9 million, down from $382.5 million compared to the first nine months of 2023. 

The firm’s dividend to shareholders in the third quarter ended at 0.52 cents per diluted share, less than 0.66 cents per diluted share in the third quarter of 2023. 

Roth struck a confident and defiant tone when reporting the firm’s financials, and said that Vornado expects to pay a dividend of 0.68 cents per share to shareholders at the end of the year in order to conserve cash. 

In 2023, Vornado suspended dividend payments beginning in April of that year. 

“While our business is financially better and improving, we’ll continue to be rigorous with cash management,” he said. “This strategy has been understood and is endorsed by our major shareholders. I expect as conditions normalize, so will our dividend.”  

Vornado president and chief financial officer Michael J. Franco said that the quarter’s financial results were expected to be down from the previous year due to “items previously forecasted,” notably recent vacancies at several Manhattan office properties.  

“This decrease was primarily attributable to lower [net-operating income] from known move-outs, largely at 770 Broadway, 1290 Avenue of the Americas, 280 Park Avenue, and higher net interest expenses, both of which we have previously discussed,” said Franco.  

Those move-outs included Facebook parent company meta dropping 275,000 square feet at 770 Broadway when its lease expires this year. However, Vornado got a break as it announced Tuesday that NYU agreed to master-lease the entire 1.1 million-square-foot office portion of the Broadway building.

But both Roth and Franco pointed to encouraging leasing and occupancy numbers to make the case that the REIT’s office-heavy business model has finally turned the quarter after several years of post-COVID uncertainty. 

Roth reported that year-to-date leasing reached 2.5 million square-feet company-wide, including 2.1 million square feet in Manhattan. He said that he’s confident the firm will reach between 3.5 million and 3.8 million square feet of leases in Manhattan by the end of the year, which would be the second-highest annual amount in the firm’s history, with “the highest starting rents ever.” 

“Activity is robust,” said Roth. “No new supply always begets a landlord’s market. Our rents are going up, I’m extremely optimistic, and the stock market seems to agree.”  

Vornado’s stock price opened at $42.81 on Tuesday, up from the $22.88 it sat at on Nov. 6, 2023. 

Aside from the NYU deal, Roth and Franco highlighted several other large leasing transactions in the firm’s Manhattan portfolio. 

Vornado leased 740,000 square feet of office space in the third quarter, including 297,000 square feet that Google renewed at 85 10th Avenue and leasing totals of 70,000 square feet of space at Penn 1, with an average starting rent of $119 per square foot. The NYU deal at 770 Broadway includes an upfront payment of prepaid rent that will allow Vornado to pay off its $700 million loan on the property, according to Roth. 

All told, the firm leased 2 million square feet in New York City across 68 transactions in the first nine months of 2024, with average starting rent of $112 per square foot, according to Franco. 

“The tide has clearly shifted in the New York, Class-A office market: leasing activity is strong and gaining momentum and availability are declining, particularly for large blocks of space,” said Franco.  

Vornado reported office occupancy of 87.5 percent in the third quarter, down from 89.3 percent in the previous quarter. Franco blamed the expiration of Meta’s lease at 770 Broadway for the small decline, but stated that the NYU master lease at the same office building will bring the firm’s office occupancy up to 90.8 percent by January. He also said vacant space at the newly opened Penn 2 has impacted occupancy levels, but that will also only be temporary. 

“The easiest money we can make is filling up our empties. As occupancy rises, earnings will go up,” he said. “Our office occupancy will likely decrease in the first quarter 2025, and as vacant space at Penn 2 is placed into service, we anticipate that this decrease will be temporary, and as Penn 2 stabilizes we get to 93 [percent occupancy].” 

Vornado also announced its portfolio’s retail occupancy rates stand at 78 percent, but Roth argued that excluding Manhattan mall vacancies brings the firm’s retail occupancy closer to 90 percent. 

“So, actually, we’re pretty well leased in above-the-market occupancies,” he said. “There is strong demand in retail and retail is certainly in much better shape than it was a couple of years ago.” 

The firm said it carries liquidity of $2.6 billion, with $1 billion cash on its balance sheet. 

“We are in a very strong capital position,” said Roth. “Our single focus is in creating value, being financially disciplined, and getting our stock price up to where we think the value is and where it should be. 

“In order to do that, we need to keep leasing, keep improving our balance sheet, and cutting out assets we don’t want, turning them into cash, and continue to work on the very significant and great asset pool we currently have,” he added. “But, actually, I’m all about the stock price.” 

Brian Pascus can be reached at bpascus@commercialobserver.com.