Despite coronavirus troubles, landlords strike upbeat notes

Publicly traded REITS are staggered, like all real-estate companies, by the coronavirus. Unlike privately held firms, they’re obligated by the SEC to file a wealth of material on their operations that are aimed at investors but can be seen by the general public as well.

We combed filings from mid-March to recent days and cherry-picked some interesting facts and prognostications.

Vornado Realty Trust’s Steven Roth, in his chairman’s letter accompanying the just-out 2019 annual report, called the “eye of the COVID-19 storm… a black swan apocalypse. Life as we know it is upside down, people are hurting, businesses are hurting, the future is uncertain.”

Roth noted, reflecting what’s occurring everywhere, “Many tenants are requesting rent relief as an antidote to their forced business closings. We and our industry will handle this on a case by case basis. We have instituted cash conservation measures across our business and we can rely on our significant liquidity … to weather the storm.”

Roth foresaw a recession ahead. “The disruption to normal day to day life and normal work life is extraordinary but will hopefully be short-lived. The disruption to commerce and the financial markets is double-extraordinary and likely to be longer-lived … capital markets are seizing up.”

Roth’s somewhat optimistic take: “We will get through all of this … Interest rates are at historic lows and may go lower. That will give us the opportunity to refinance at favorable rates. And, over time as markets settle in, our secure, long-term income streams should become more valuable (cap rates should go down, building values should increase).”

To illustrate Vornado’s underlying strengths, he cited grand long-term prospects in the Penn District, where Vornado is the largest owner with more than nine million square feet. He called it “our moonshot, the highest growth opportunity in our portfolio.”

And he crowed over 220 Central Park South: “In a historically soft condominium market, our super-tall luxury condominium tower is now 91 percent sold at record prices. The financial performance of this project also surpassed all records … sort of like winning the Kentucky Derby by 10 lengths.”

Some have speculated that when the crisis ends, companies whose employees have worked at home might see a need for less office space. But Roth wrote, “We have wondered whether the work-from-home response to COVID-19 may become popular and affect office demand. Anecdotally, the opposite seems to be true. Most who work at home are finding it very inefficient and after a week clamor to get back to the normal routine and social interaction of the conventional workplace.”

Meanwhile, Empire State Realty Trust Chairman Anthony Malkin also asserted his company’s underlying strength: a portfolio of 14 office buildings with 10.1 million square feet concentrated in Midtown.

In the trust’s 2019 annual report, released prior to the coronavirus, Malkin noted that the “flagship” property is the Empire State Building, with “a diverse source of revenue through its office and retail leases, Observatory operations, and broadcasting licenses and related leased space.”

But the Observatory alone accounted in 2019 for a whopping 39 percent of the landmark’s total $327 million revenue. That component now appears to be nonperforming for the foreseeable future. Unlike at One World Trade Center, where the top-floor observatory and restaurant are leased to an outside company, Empire State operates its viewing decks on its own.

Brookfield Asset Management Chief Executive Bruce Flatt, in a March 23 shareholders’ update, said the company’s strong balance sheet will see it through the crisis. He cited $12 billion in bank lines in BAM and four affiliates, “all of which are very long-term and virtually 100 percent undrawn.”

Flatt also cited $5 billion in financial and non-core assets “that can be liquidated with relative ease.”

He said Brookfield has only $7 billion of corporate debt against an equity market cap of $40 billion-$60 billion “depending on the day,” and none of the debt comes due for many years.