Steven Roth: Vornado Going 'On Offense,' Eyeing Apartments Near Penn Station

Vornado CEO Steven Roth used his company’s first-quarter earnings call Tuesday morning to take swipes against media coverage of the REIT's portfolio, describing various reports ranging from “just silly” to plain wrong.

“You'll pardon us if we get a bit annoyed at the disinformation,” Roth said in response to analyst questions about 555 California St., the 52-story tower in San Francisco that was reportedly placed on a lender's watchlist in February. Vornado co-owns the property with The Trump Organization, and the pair locked down a $1.2B loan back in 2021.

Vornado executives said the building is full, performing well and stressed no workout of the loan have even taken place. 

"Everybody that wrote on that just got it dead wrong,” Vornado President Michael Franco said on the call. “The building’s performing extraordinarily well. There's no issue with the loan.”

That loan, he said, was initially structured as a two-year mortgage with a series of five one-year, as-of-right extensions and is currently fully leased.

Still, Vornado shares in recent weeks have sunk, and last week it announced its decision to stop paying out dividends for the rest of the year. There is also the matter of the uncertainty surrounding its role in New York state-sponsored redevelopment of the area around Penn Station, fueled partly by Roth's comments in his last earnings call suggesting Vornado wouldn't be going forward with the development. 

But on Tuesday's earnings call, Roth kicked off remarks by saying business is performing well, considering the environment, and that its outlook remains unchanged since last quarter, including pushing forward on the Penn District.

“We are full-speed-ahead on our current projects building 5M SF in the Penn District,” he said. “Any comment in the newspapers or industry tabloids that we have stopped is incorrect and just plain silly. Just take a look at our three-block construction site when you next go through Penn Station or next go to a Knicks playoff game.”

He said achievements the firm has already made in the area are "heroic," but added that Vornado will "take a breath" when it comes to more ground-up development. But Roth added that the project, originally billed as a handful of office towers, is now likely start with an apartment building. 

Gov. Kathy Hochul has said the state’s plans to revitalize the area are moving ahead, regardless of Vornado’s involvement. A subsidiary of the Italian firm ASTM Group has presented a proposal for the area that is favored by state and local leaders, The New York Times reported in March.

During the first quarter of 2023, Vornado leaders said the firm completed 22 leases totaling 777K SF with starting rents at $101 per SF and has more than 400K SF leases in negotiation. Leasing was led by demand from traditional industries, such as financial services and law firms, they said, with many financial firms growing their footprint.

"Every day there's negativity about the office in the media. Some of that warranted, but we think, you know, that's the whipping boy for today," Franco said. "That's going to continue and that obviously has an effect on sentiment, and it's gotten a bit extreme."

On Tuesday morning, Bloomberg reported Roth himself was facing a slew of “woes'' driven by the challenged office sector.

“Roth has missed the bus, and the bus isn’t coming back until 2030 or beyond,” Mitchell Moss, a professor of urban policy at New York University, told the publication in regards to Roth’s vision for the Penn District. 

Recent data on office leasing hasn't been rosy. Across Manhattan, a total of 1.5M SF of office leases were signed in the last month according to Colliers data, marking a nearly 44% decrease from a year ago and a 7.7% drop from March. The activity was slow even for the pandemic era — the average month in 2020 saw nearly 1.6M SF of leases signed, while 2021 and 2022 had averages of 2.1M SF and 2.4M SF, respectively, according to the brokerage.

But Roth took an optimistic tone.

“We think we have seen the peak in work-from-home, more and more CEOs are now requiring their employees back to the office,” he said Tuesday. “With each passing week, the office buildings feel more like 2019, and we believe it's just a matter of time before everyone is back for good. New York City seems to be leading the country in this regard.”

Vornado last week said it won’t pay owners of its common shares dividends for the rest of 2023.

“A complete suspension this early in the year suggests more going on inside 888 Seventh Avenue than the Street appreciates,” Piper Sandler Managing Director Alexander Goldfarb wrote in a client report, in reference to Vornado's headquarters.

Roth, however, described the move as a “logical” one, adding that, over the last 10 years, the firm has paid out $5.1B in regular dividends. 

“Simply stated, we are going on offense," he said. 

The firm also plans to repurchase as much as $200M of its outstanding common shares through a new share repurchase program. Its stock price had fallen by 5% in intraday trading on Tuesday to under $14 per share and is down roughly 34% from the start of the year. Its value pales in comparison to its pre-pandemic price north of $67 per share.

“I have resisted buybacks for years and years … I believe my resistance was logical and fact-based,” Roth said. “But since last quarter's dividend announcements and this quarter's dividend announcement, our stock prices declined 35% from a low level to an even lower level, seeing value in the stock and an opportunity to create shareholder value."