Vornado Realty Trust 10-K

Filing Date : 2022-02-14

 

 

 

Vornado is a fully‑integrated REIT and conducts its business through, and substantially all of its interests in properties are held by, the Operating Partnership, a Delaware limited partnership.

 

integrated : in which many different parts are closely connected and work successfully together / including people from different races, sexes, religions, etc., especially ones who have previously been separated

 

substantially : very much; a lot / mainly; in most details, even if not completely

 

 

 

Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders are dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. 

 

subsidiaries : a business company that is owned or controlled by another larger company

 

 

 

Vornado is the sole general partner of and owned approximately 92.6% of the common limited partnership interest in the Operating Partnership as of December 31, 2021.

 

sole : only; single / belonging to one person or group; not shared

 

 

 

We currently own all or portions of: 

 

New York:

 

•67 Manhattan operating properties consisting of:

•20.6 million square feet of office space in 32 of the properties;

•2.7 million square feet of street retail space in 60 of the properties;

•1,674 units in eight residential properties;

•Multiple development sites, including Hotel Pennsylvania;

•A 32.4% interest in Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX), which owns six properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.1 million square foot Bloomberg, L.P. headquarters building, and The Alexander, a 312-unit apartment tower in Queens;

•Signage throughout the Penn District and Times Square; and

 

Signage : signs, especially ones that give instructions or directions to the public

 

•Building Maintenance Services LLC ("BMS"), a wholly owned subsidiary, which provides cleaning and security services for our buildings and third parties.

 

 

 

Other Real Estate and Investments:

•The 3.7 million square foot theMART in Chicago;

•A 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet;

 

aggregating : to put together different items, amounts, etc. into a single group or total

 

•A 25% interest in Vornado Capital Partners, our real estate fund (the "Fund"). We are the general partner and investment manager of the fund. The fund is in wind-down; and

 

•Other real estate and investments.

 

 

 

OBJECTIVES AND STRATEGY

 

Our business objective is to maximize Vornado shareholder value. We intend to achieve this objective by continuing to pursue our investment philosophy and to execute our operating strategies through:

 

 

•maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;

 

entrepreneurial : connected with making money by starting or running businesses, especially when this involves taking financial risks

 

•investing in properties in select markets, such as New York City, where we believe there is a high likelihood of capital appreciation;

 

likelihood : the chance of something happening; how likely something is to happen

 

•acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;

 

•developing and redeveloping properties to increase returns and maximize value; and

 

•investing in operating companies that have a significant real estate component.

 

component : one of several parts of which something is made

 

 

 

We expect to finance our growth, acquisitions and investments using internally generated funds and proceeds from asset sales and by accessing the public and private capital markets. We may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire these securities in the future.

 

internally : on the inside of something / on the inside of your body / in a way that involves or affects only the people who are part of a particular organization rather than people from outside it

 

 

 

ACQUISITION

 

We completed the following acquisition during 2021:

 

•$158 million purchase of our joint venture partner's 45% ownership interest in One Park Avenue (valuing the property at $875 million, encumbered by $525 million of existing debt), increasing our ownership interest to 100%.

 

encumbered : to make it difficult for somebody to do something or for something to happen / to be large and/or heavy and make it difficult for somebody to move

 

 

DEVELOPMENT AND REDEVELOPMENT EXPENDITURES

 

PENN District

 

Farley 

 

Our 95% joint venture (5% is owned by the Related Companies ("Related")) is developing Farley Office and Retail, which will include approximately 845,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 115,000 square feet of restaurant and retail space. The total development cost of this project is estimated to be approximately $1,120,000,000 at our 95% share, of which $896,186,000 of cash has been expended as of December 31, 2021.

 

PENN 1

 

We are redeveloping PENN 1, a 2,547,000 square foot office building located on 34th Street between Seventh and Eighth Avenue. In December 2020, we entered into an agreement with the Metropolitan Transportation Authority (the “MTA”) to oversee the redevelopment of the Long Island Rail Road Concourse at Penn Station (the "Concourse"), within the footprint of PENN 1. Skanska USA Civil Northeast, Inc. will perform the redevelopment under a fixed price contract for $380,000,000 which is being funded by the MTA.

 

In connection with the redevelopment, we entered into an agreement with the MTA which will result in the widening of the Concourse to relieve overcrowding and our trading of 15,000 square feet of back of house space for 22,000 square feet of retail frontage space. Vornado's total development cost for the PENN 1 project is estimated to be $450,000,000. As of December 31, 2021, $309,437,000 of cash has been expended.

 

footprint : a mark left on a surface by a person’s foot or shoe or by an animal’s foot / a measure of the amount of the earth’s resources used by a person or a population that lives in a particular way

 

overcrowding : the situation when there are too many people or things in one place

 

frontage : the front of a building, especially when this faces a road or river / land that is next to a building, a street or an area of water

 

PENN 2

 

We are redeveloping PENN 2, a 1,795,000 square foot (as expanded) office building, located on the west side of Seventh Avenue between 31st and 33rd Street. The development cost of this project is estimated to be $750,000,000, of which $161,066,000 of cash has been expended as of December 31, 2021.

