Vornado Realty Trust
), a leading real estate investment trust (REIT), reported third
quarter 2012 FFO (funds from operations) of $251.0 million or
$1.34 per share, versus $195.1 million or $1.05 in the
year-earlier quarter. The year-over-year increase in FFO was
primarily due to incremental income from interest and other
investments and a dip in debt expenses. The reported FFO per
share during third quarter 2012 well exceeded the Zacks Consensus
Estimate of $1.17.
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After adjusting items for comparability, FFO during the third
quarter of 2012 was $212.2 million or $1.14 per share, compared
with $209.7 million or $1.13 in the prior-year quarter. Total
revenues during the reported quarter were $711.0 million compared
with $687.9 million in the year-ago period. Total revenues during
the quarter were well ahead of the Zacks Consensus Estimate of
Same-store occupancy in the company's New York City and
Washington, DC portfolios were 95.9% and 84.0%, respectively, at
quarter-end. Same-store EBITDA (earnings before interest, tax,
depreciation and amortization) on GAAP basis increased 0.3% and
decreased 6.9% during the quarter in the New York City and DC
portfolios, respectively, compared with the year-earlier quarter.
Same-store occupancy in the retail portfolio was 93.4% at
quarter-end, while same-store EBITDA (GAAP) increased 0.1% versus
the year-ago quarter. In the Merchandise Mart segment, same-store
occupancy was 94.2%, while same-store EBITDA (GAAP) decreased
0.9% year over year.
During the reported quarter, Vornado leased 514 square feet and
435 square feet in New York City and Washington, DC portfolios
respectively. Rents increased 8.9% (cash basis) and 5.0% (GAAP)
compared with the previous rents in New York City office segment.
In Washington DC, rents increased 8.9% (cash) and 13.8% (GAAP)
versus expiring rents. Retail rents (strip mall) increased 4.0%
(cash) and 8.8% (GAAP) over in-place rents.
During third quarter 2012, Vornado Capital Partners, L.P. - a 25%
owned real estate fund, acquired 1100 Lincoln Road retail
property for $132 million. The property spanning 167,000 square
feet, was 97% leased at the point of purchase and is one of the
prime attractions of the Lincoln Road shopping district in Miami
Beach, Florida. The real estate fund also acquired 501 Broadway,
a 9,000 square foot retail property in New York for $31.0
Additionally, Vornado also entered into an agreement to acquire a
retail condominium located at 666 Fifth Avenue on 53rd Street in
New York City for approximately $707 million. The property
encompasses 114,000 square feet with a frontage of 126 feet on
Fifth Avenue. The transaction will be funded with property level
debt and proceeds from asset sales and is expected to close in
the fourth quarter of 2012.
Also during the quarter, Vornado entered into a lease with
Host Hotels & Resorts, Inc.
), to redevelop the retail and signage components of the Marriott
Marquis Times Square Hotel in Manhattan. The lease contains
options based on cash flow which, if exercised, and would lead to
an ownership by Vornado in the asset.
During the reported quarter, Vornado entered into agreements to
sell the Washington Design Center, the Boston Design Center and
the Canadian Trade Shows, for a total of $175.0 million in cash.
In addition, Vornado completed the sale of 409 Third Street S.W.,
a 409,000 square foot office building in Washington, DC, for
$200.0 million in cash. Subsequent to the quarter-end, the
company entered into an agreement to sell three office buildings
(494,000 square feet) in suburban Fairfax County, Virginia, for
$126.0 million, and the Green Acres Mall in Valley Stream, New
York, for $500.0 million.
Vornado has a healthy balance sheet with very manageable
near-term debt maturities and adequate cash. At quarter-end, the
company had $465.9 million of cash and cash equivalents and total
outstanding debt of $13.6 billion. The FFO payout ratio (based on
FFO as adjusted for comparability) during the reported quarter
was 60.5% compared to 61.1% in third quarter 2011.
We maintain our Neutral recommendation on Vornado, which
presently has a Zacks #3 Rank that translates into a short-term
Note: FFO, a widely used metric to gauge the performance of
REITs, is obtained after adding depreciation and amortization and
other non-cash expenses to net income.