Real estate investment trust (REIT) – Vornado Realty Trust (VNO - Analyst Report) – will realize a net gain of $69 million in the second quarter from the sale of two assets located in San Jose, Calif., and Philadelphia, Pa.
The San Jose property – The Plant – is a power strip shopping center. It was sold for $203 million. The other one is a retail property in Philadelphia that is part of the Gallery at Market East, which was divested for $60 million.
Together, the deals helped generate gross proceeds of $263 million. However, after taking into account the closing expenses as well as the repayment of the mortgage on the San Jose property, net proceeds came in at around $156 million. Finally, net gain was estimated at $69 million, which Vornado will realize in the second quarter.
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 facilitates 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 Federal Realty Investment Trust (FRT - Analyst Report), Agree Realty Corp. (ADC - Snapshot Report) and Simon Property Group Inc. (SPG - Analyst Report). All these stocks carry 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.