By Davit Kirakosyan
Vornado Realty Trust (NYSE:VNO) shares plunged more than 11% today morning (currently down 1%) after the company said it will postpone dividends on its common shares until the end of 2023. The preferred dividend remains unaffected.
Furthermore, the company announced a repurchase authorization of up to $200 million of its outstanding common shares. Cash retained from dividends or from asset sales will be used to reduce debt and/or fund share repurchases.
Following the surprise dividend suspension, Piper Sandler downgraded the company to Underweight from Neutral and cut its price target to $11.00 from $16.00.
According to the firm, the complete suspension suggests deeper issues within the company, and a partial reduction would have been preferable. Furthermore, the firm noted that a $200M stock buyback program raises questions assuming that cash preservation is so critical for the company.
The company will pay a tax-appropriate dividend at the 2023 year-end based on taxable earnings, but the lack of a dividend will impact dividend funds. Though dispositions could result in tax losses or gains, which impact dividend policy, Piper Sandler “would think the recurring operations would be relatively well known”.
According to the firm, the suspension is specific to Vornado Realty, given declining earnings, balance sheet concerns, and Penn District development spend. The firm believes that stock buyback is unlikely to offset the lack of dividends.
Vornado Realty's dividend yield prior to the suspension was 10%, with full-year dividend cash payments totaling around $310M, which the company can now use for general purposes including debt paydown.
The company is set to report its Q1/23 earnings on May 1. Consensus estimates stand at ($0.02) for EPS and $453.28M for revenues.