Vornado looks to sell office buildings at depressed prices

BY AARON ELSTEIN

Vornado Realty Trust is looking to sell office buildings at depressed prices in an effort to raise cash and prop up its faltering stock price.

“We are not a distressed seller,” Chief Executive Steven Roth insisted on a conference call that he attended remotely. “We are not a weak seller.”

But circumstances are forcing the developer’s hand.

Occupancy rates and cash flows are falling, while borrowing costs march higher along with interest rates. Recently Vornado suspended its dividend payout to conserve cash. Its stock price, at $13.93 a share, is the lowest since 1996 and fell by another 5% last week as executives acknowledged they may have to part with properties at prices they wouldn’t have considered before.

“You have to be realistic,” Vornado’s president and chief financial officer, Michael Franco, said on the call. “We may not love the price of some assets today relative to where they were a few years ago, but relative to our stock price, we do like that pricing.”

Officials didn’t identify which buildings are for sale.

Vornado’s 20 million-squarefoot portfolio includes several large Midtown office towers, especially in the area around Penn Station, including the Farley Building, Penn Plaza and 1290 Sixth Ave., which it co-owns with the Trump Organization. Although management said demand for space in the newly renovated 1 Penn Plaza is strong, total o ccupancy for Vornado’s New York properties eroded to 89.9% last quarter from 91.2% a year ago.

Four years ago the rate was 97%.

Roth said asset sales could help the firm pay for buying back up to $200 million worth of stock, a pledge made when Vornado halted the dividend that paid out more than $400 million in cash to share- holders last year. Depending on how the rest of the year shakes out, and how much debt needs repaying, dividend payments for 2023 could be made entirely in Vornado shares.

“I’m not calling a bottom,” Roth said on the call.

Some analysts questioned the wisdom of using Vornado resources to support its stock price.

“Is there a worry this could be akin to catching a falling knife?” one analyst asked.

Funds from operations, a proxy for cash flow, fell to $128 million in the first quarter, or 60 cents a share, compared to 79 cents in the prioryear period. Weighted average interest rates on the firm’s $10 billion in debt rose to 4.2% from 2.6% a year ago.

Roth did his best to assure that Vornado will emerge from the difficulties in commercial real estate better than before. He said it would help if a “certain demographic” that prefers working from home returned to the office. Franco added that sentiment about the sector could improve if grim news abated and offices were no longer “the whipping boy for today.”

“Every day there’s negativity about office in the media, and, you know, some of that’s warranted,” he said. “It’s gotten a bit extreme.” ■