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Vornado Zooms Past Estimates

Zacks Equity Research

Vornado Realty Trust (VNO), a leading real estate investment trust (:REIT), reported first quarter 2012 FFO (funds from operations) of $348.5 million or $1.82 per share, versus $505.9 million or $2.64 in the year-earlier quarter. Funds from operations, 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.

The reported FFO per share during first quarter 2012 surpassed the Zacks Consensus Estimate by 5 cents. After adjusting items for comparability, FFO during the first quarter of 2012 was $346.8 million or $1.81 per share, compared with $331.2 million or $1.73 in the prior-year quarter.  

Total revenues during the reported quarter were $727.5 million compared with $726.9 million in the year-ago period. Total revenues during the quarter were well ahead of the Zacks Consensus Estimate of $661 million.

Same-store occupancy in the company’s New York City and Washington, DC portfolio was 96.1% and 87.5%, respectively, at quarter-end. Same-store EBITDA (earnings before interest, tax, depreciation and amortization) on GAAP basis increased 3.5% and decreased 7.1% during the quarter in the New York City and DC office portfolios, respectively, compared with the year-earlier quarter.

The company’s retail portfolio faltered slightly during the reported quarter; same-store occupancy was 93.2% at quarter-end, while same-store EBITDA (:GAAP) decreased 0.5% versus the year-ago quarter. In the Merchandise Mart segment, same-store occupancy was 83.5%, while same-store EBITDA (:GAAP) increased 5.4% year-over-year.

During the reported quarter, Vornado leased 513 square feet and 712 square feet in New York City and Washington, DC office portfolio. Rents increased 2.2% (cash basis) and 3.0% (:GAAP) compared with the previous rents in New York City office segment. In Washington DC, rents increased 0.9% (cash) and 2.9% (:GAAP) versus expiring rents. Retail rents (strip mall) increased 5.0% (cash) and 26.3% (:GAAP) over in-place rents.

Vornado has a healthy balance sheet with very manageable near-term debt maturities and plenty of cash. At quarter-end, the company had $614.4 million of cash and cash equivalents and total outstanding consolidated debt of $13.9 billion. The FFO payout ratio (based on FFO as adjusted for comparability) during the reported quarter was 38.2% compared to 39.8% in first quarter 2011.

Vornado is the largest publicly traded office REIT in the New York region. The core properties of the company are performing at a high level and it is maintaining strong occupancies in its New York City office and retail portfolios. We believe this puts the company well ahead of many of its competitors, who have assets in weak markets struggling with high vacancies and little pricing power.

We maintain our Neutral recommendation on Vornado, which presently has a Zacks #3 Rank that translates into a short-term Hold recommendation.We also have a Neutral recommendation and a Zacks #3 Rank for Brookfield Properties Corporation (BPO), a competitor of Vornado.

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