Hurt by higher Toys 'R' Uslosses, Vornado Realty Trust (VNO) reported negative funds from operations (FFO) per share of 4 cents in fourth-quarter 2013. The company’s had reported FFO per share of 30 cents in the year-ago quarter.
However, on an adjusted basis, Vornado’s FFO per share came in at $1.33, higher than the year-ago FFO of $1.11. The Zacks Consensus Estimate for fourth-quarter 2013 FFO per share stood at 65 cents.
For full-year 2013, Vornado reported FFO per share of $3.41, compared to $4.39 per share in 2012. On an adjusted basis, FFO stood at $5.01 in 2013, compared to year-ago figure of $4.18.
Though total revenue declined 1.9% year over year to $673.3 million in fourth-quarter 2013, it outpaced the Zacks Consensus Estimate of $668.0 million. Nonetheless, for 2013, Vornado’s total revenue edged up slightly by 0.9% year over year to $2.76 billion.
Quarterly Details
Vornado leased 559,000 square feet in New York City portfolio in the fourth-quarter. On a GAAP basis, rents increased 13.3% versus the previous straight-line rent in the portfolio. At quarter-end, same-store occupancy in the New York City portfolio was 96.8% (up 70 basis point year over year).
On the other hand, in the Washington, D.C. portfolio, Vornado leased 312,000 square feet of office space and rents increased 3.4% in the portfolio versus the previous straight-line rent. At quarter-end, same-store occupancy in the Washington, D.C. portfolio was 83.4% (down 70 basis point year over year).
Same-store earnings before interest, tax, depreciation and amortization (EBITDA) on a GAAP basis rose 6.7% and 4.1% year over year in the New York City and Washington, DC portfolios, respectively.
Notable Portfolio Activities
Since 2013, Vornado completed several office and retail asset acquisitions. These included purchase of 20.1% stake in 650 Madison Avenue for $260 million; and 92.5% interest in 655 Fifth Avenue for $277.5 million. Also, Vornado completed the assemblage of 220 Central Park South site in Manhattan by acquiring the land and air rights of an area for $194 million.
On the other hands, since 2013, Vornado divested 20 assets and marketable securities worth $1.8 billion and generated net proceeds of about $1.3 billion. The notable ones are the disposition of Green Acres Mall in Valley Stream, New York; The Plant in San Jose, California; 866 United Nations Plaza in Manhattan; and 26.2% stake in LNR. Also, the divestiture of marketable securities, including J. C. Penney Company, Inc. (JCP), is noteworthy.
Liquidity
As of Dec 31, 2013, Vornado had $583.3 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 was $13.7 billion.
The FFO payout ratio (based on FFO as adjusted for comparability) in the quarter was 54.9% versus 62.2% in the year-ago quarter.
Our Viewpoint
While one time losses have affected the company's results this quarter and the balance sheet position is not impressive, we believe that the company promises better results in quarters ahead. This is because the company’s strategic portfolio repositioning activity and strong leasing activity in two of the most vibrant long-term office markets – New York City and Washington, D.C – in the U.S bodes well for long-term growth.
Vornado currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the REIT-Equity Trust – Other industry include Liberty Property Trust (LRY) and Cousins Properties Incorporated (CUZ). Both the stocks hold 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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