Steven Roth has amassed a portfolio with some of the city’s finest real estate, including the ritzy office building at 1290 Sixth Ave. and the Billionaire’s Row residential tower at 220 Central Park South.
But increasingly investors are asking Roth: Where’s the cash?
Last year his company, Vornado Realty Trust, paid out just 68 cents a share in dividends, a two-thirds drop from 2022 and a miserly sum compared with the $3 a share shelled out by rival Midtown office landlord SL Green. Vornado shares have a trailing 12-month yield of about 3%, half that of SL Green, whose payout fell by only 8% last year.
The difference in the stock performance is all the more startling considering not only are these firms in the same business, they sometimes own the same buildings. They each have 50% of 280 Park Ave., a 1.3-million-square-foot tower, for instance.
Dividend payments are important in real estate because that’s usually how investors make most of their money. By law, real estate investment trusts including Vornado and SL Green must distribute their taxable income to shareholders. A smaller dividend means fewer profits to share.
“The dividend is the ultimate demonstration of management’s prowess,” said Piper Sandler analyst Alex Goldfarb.
By that standard, Vornado’s prowess diminished when the firm suspended its dividend last April for eight months and ultimately reduced its annual payout by 68%. It also pledged last spring to buy back up to $200 million worth of shares,but through September had bought back only $30 million. Officials were mum when asked about how much or when a dividend would be paid in 2024.
“It’s not impossible that we wait until the end of the year,” Roth said on an earnings call.
Such parsimony “suggests bigger cash concerns” on Vornado’s part, Goldfarb said in a report Monday.
Vornado, which declined to comment, might be clinging to its $1 billion in cash because it anticipates coughing up a lot in the months ahead.
Goldfarb said about $1.6 billion in debts maturing over the next two years must be refinanced at higher rates, including Vornado’s share of 280 Park’s $1.2 billion mortgage. Thanks to fewer workers at offices and limp demand for space, it would be understandable if lenders require Vornado to put up a higher down payment on its next mortgage because the loan is riskier. On top of that, $2.5 billion worth of hedges that limit Vornado’s exposure to higher interest rates expire this year or next.
One logical response to a cash squeeze is to raise cash, and Roth has said he’d considered selling a piece of the Farley Office Building on Ninth Avenue, though he hasn’t made a deal. Indeed, he’s amping up his bet on the future of Midtown office work by redeveloping high-rises Penn 1 and Penn 2 next to Madison Square Garden.
The market is skeptical. Heading into this month Vornado shares had lost 47% of their value over the last five years, accounting for dividends.
SL Green’s stock has lost 31% over the same period, in part because the firm has dealt with the brave new world for office space differently. It sold two towers last year — 625 Madison Ave. for $633 million and half of 245 Park Ave. for $1 billion — and used the proceeds to help fund its dividend. Management has said more is for sale, including a piece of 1 Vanderbilt Ave., the supertall hovering over Grand Central Terminal.
New York’s two largest commercial landlords have a lot in common. But the market is starting to appreciate their differences.