Bloomberg News

Vornado Second-Quarter FFO Rises 19% on Lexington, LNR Gains

August 01, 2011

(Updates with New York and Washington office revenue in seventh paragraph, comment from analyst in ninth paragraph.)

Aug. 1 (Bloomberg) -- Vornado Realty Trust, the fourth- biggest U.S. real estate investment trust, said second-quarter funds from operations rose 19 percent as it booked gains on investments in LNR Property Corp. and Lexington Realty Trust.

FFO, which gauges a property company’s ability to generate cash, increased to $243.4 million, or $1.27 a share, from $204.8 million, or $1.11, a year earlier, the New York-based company said today in a statement posted on its website. Vornado was expected to have FFO of $1.13 a share, the average estimate of nine analysts in a Bloomberg survey.

LNR is the largest specialist in resolving delinquent loans that are packaged into bonds, also known as a special servicer. Vornado also holds about 12 percent of the shares of Lexington Realty Trust, a REIT that focuses on single-tenant properties. Together they produced $14.3 million of second-quarter income, compared with none a year earlier.

“Lexington has been a meaningful outperformer of late, with a 45 percent total return since Dec. 31, 2009, versus 36 percent for the REIT sector,” Andrew Rosivach, an analyst with Credit Suisse Group AG, wrote in a July 19 report. “This movement is significant as Vornado does not see itself as a long-term holder of the stock.”

The company holds a 26 percent interest in LNR, according to Rosivach, who has a “neutral” rating on Vornado. He said Vornado has estimated that the loan servicer will generate $12 million of earnings before taxes and other items per year.

J.C. Penney Loss

Vornado recorded a $6.8 million loss in the second quarter on its shares of J.C Penney Co., the Plano, Texas-based department store chain. J.C. Penney shares fell 3.8 percent in the second quarter.

The REIT gets about half of its earnings before taxes and other items from its office buildings in New York and Washington, where it is among the largest office landlords. Rental revenue from its properties in both cities declined in the quarter. In New York, rent revenue was $209.2 million, down 1.2 percent, while in Washington, it was $141.6 million, down 2 percent.

Office rents in the U.S. capital have fallen for two straight quarters following a 10 percent rise from June 2009, according to data from Cushman & Wakefield Inc., a New York- based brokerage.

Washington Offices

Washington’s office market has been hurt by the debate over the federal debt ceiling and budget cuts, said Alexander Goldfarb, an analyst with Sandler O’Neill & Partners LP.

“It’s not to say the market is going negative, but it’s no longer full throttle,” Goldfarb, who has a “hold” rating on Vornado, said in a phone interview before the earnings report. “The throttle has been pulled back almost to neutral.”

Total revenue was $730.2 million, up 6.7 percent from a year earlier. About $32 million of the increase is related to Vornado’s Cleveland Medical Mart project, of which $29.9 million is offset by development costs, Vornado said in a regulatory filing made today.

FFO after adjustments to remove items that are not comparable from quarter to quarter was $235.2 million, or $1.23 a share, up from $214.8 million, or $1.16, a year earlier. Those figures don’t include the LNR and Lexington gains, or the J.C. Penney loss.

FFO, used by REITs, doesn’t conform to generally accepted accounting principles.

Vornado fell $1.24 to $92.31 as of 4:15 p.m. in New York Stock Exchange composite trading. The stock has gained 11 percent this year, compared with a 7.4 percent increase in the Bloomberg REIT Index.

--Editors: Christine Maurus, Daniel Taub

To contact the reporter on this story: David M. Levitt in New York at

To contact the editor responsible for this story: Kara Wetzel in New York at

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