Vornado Realty Trust
) second-quarter 2013 adjusted funds from operations (FFO) per
share of $1.30 exceeded the Zacks Consensus Estimate by 6 cents.
Moreover, it came above the year-ago figure of $1.06 by
The better-than-expected result at this real estate investment
trust (REIT) was attributable to the company's successful
execution of strategic initiatives. Including the non-recurring
items, FFO came in at $1.25 per share, substantially higher than
89 cents recorded in the year-ago quarter.
Total revenue upped 1.2% year over year to $685.9 million and
came above the Zacks Consensus Estimate of $676 million as
Behind the Headlines
In the quarter under review, Vornado leased 1,950 square feet
and 2,111 square feet of office space in New York City and
Washington, D.C. portfolios, respectively. On cash basis, rents
rose 4.6% and 0.4% compared with the previous increased rents in
New York City and Washington, D.C. office segments, respectively.
On the other hand, on a GAAP basis, rents upped 4.9% and 3.4%
versus the previous straight-line rent in the New York City and
Washington, D.C. office segments, respectively.
At the quarter-end, same-store occupancy in the company's New
York City and Washington, D.C. portfolios were 96.1% and 83.6%,
respectively. Same-store earnings before interest, tax,
depreciation and amortization (EBITDA) on GAAP basis rose 4.4%
but decreased 5.5% year over year in the New York City and
Washington, D.C. portfolios, respectively.
Notable Portfolio Activities
Vornado sold a power strip shopping center - The Plant - in
San Jose for $203 million and realized a net gain of
approximately $32.2 million. Additionally, the company sold its
26.2% stake in LNR Property LLC to
Starwood Property Trust Inc.
) and Starwood Capital Group for $1.05 billion. Vornado reaped
approximately $241 million as net proceeds from the sale.
Moreover, during the quarter, Vornado divested a
Philadelphia-based retail asset for $60 million and realized a
net gain of $33.1 million. The company also penned a deal to
dispose a parcel of land - Harlem Park - in New York City for $65
million. The divestiture is expected to garner a net gain of
around $22 million.
As of Jun 30, 2013, Vornado had $781.7 million of cash and
cash equivalents, compared with $585.8 million as of Mar 31,
2013. At the end of the quarter, total outstanding debt was $13.4
The FFO payout ratio (based on FFO as adjusted for
comparability) in the quarter was 56.2% versus 65.1% in the
second quarter of 2012.
During the quarter, Vornado closed on the $550 million worth
refinancing of Independence Plaza - a residential complex - in
the Tribeca submarket of Manhattan.
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. We expect all these
factors to provide upside potential to the company, going
However, intense competition causes Vornado to charge
relatively high rents from its tenants as compared to
competitors. This affects the company's long-term profitability
and thus remains a matter of plausible concern.
Vornado currently carries a Zacks Rank #4 (Sell). Some better
performing REITs include
Douglas Emmett Inc
Franklin Street Properties Corp.
). Both of these stocks hold a Zacks Rank #2 (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.
DOUGLAS EMMETT (DEI): Free Stock Analysis
FRANKLIN ST PPT (FSP): Free Stock Analysis
STARWOOD PROPRT (STWD): Free Stock Analysis
VORNADO RLTY TR (VNO): Free Stock Analysis
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