Hurt by higher Toys 'R' Us losses,
Vornado Realty Trust
) reported funds from operations (FFO) per share of $1.15 in
second-quarter 2014, down from $1.25 in the year-ago
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
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
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
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
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
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)
Investors interested in REITs may consider stocks like
Pebblebrook Hotel Trust (
), Ashford Hospitality Trust, Inc. (
) and W. P. Carey Inc. (
). All of these carry a Zacks Rank #1 (Strong Buy).
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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