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Vornado Realty Trust (VNO - Analyst Report), a leading real estate investment trust (REIT), reported third quarter 2012 FFO (funds from operations) of $251.0 million or $1.34 per share, versus $195.1 million or $1.05 in the year-earlier quarter. The year-over-year increase in FFO was primarily due to incremental income from interest and other investments and a dip in debt expenses. The reported FFO per share during third quarter 2012 well exceeded the Zacks Consensus Estimate of $1.17.
After adjusting items for comparability, FFO during the third quarter of 2012 was $212.2 million or $1.14 per share, compared with $209.7 million or $1.13 in the prior-year quarter. Total revenues during the reported quarter were $711.0 million compared with $687.9 million in the year-ago period. Total revenues during the quarter were well ahead of the Zacks Consensus Estimate of $670 million.
Same-store occupancy in the company’s New York City and Washington, DC portfolios were 95.9% and 84.0%, respectively, at quarter-end. Same-store EBITDA (earnings before interest, tax, depreciation and amortization) on GAAP basis increased 0.3% and decreased 6.9% during the quarter in the New York City and DC portfolios, respectively, compared with the year-earlier quarter.
Same-store occupancy in the retail portfolio was 93.4% at quarter-end, while same-store EBITDA (GAAP) increased 0.1% versus the year-ago quarter. In the Merchandise Mart segment, same-store occupancy was 94.2%, while same-store EBITDA (GAAP) decreased 0.9% year over year.
During the reported quarter, Vornado leased 514 square feet and 435 square feet in New York City and Washington, DC portfolios respectively. Rents increased 8.9% (cash basis) and 5.0% (GAAP) compared with the previous rents in New York City office segment. In Washington DC, rents increased 8.9% (cash) and 13.8% (GAAP) versus expiring rents. Retail rents (strip mall) increased 4.0% (cash) and 8.8% (GAAP) over in-place rents.
During third quarter 2012, Vornado Capital Partners, L.P. – a 25% owned real estate fund, acquired 1100 Lincoln Road retail property for $132 million. The property spanning 167,000 square feet, was 97% leased at the point of purchase and is one of the prime attractions of the Lincoln Road shopping district in Miami Beach, Florida. The real estate fund also acquired 501 Broadway, a 9,000 square foot retail property in New York for $31.0 million.
Additionally, Vornado also entered into an agreement to acquire a retail condominium located at 666 Fifth Avenue on 53rd Street in New York City for approximately $707 million. The property encompasses 114,000 square feet with a frontage of 126 feet on Fifth Avenue. The transaction will be funded with property level debt and proceeds from asset sales and is expected to close in the fourth quarter of 2012.
Also during the quarter, Vornado entered into a lease with Host Hotels & Resorts, Inc. (HST - Analyst Report), to redevelop the retail and signage components of the Marriott Marquis Times Square Hotel in Manhattan. The lease contains options based on cash flow which, if exercised, and would lead to an ownership by Vornado in the asset.
During the reported quarter, Vornado entered into agreements to sell the Washington Design Center, the Boston Design Center and the Canadian Trade Shows, for a total of $175.0 million in cash. In addition, Vornado completed the sale of 409 Third Street S.W., a 409,000 square foot office building in Washington, DC, for $200.0 million in cash. Subsequent to the quarter-end, the company entered into an agreement to sell three office buildings (494,000 square feet) in suburban Fairfax County, Virginia, for $126.0 million, and the Green Acres Mall in Valley Stream, New York, for $500.0 million.
Vornado has a healthy balance sheet with very manageable near-term debt maturities and adequate cash. At quarter-end, the company had $465.9 million of cash and cash equivalents and total outstanding debt of $13.6 billion. The FFO payout ratio (based on FFO as adjusted for comparability) during the reported quarter was 60.5% compared to 61.1% in third quarter 2011.
We maintain our Neutral recommendation on Vornado, which presently has a Zacks #3 Rank that translates into a short-term Hold recommendation.
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.