Vornado Announces PENN 1 Ground Rent Reset Determination

Rhea-AI Summary

Vornado Realty Trust (NYSE:VNO) has received a determination regarding the ground rent for its PENN 1 land parcel. A panel has set the annual rent at $15 million for the 25-year term starting June 17, 2023. However, ongoing litigation in New York County Supreme Court could impact this determination.

If the fee owner prevails in the litigation, the annual rent would increase to $20.22 million, applied retroactively to June 17, 2023. As a result of the panel's determination, Vornado will reverse approximately $17.2 million of previously accrued rent expense and will continue to accrue based on the $15 million annual rent until the litigation is resolved.

Positive

• Ground rent determined at $15 million annually, lower than the potential $20.22 million
• Company will reverse $17.2 million in previously accrued rent expense

Negative

• Ongoing litigation could increase annual rent to $20.22 million retroactively
• Court denied Vornado's motion to dismiss the legal action

Insights

Real Estate Financial Analyst

Vornado secures favorable $15M annual ground rent for PENN 1, reversing $17.2M in expenses, but faces litigation that could increase costs significantly.

The panel's determination on Vornado's PENN 1 ground lease represents a positive financial development for the REIT. The established annual ground rent of $15 million for the 25-year term beginning June 17, 2023 is clearly lower than what Vornado had been accruing, as evidenced by the $17.2 million expense reversal mentioned in the announcement.

This immediate $17.2 million expense reduction will provide a direct boost to Vornado's upcoming financial statements, effectively creating a one-time earnings benefit. More importantly, the $15 million annual rent determination provides certainty for the company's long-term expense structure at this property through 2048.

However, investors should note the significant contingent liability presented by the ongoing litigation. The court has denied Vornado's subsidiary's motion to dismiss the action brought by the fee owner, though Vornado has filed an appeal. If the fee owner ultimately prevails, the annual ground rent would increase to $20.22 million - a 34.8% higher expense obligation that would apply retroactively to June 2023.

The $5.22 million annual difference between these two scenarios amounts to approximately $130.5 million in potential additional expenses over the 25-year term. While Vornado will accrue expenses at the lower $15 million rate pending litigation resolution, the contingent liability represents a material financial consideration.

Despite this uncertainty, the favorable determination relative to Vornado's previous accrual approach suggests management had been conservatively accounting for a worse outcome, making this announcement a net positive for the company's financial outlook.

NEW YORK, April 22, 2025 (GLOBE NEWSWIRE) -- Vornado Realty Trust (NYSE:VNO) announced today that the panel appointed to determine the ground rent payable by Vornado’s subsidiary for the PENN 1 land parcel for the 25-year period beginning June 17, 2023 has determined that the annual rent payable during the current 25-year term will be $15 million.

Further, litigation is currently pending between the parties in New York County Supreme Court relating to the matter. To date, the court denied the Vornado subsidiary’s motion to dismiss the action and Vornado’s subsidiary has filed a notice of appeal. The panel’s decision provides that if the fee owner prevails in a final judgment in the ongoing litigation, the annual rent for the 25-year term will be $20.22 million, retroactive to June 17, 2023.

In connection with the panel’s determination, Vornado will reverse approximately $17.2 million of rent expense that was previously accrued with respect to this ground lease and, going forward, will accrue based on a $15 million annual rent, pending final resolution of the litigation.

Vornado Realty Trust is a fully-integrated equity real estate investment trust.

CONTACT

Thomas J. Sanelli
(212) 894-7000

Certain statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "intends," "plans," "would," "may" or other similar expressions in this press release. For a discussion of factors that could materially affect the outcome of our forward-looking statements and our future results and financial condition, see “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2024. Currently, some of the factors are the increased interest rates and inflation on our business, financial condition, results of operations, cash flows, operating performance and the effect that these factors have had and may continue to have on our tenants, the global, national, regional and local economies and financial markets and the real estate market in general.

FAQ

What is the new annual ground rent determined for Vornado's PENN 1 property?

The panel determined an annual ground rent of $15 million for PENN 1's land parcel for the 25-year term beginning June 17, 2023.

How much could VNO's PENN 1 ground rent increase if the fee owner wins the litigation?

If the fee owner prevails in the litigation, the annual rent would increase to $20.22 million, retroactive to June 17, 2023.

What is the financial impact of the PENN 1 ground rent determination on VNO?

Vornado will reverse $17.2 million of previously accrued rent expense and will accrue rent at $15 million annually pending litigation resolution.

What is the duration of the new ground rent term for VNO's PENN 1 property?

The ground rent determination covers a 25-year term starting June 17, 2023.