Vornado Misses on FFO, Rev Up - Analyst Blog
May 07 2013 - 6:00AM
Zacks
Vornado Realty
Trust (VNO) – a leading real estate investment trust
(REIT) – reported first-quarter 2013 adjusted FFO (funds from
operations) per share of $1.14, missing the Zacks Consensus
Estimate of $1.85. However, the FFO exceeded the year-ago number of
98 cents by 16.3%. The year-over-year increase was attributable to
the company’s successful execution of strategic initiatives.
Including the non-recurring items,
FFO came in at $201.8 million or $1.08 per share, compared with
$348.5 million or $1.82 in the year-earlier quarter.
Total revenue upped 7.7% to $721.0
million from $669.2 million in prior-year quarter. The figure also
outpaced the Zacks Consensus Estimate of $631 million.
Behind the
Headlines
Same-store EBITDA (earnings before
interest, tax, depreciation and amortization) on GAAP basis nudged
up 4.6% and decreased 7.4% year over year in the quarter in New
York City and Washington, D.C. portfolios, respectively.
Same-store occupancy in the company’s New York City and
Washington, D.C. portfolios were 96.1% and 83.8%, respectively, at
the end of the first quarter.
In the reported quarter, Vornado
leased 909 square feet and 297 square feet of office space in New
York City and Washington, D.C. portfolios, respectively. Rents
increased 0.8% (cash basis) and 15.1% (GAAP) compared with the
previous rents in New York City office segment. In Washington,
D.C., rents escalated 3.5% (cash) and 5.5% (GAAP) versus the
expiring rents.
Notable Portfolio
Activities
Vornado divested Green Acres Mall
in Valley Stream, N.Y., for $500.0 million and generated a net gain
of $202.3 million.
Subsequent to the end of the
quarter, Vornado sold a power strip shopping center – The Plant –
in San Jose for $203 million and realized a net gain of
approximately $33 million.
Additionally, Vornado sold its
26.2% stake in LNR Property LLC to Starwood Property Trust
Inc. (STWD) and Starwood Capital Group for $1.05 billion.
Vornado reaped approximately $241 million as net proceeds from the
sale.
Liquidity
Vornado has a healthy balance sheet
with very manageable near-term debt maturities and adequate cash.
As of Mar 31, 2013, the company had $585.8 million of cash and cash
equivalents, compared with $960.3 million as of Dec 31, 2012. At
the end of the quarter, total outstanding debt stood at $13.5
million.
The FFO payout ratio (based on FFO
as adjusted for comparability) in the quarter was 64.0% compared
with 70.4% in the first quarter of 2012.
During the quarter, Vornado closed
on the $390 million worth financing of the retail condominium
situated at 666 Fifth Avenue at 53rd Street. Moreover, the company
completed $300 million financing of a N.J.-based shopping center –
Outlets at Bergen Town Center.
Additionally, Vornado extended one
of the 2 revolving credit facilities from Jun 2015 to Jun 2017,
with two six-month extension options. This helped in reducing the
interest expense of the facility.
Our Viewpoint
We are impressed with the decent
first-quarter results at Vornado. We believe that Vornado’s
portfolio repositioning through strategic sale-offs would position
it well on the growth trajectory. This has further strengthened its
foothold in 2 of the best long-term office markets in the U.S. –New
York City and Washington, D.C. 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.
However, we anticipate continued
volatility in the office sector with job cuts and a decline in
market fundamentals, which in turn are likely to limit Vornado’s
growth prospects.
Vornado currently has a Zacks Rank
#3 (Hold). Other better performing REITs include Host
Hotels & Resorts Inc. (HST) and LaSalle Hotel
Properties (LHO). Both 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.
HOST HOTEL&RSRT (HST): Free Stock Analysis Report
LASALLE HTL PRP (LHO): Free Stock Analysis Report
STARWOOD PROPRT (STWD): Free Stock Analysis Report
VORNADO RLTY TR (VNO): Free Stock Analysis Report
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