Vornado Quarterly FFO Improves: Should Maintain Favorable Position

| About: Vornado Realty (VNO)
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Vornado Realty Trust (NYSE:VNO), a leading real estate investment trust (REIT), reported break-even fourth quarter 2009 FFO (funds from operations) compared to -57 cents per share in the year-earlier quarter.

Fund 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 $1.04 per share, compared to $1.07 in the prior-year quarter.

For full year 2009, Vornado reported FFO of $583.6 million or $3.36 per share compared to $813.1 million or $4.97 per share in the previous year. After adjusting items for comparability, FFO during 2009 was $5.00 per share, compared to $5.19 in the previous year.

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 New York City office and retail portfolios. 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 and Washington, DC office portfolio were 95.5% and 94.9%, respectively, at year-end 2009. Same-store EBITDA (earnings before interest, tax, depreciation and amortization) on GAAP basis decreased 2.0% and increased 4.2% during the quarter in the New York City 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 4.2% vs. the year-ago quarter. In the Merchandise Mart segment, same-store occupancy was 88.9% (office) and 88.4% (showroom), while same-store EBITDA decreased 11.6% year-over-year.

During the quarter, rents decreased 6.2% (cash basis) and 2.6% (GAAP basis) compared to the previous rents in New York City. In Washington DC, rents increased 22.1% (cash) and 23.8% (GAAP) versus expiring rents. Retail rents increased 10.6% (cash) and 26.6% (GAAP) over in-place rents.

Vornado has a healthy balance sheet with very manageable near-term debt maturities and plenty of cash. At year-end 2009, the company had $535.5 million of cash and cash equivalents and total outstanding consolidated debt of $10.9 billion. Total consolidated debt decreased by $1.5 billion during 2009 compared to 2008. In addition, Vornado had $852.2 million availability under its revolving credit facilities at year-end 2009.

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 New York City to enable it to maintain rents at current levels, although occupancy could suffer in the near-term.