Steve Roth: 'Life Is Upside Down' As Vornado Furloughs 1,800, Loses Millions In Revenue
Vornado Realty Trust missed out on $24M because of unpaid rent last month, CEO Steven Roth said during the firm’s quarterly earnings call Tuesday.
Nearly two-thirds of the tenants that were delinquent were creditworthy, Roth said on the call, which began with a moment of silence to mark the death of Crown Acquisitions founder Stanley Chera, who died of COVID-19 in April and is the father of Vornado's retail head, Haim Chera.
“Life as we know it is upside down. People are hurting, businesses are hurting and the future is uncertain,” Roth said, pointing to what he described as a “global sea change” in the economies of the world. “We can already see that there is a fair amount of disruption and distress out there."
Vornado is losing an average of $9M each month from the closure of Hotel Pennsylvania, a 1,700-room hotel on Seventh Avenue, canceled trade shows at its lone Chicago property and reduced income from garages and sign rentals. That $9M figure works out to be 6% of overall revenue.
Vornado collected 90% of office rents and 53% of retail rents in April, but $125M worth of capital projects are on hold and it has furloughed 1,800 staffers, 1,300 of whom came from its building management arm, and 100 of whom came from its core staff. Last month, Vornado said five of its top executives would be taking pay cuts for the rest of the year.
Rent payments in May were on pace to be similar to April, with 20% paid for retail spaces and 60% for office locations in the month's first four days.
Vornado's portfolio is heavily tilted toward New York office and retail — it revealed in its Q1 report that it has begun a lawsuit against Regus over a 78K SF lease at a San Francisco building it owns — and while Roth expressed long-term confidence in the city, he and his Vornado colleagues acknowledged getting occupancy back at its office portfolio would be a slow process — "census counts" found office occupancy is at roughly 5%, Roth said.
"Everybody recognizes that this is a physical and psychological issue," Vornado Vice Chairman David Greenbaum said on the call. "I think as the world begins to reopen, it’s going to be a gradual process. Tenants are anticipating returning initially in a 10-20% [occupancy] range. Fewer people are going to be using mass transit. When we open up, most people will either be walking to work, bicycling to work or driving to work."
Roth also said on the call that since mid-March, five units have closed at the residential tower 220 Central Park South, for almost $200M. Another $750M worth of scheduled closings are expected to go ahead without a hitch, although the building is experiencing delays in getting certificates of occupancy.
Looking forward, Vornado will be looking for acquisitions, largely in New York, Roth said. It is confident in its balance sheet, has few debt obligations moving forward and has capital partners ready and willing to participate in deals, Vornado officials said on the call.
"Before, we pushed away from top-tier prices," Roth said. "This might give us the opportunity to buy at fair prices and maybe even good prices. We’re very enthusiastic about the process and growing and expanding externally, and it’s very high on our radar screen. Ww feel we have the financial capacity to partake."
