Vornado Realty Trust (
VNO) reported strong third quarter 2009 results with FFO (funds from operations) of $234.2 million or $1.25 per share, compared to $159.8 million or 97 cents per share 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. After adjusting items for comparability, FFO during the quarter was $1.18 per share, compared to $1.17 in the prior year quarter.
Vornado is the largest publicly traded office REIT in the New York region. The core properties of the company are still performing at a high level and it is maintaining strong occupancies in its NYC office and retail portfolios.
The company is also increasing rents in most property formats. We believe this puts the company well ahead of many competitors who have assets in less desirable markets -- still struggling with high vacancies and little pricing power.
Same-store occupancy in the company’s New York City (NYC) and Washington, DC office portfolio were 96.0% and 94.8%, respectively, during the quarter. Same-store EBITDA (GAAP basis) increased 1.5% and 10.0% during the quarter in the NYC and DC office portfolios, respectively, compared to the year-earlier quarter.
The company’s retail portfolio is also doing well; same-store occupancy was 91.6% at quarter end, while same-store EBITDA increased 2.0% vs. the year-ago quarter. In the Merchandise Mart segment, same-store occupancy was 87.1% (office) and 88.9% (showroom), while same-store EBITDA decreased 5.7% year over year.
The company is still signing leases at significantly higher rental rates than expiring leases. During the quarter, rents increased 0.9% (cash basis) and 8.3% (GAAP basis) compared to the previous rents in NYC. In Washington DC, rents increased 13.7% (cash) and 14.9% (GAAP) versus expiring rents. Retail rents increased 11.0% (cash) and 17.7% (GAAP) over in-place rents.
Vornado has a healthy balance sheet with very manageable near-term debt maturities and plenty of cash. During the quarter, the company sold a newly developed 250,000 square feet office building in DC for a net gain of $41.2 million. At quarter end, the company had $2.6 billion of cash and cash equivalents.
Vornado has the resources to capitalize on potential opportunities developing in commercial real estate. Smaller private developers and owners are running into problems refinancing loans due to problems in the credit markets; as such, it is possible that the company could take advantage of distressed selling as asset values of office and retail properties continue to drop. We expect Vornado’s favorable position in NYC to enable it to maintain rents at current levels, although occupancy could suffer in the near-term.
Read the full analyst report on "VNO"Zacks Investment Research
-
