Vornado Q2 FFO Hurt by Toys 'R' Us Losses, Revenues Beat - Analyst Blog

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Hurt by higher Toys 'R' Us losses, Vornado Realty Trust ( VNO ) reported funds from operations (FFO) per share of $1.15 in second-quarter 2014, down from $1.25 in the year-ago quarter. 

However, on an adjusted basis, Vornado's FFO per share came in at $1.44, higher than the year-ago FFO per share of $1.27. The Zacks Consensus Estimate for second-quarter 2014 FFO per share stood at $1.11.

While total revenue declined 0.7% year over year to $666.6 million in second-quarter 2014, it exceeded the Zacks Consensus Estimate of $652 million.


Quarter in Detail

In the New York City portfolio, Vornado leased 1,222,000 square feet of office and 23,000 square feet of retail spaces. At quarter-end, same-store occupancy in the portfolio was 97.3%, reflecting an increase of 120 basis points (bps) year over year. Same-store earnings before interest, tax, depreciation and amortization (EBITDA) on a GAAP basis rose 5.2% year over year in this portfolio.

In the Washington, D.C. portfolio, Vornado leased 352,000 square feet of office space. At quarter-end, same-store occupancy in the portfolio came in at 83.5%, down 10 bps year over year. Same-store EBITDA on a GAAP basis declined 1.8% year over year in the portfolio.

In the Retail portfolio, Vornado leased 231,000 square feet of Strips and 54,000 square feet of Malls spaces. At quarter-end, same-store occupancy in the portfolio was 94.0%, reflecting a decrease of 50 basis points (bps) year over year. However, same-store EBITDA on a GAAP basis increased 1.8% year over year in the portfolio.

In the second quarter, Vornado raised its stake in One Park Avenue to 55.0% from 46.5% for an additional investment of $22.7 million through a joint venture deal.

As of Jun 30, 2014, Vornado had $1.4 billion of cash and cash equivalents, up from $1.2 billion as of Mar 31, 2014. Moreover, at the end of the quarter, total outstanding debt was $14.5 billion, up from $13.8 billion at the end of Mar 2014.

The FFO payout ratio (based on FFO as adjusted for comparability) in the quarter was 50.7% as against 57.5% in the year-ago quarter.

Shopping Centers Spin-Off Update

During the second quarter, Vornado filed Form 10 with the Securities and Exchange Commission ("SEC") related to the previously announced spin off its U.S. shopping center business into a new publicly traded REIT. Specifically, the company will spin off 80 strip shopping centers, four malls and a warehouse park. The transaction is targeted to be accomplished by the end of this year.

Our Take

While one time losses affected the company's results this quarter, we believe that the company promises better results in the quarters ahead. This is because of its strategic portfolio repositioning activities and leasing efforts. Further, the shopping center spin off decision is in line with its streamlining measures and will help Vornado focus exclusively on the office assets in the New York City and Washington, DC region as well as the Manhattan street retail properties. However, we anticipate slow recovery of the office sector to remain a concern for this Zacks Rank #3 (Hold) stock.

Investors interested in REITs may consider stocks like Pebblebrook Hotel Trust ( PEB ), Ashford Hospitality Trust, Inc. ( AHT ) and W. P. Carey Inc. ( WPC ). All of these carry a Zacks Rank #1 (Strong Buy).

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.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: VNO , PEB , AHT , WPC

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