Vornado Reaps $241M from LNR Deal

Zacks

Vornado Realty Trust (VNO) reaped around $241 million as net proceeds from the sale of LNR Property LLC, a company in which Vornado owned a 26.2% stake. The deal that LNR Property penned was disclosed in January and saw Starwood Property Trust Inc. (STWD) and Starwood Capital Group acquiring LNR Property for $1.05 billion.

Notably, LNR Property LLC was the former investment arm of the homebuilder Lennar Corp. and was spun off by Lennar in 1997. Starwood had acquired the property from affiliates of Aozora Bank Ltd., iStar Financial and Vornado Realty Trust.

Vornado is focused on improving its core business and is making strategic sale outs. Recently, the company announced that it will realize a net gain of $69 million in the second quarter from the sale of two assets located in San Jose, CA and Philadelphia, PA. The San Jose property – The Plant – is a power strip shopping center while the other one is a retail property in Philadelphia that is part of the Gallery at Market East. We expect the strategic sale outs to add to Vornado’s financial flexibility and hence we remain encouraged.

Notably, in February, Vornado reported fourth-quarter 2012 adjusted FFO (funds from operations) per share of $1.22, beating the Zacks Consensus Estimate by 7 cents. Moreover, the earnings exceeded the year-ago adjusted FFO of $1.03 by 18.4%. The strong quarterly results were attributable to the company’s successful execution of strategic initiatives.

Going forward, we believe that Vornado’s portfolio repositioning through upscale asset acquisitions and strategic sale offs would poise it well on the growth trajectory. Moreover, the company’s healthy balance sheet and liquidity position facilitate it to take advantage of distressed selling as asset values of office and retail properties continue to drop in the aftermath of the recession. We expect all these factors to provide upside potential to the company going forward.

Vornado currently has a Zacks Rank #3 (Hold). REITs that are performing better than Vornado include Agree Realty Corp. (ADC) and Simon Property Group Inc. (SPG), both carrying 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.

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