Vornado Realty Trust
) third-quarter 2013 adjusted funds from operations (FFO) per
share of $1.27 exceeded the Zacks Consensus Estimate by 11 cents.
Moreover, this compares favorably with the year-ago figure of
Results were driven by a rise in operating income and a
substantial fall in total expenses. However, a declining FFO
payout ratio was the headwind for the quarter.
Total revenue declined 2.8% year over year to $683.4 million.
However, it outpaced the Zacks Consensus Estimate of $671.0
Behind the Headlines
In the quarter under review, Vornado leased 0.40 million square
feet and 0.95 million square feet of office space in New York
City and Washington, D.C. portfolios, respectively. On cash
basis, rents rose 8.0% in New York City office segment and rent
declined 1.1% in the Washington, DC office segment compared with
the previous increased rents. On the other hand, on a GAAP basis,
rents increased 8.0% and 3.8% versus the previous straight-line
rent in the New York City and Washington, DC office segments,
At quarter-end, same-store occupancy in the company's New York
City and Washington, D.C. portfolios were 96.1% and 83.6%,
respectively, in line with the previous quarter. Same-store
earnings before interest, tax, depreciation and amortization
(EBITDA) on a GAAP basis rose 7.0 % and decreased 1.8% year over
year in the New York City and Washington, DC portfolios,
Notable Portfolio Activities
During the quarter, Vornado acquired 92.5% stake in a retail and
office property, measuring 57,500 square foot located in
Manhattan for $277.50 million. Further, the company completed the
assemblage of 220 Central Park South site in Manhattan by
acquiring the land and air rights of the area measuring 137,000
zoning square feet for $194 million.
Vornado sold a retail property in Tampa, FL for $45 million in
which the company had 75% stake and realized a net gain of $8.7
million. Additionally, the company sold its property known as
Harlem Park located in New York City for $66 million and reaped
approximately $23 million as net proceeds from the sale.
As of Sep 30, 2013, Vornado had $872.3 million of cash and cash
equivalents, compared with $465.9 million as of Sep 30, 2012. At
the end of the quarter, total outstanding debt was $13.6 billion.
The FFO payout ratio (based on FFO as adjusted for comparability)
in the quarter was 57.5% versus 67% in the year-ago quarter.
During the quarter, Vornado completed the restructuring of the
Skyline properties mortgage loan amounting to $678 million
bearing a 5.74% interest rate.
We are impressed with the better-than-expected results at
Vornado. The company's portfolio repositioning activity through
strategic sale-offs positions it well for growth. Moreover,
Vornado's strong leasing activity has strengthened its foothold
in two of the most vibrant long-term office markets - New York
City and Washington, D.C - in the U.S.
Additionally, Vornado's healthy balance sheet with manageable
near-term debt maturities and adequate cash position is
noteworthy. All these factors are expected to provide upside
potential to the company, going forward.
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However, intense competition has facilitated Vornado to charge
relatively high rents from its tenants compared to its
competitors. This will affect the company's long-term
profitability and thus remains a matter of plausible concern.
Vornado currently carries a Zacks Rank #3 (Hold). Some better
performing REITs include
DuPont Fabros Technology, Inc.
Getty Realty Corp.
Parkway Properties Inc.
). All these stocks hold 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.