Vornado Realty Beats on FFO and Revs - Analyst Blog

Vornado Realty Trust 's ( VNO ) 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 $1.03.

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 million.

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, respectively.

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, respectively.

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.

Our Take

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.

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. ( DFT ), Getty Realty Corp. ( GTY ) and Parkway Properties Inc. ( PKY ). 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.

DUPONT FABROS (DFT): Free Stock Analysis Report

GETTY REALTY CP (GTY): Free Stock Analysis Report

PARKWAY PPTY (PKY): Free Stock Analysis Report

VORNADO RLTY TR (VNO): Free Stock Analysis Report

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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 Nasdaq, Inc.

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

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