 

PENN 15 (Hotel Pennsylvania Site)

 

We have permanently closed the Hotel Pennsylvania and plan to develop an office tower on the site. Demolition of the existing building structure commenced in the fourth quarter of 2021.

 

permanently : in a way that lasts for a long time or for all time in the future; in a way that exists all the time

 

commenced : to begin to happen; to begin something

 

We are also making districtwide improvements within the PENN District. The development cost of these improvements is estimated to be $100,000,000, of which $31,481,000 of cash has been expended as of December 31, 2021.

 

We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan including, in particular, the PENN District.

 

There can be no assurance that the above projects will be completed, completed on schedule or within budget.

 

assurance : a statement that something will certainly be true or will certainly happen, particularly when there has been doubt about it

 

 

 

ENVIRONMENTAL SUSTAINABILITY INITIATIVES

 

We have long believed a focus on environmental sustainability is responsible management of our business and important to our tenants. It has been central to Vornado's business strategy for over 10 years. The Corporate Governance and Nominating Committee of Vornado's Board of Trustees is assigned with oversight of Environmental, Social and Governance (“ESG”) matters, which includes climate change risk. Environmental sustainability initiatives are carried out by a dedicated team of professionals that work directly with our business units.

 

sustainability : the use of natural products and energy in a way that does not harm the environment

 

central : in the centre of an area or object / easily reached from many areas

 

oversight : the fact of making a mistake because you forget to do something or you do not notice something

 

Vornado is an industry leader in sustainability, owning and operating more than 27 million square feet of LEED (Leadership in Energy and Environmental Design) certified buildings, representing 95% of our office portfolio, with over 23 million square feet at LEED Gold or Platinum. In 2021, we were selected as a global “Sector Leader” for all Office/Retail Diversified REITs in the Global Real Estate Sustainability Benchmark ("GRESB"), ranked second among 94 responding listed companies in the United States and received the “Green Star” distinction for the ninth consecutive year.

 

In 2020, we received the Leader in the Light Award by the National Association for Real Estate Investment Trusts (NAREIT) for the 11th consecutive year; were recognized as an EPA ENERGY STAR Partner of the Year, with the Sustained Excellence distinction; and received the 2020 Leadership Award from the United States Green Buildings Council (USGBC).

 

distinction : a clear difference or contrast especially between people or things that are similar or related / the act of separating people or things into different groups

 

 

 

We prioritize addressing climate change and in 2019 adopted a 10-year plan to make our buildings carbon neutral by 2030 (“Vision 2030”). Vision 2030 is a multi-faceted approach that prioritizes energy efficiency, demand management, and renewable power.

 

We rely on both existing and future technology, as well as meaningful stakeholder collaboration with our tenants, our employees, and our communities, to achieve this plan. Our commitment to carbon neutrality and associated emissions reduction targets have been approved by the Science Based Targets Initiative as consistent with a 1.5°C climate scenario, the most ambitious goal of the Paris Agreement.

 

prioritize : to put tasks, problems, etc. in order of importance, so that you can deal with the most important first / to treat something as being more important than other things

 

 

 

We consider sustainability in all aspects of our business, including the design, construction, retrofit and ongoing maintenance and operations of our portfolio of buildings. We operate our buildings sustainably and efficiently by establishing best practices in energy and water consumption, carbon reduction, resource and waste management and ecologically sensitive procurement.

 

Our policies, from 100% green cleaning to energy efficiency, are implemented across our entire portfolio. Mandatory sustainability training is required for all of our building operators and managers, and we undertake significant outreach with our tenants, employees and investors regarding Vornado’s sustainability programs and strategies.

 

retrofit : to put a new piece of equipment into a machine that did not have it when it was built; to provide a machine with a new part, etc.

 

implemented : to make something that has been officially decided start to happen or be used

 

Mandatory : required by law

 

outreach : the activity of an organization that provides a service or advice to people in the community, especially those who cannot or are unlikely to come to an office, a hospital, etc. for help

 

 

 

In January 2022, the Compensation Committee of Vornado's Board of Trustees approved the 2022 performance based long-term incentive plan which for the first time formally ties senior management compensation to achievement of certain ESG targets, including reductions in greenhouse emissions, achieving a specified GRESB score and targeting a higher percentage of LEED Gold or Platinum certified square footage.

 

specified : to state something, especially by giving an exact measurement, time, exact instructions, etc.

 

 

 

We are committed to transparent reporting of sustainability performance indicators and publish an annual ESG Report in accordance with the Global Reporting Initiative and aligned with the metrics codified by the Sustainability Accounting Standards Board and recommendations set forth by the Task Force on Climate-related Financial Disclosures.

 

Further details on our environmental sustainability initiatives and strategy, including our Vision 2030 Roadmap, can be found in our 2020 ESG Report at (esg.vno.com). There can be no assurance that our Vision 2030 commitment will be achieved in the planned time frame. The ESG Report is not incorporated by reference and should not be considered part of this Annual Report on Form 10-K.

 

transparent : allowing you to see through it / that you can easily see is false; allowing you to see the truth easily / easy to understand

 

aligned : align (something) (with something)to arrange something in the correct position, or to be in the correct position, in relation to something else, especially in a straight line

 

codified : to arrange laws, rules, etc. into a system

 

incorporated : formed into a business company with legal status