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Vornado Posts Strong 4Q

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Vornado Realty Trust (VNO - Free Report) – a leading real estate investment trust (REIT) – 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%.

For 2012, adjusted FFO per share stood at $5.17, significantly ahead of the Zacks Consensus Estimate of $5.05 and exceeding 2011 level of $4.90 by 5.5%. The strong quarterly and yearly results were attributable to the company’s successful execution of strategic initiatives.

Including the non-recurring items, FFO in the reported quarter stood at $55.9 million or 30 cents per share, compared with $280.4 million or $1.46 in the year-earlier quarter. For full year 2012, FFO, including the non-recurring items, came in at $818.6 million or $4.39 per share, compared with $1.23 billion or $6.42 in 2011.

Behind the Headlines

Total revenue inched up 1.1% to $697.7 million from $690.0 million in prior-year quarter. The figure also well exceeded the Zacks Consensus Estimate of $654 million. Total revenue for full-year 2012 came in at $2.77 billion, slightly increasing from the year-ago figure of $2.73 billion and was substantially ahead of the Zacks Consensus Estimate of $2.67 billion.

Same-store EBITDA (earnings before interest, tax, depreciation and amortization) on GAAP basis edged up 0.2% and decreased 14.3% year over year during the quarter in the New York City and Washington, DC portfolios, respectively. Same-store EBITDA (GAAP) inched down 0.1% and upped 0.2% year over year during the quarter in the retail portfolio and Merchandise Mart segment.

Same-store occupancy in the company’s New York City and Washington, DC portfolios were 96.2% and 84.1%, respectively, at the end of the year. In the retail portfolio and Merchandise Mart segment, same-store occupancy stood at 93.4% and 92.6%, respectively, at the end of 2012.

During the reported quarter, Vornado leased 463 square feet and 482 square feet of space in New York City and Washington, DC portfolios, respectively. Rents increased 3.4% (cash basis) and 5.8% (GAAP) compared with the previous rents in New York City office segment. In Washington, DC, rents dipped 2.6% (cash) and 2.4% (GAAP) versus the expiring rents. Retail rents (strip mall) increased 6.2% (cash) and 8.7% (GAAP) over in-place rents.


During the fourth quarter of 2012, Vornado completed the acquisition of 666 Fifth Avenue at 53rd Street – one of the prized retail assets in Manhattan – for $707 million. The property encompasses 114,000 square feet with a frontage of 126 feet on Fifth Avenue.

Also, the company bought a 58.75% interest in Independence Plaza, a 1,328-unit residential complex in Tribeca submarket of Manhattan, for $844.8 million. Notably, last year, Vornado had initiated its efforts to obtain a majority stake in Independence Plaza. It purchased a 51% interest in the plaza’s subordinated debt for $45 million as well as a warrant to buy 25% of the equity for $1 million.

In addition, Vornado Capital Partners, L.P. – a 25% owned real estate fund – acquired Calif.-based 800 Corporate Pointe, a 243,000 square foot office building and the associated six-level parking structure for $95.7 million.


During the reported quarter, Vornado sold 3 office buildings positioned in suburban Fairfax County, Va., for $126.3 million and generated a net gain of $36.7 million from the asset sale. Also, the company sold a showroom building – Boston Design Center – situated in Boston, Mass., for $72.4 million. The divesture generated a net gain of $5.3 million.

Subsequent to the end of the quarter, Vornado divested Green Acres Mall in Valley Stream, N.Y., for $500.0 million. Additionally, the company inked a deal to sell a power strip shopping center – The Plant – in San Jose for $203 million.


Vornado has a healthy balance sheet with very manageable near-term debt maturities and adequate cash. At the end of the year, the company had $960.3 million of cash and cash equivalents and total outstanding debt of $14.7 billion.

The FFO payout ratio (based on FFO as adjusted for comparability) during the reported quarter was 56.6% compared with 67.0% in the fourth quarter of 2011.

Our Viewpoint

We are impressed with the strong fourth-quarter results at Vornado. The company’s upscale assets acquisitions, made during the quarter, further strengthened its foothold in 2 of the best long-term office markets in the U.S. – the New York City and Washington, DC.

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 recession. We expect all these factors to provide upside potential for the company going forward.

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

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