Vornado's need to lease its redeveloped office buildings around Penn Station was greater than its desire to develop a casino, Chairman and CEO Steven Roth wrote this week in his annual letter to shareholders.

Roth, in his typically colorful language, declared that "office towers, nationwide, are the common enemy" and made the case for why Vornado is a bargain at less than $29 per share after losing 60% of its value from five years ago.

"Frozen capital markets and sky-high interest rates have and will continue to shut down new builds and tenants’ normal growth will lead to a very tight New York City office market," he wrote.

But in the short term, Roth acknowledged that the company's priority has to be leasing the millions of square feet of office space it has redeveloped in its vast land holdings around Penn Station. While he initially considered offering some of the REIT's sites up in the New York City casino sweepstakes, market realities caused him to reconsider.

"The single most important financial imperative in our company is to successfully complete the leasing of PENN 2," he wrote. "It became very clear that the tenants who would fill this space would not locate across the street from a casino."

He added that a successful lease-up would generate $2B of value. On the other hand, he placed the odds of Vornado beating out the likes of Related, SL Green, Steve Cohen and other heavyweights in the casino sweepstakes at roughly 10%.

"This was an easy call," he wrote.

Vornado slashed its dividend last year in a bid to save cash and started to execute a share buyback plan, which Roth admitted he was loath to do. The REIT's board authorized $200M in repurchases, of which it has executed $29.1M.

"I believe my resistance was logical and fact based and proven correct by the market," he wrote.

"We will proceed carefully and in a measured way," he added.

Vornado is the second-largest owner of New York City office space and has watched occupancy in its vast portfolio dwindle from 96.9% in 2019 to 90.7% at the end of last year. Roth touted the company's portfolio as among the best in the city but acknowledged the tough sledding it has faced to get tenants to take space.

He said "the market now demands" concessions to tenants at roughly $300 per SF, split down the middle between tenant improvement allowances and free rent.

"This is a killer," he wrote.

But he said the lack of investment overall into office space will eventually see leverage back in landlords' favor, especially public owners with strong balance sheets. And he expressed excitement that the company could start to add to its portfolio again, even while dealing with its own debt maturities.

"There is no new debt available for office, so no buying, no selling, no new builds," he wrote. "How long and deep this all goes is unknowable. So, coming out of the cycle, many good but overleveraged buildings will change hands, will be de-levered, and the second or third owner will enjoy a much lower basis. We have a best-in-class operating platform and intend to participate in this death and rebirth cycle. My colleagues and I at Vornado are optimistic and excited."