- Vornado Realty Trust (VNO, Financial) secures a $15 million annual ground rent for PENN 1, effective June 17, 2023.
- Ongoing litigation could increase the annual rent to $20.22 million retroactively.
- The company will reverse $17.2 million in previously accrued rent expense.
Vornado Realty Trust (VNO) announced a significant financial update regarding its PENN 1 property. An appointed panel has set the annual ground rent at $15 million for the 25-year term starting June 17, 2023. This determination marks a positive turn for Vornado, as it is below the previously accrued expectations.
In a move that benefits Vornado's financial outlook, the panel's decision will allow the company to reverse approximately $17.2 million in previously accrued rent expenses. This immediate reduction in expenses is poised to provide a notable benefit to Vornado's financial statements.
Nevertheless, the determination is subject to ongoing litigation in the New York County Supreme Court. If the fee owner wins the legal action, the annual rent could rise to $20.22 million, which would be applied retroactively to the start date of the term, significantly increasing the financial obligations for Vornado.
While the company will currently accrue rent based on the $15 million annual rate, the unresolved litigation poses a potential financial risk, with a possible increase of approximately $5.22 million annually, equating to around $130.5 million over the 25-year period.
Despite these uncertainties, the current favorable determination suggests a conservative previous accounting approach by Vornado, indicating a net positive outcome for the company's financial stability and planning.
