Vornado Realty Trust (VNO:US) President Michael Fascitelli said the owners of LNR Property Corp., the biggest manager of troubled U.S. commercial real estate loans, are exploring “strategic alternatives” for the company.
Vornado, the owner of more than 100 million square feet (9.3 million square meters) of U.S. properties, has a 26 percent stake in LNR. The business produced $22 million of income in the first half for Vornado, yielding a return of more than 30 percent, Fascitelli said today during the New York-based company’s first earnings conference call.
“It’s been a terrific investment,” Fascitelli said. “It’s met all our expectations. We are enjoying great results, but right now the owners of that are exploring strategic alternatives, so that’s on its own time frame.”
Vornado is seeking to simplify its operations in response to shareholder complaints that it has too many disparate businesses. The real estate investment trust is focusing on its urban street retail properties and its office buildings in New York and Washington, and it initiated conference calls in response to demands for better communication with investors.
Vornado bought its stake in Miami Beach, Florida-based LNR in July 2010 along with iStar Financial Inc. (SFI:US), Cerberus Capital Management LP and Oaktree Capital Group LLC. (OAK:US) LNR’s main business is working out commercial loans threatened with default, a process known as special servicing. The company manages about $153.7 billion of securitized loans, including more than $22 billion that are delinquent, according to data compiled by Bloomberg.
The acquisition gave Vornado an eye into a “critical market” of more than 1,400 troubled mortgages, Chairman Steven Roth said last year in a letter to investors.
Vornado has already sold (VNO:US) $821 million of assets out of a goal of $1 billion, Fascitelli said. The company may make another $1 billion in dispositions after that, he said.
Properties on the market include the Green Acres Mall in Valley Stream, New York, while Vornado’s Alexander’s Inc. affiliate has Brooklyn’s Kings Plaza shopping center up for sale, Fascitelli said. The company also intends to sell Eatontown, New Jersey’s Monmouth Mall, as well as retail properties in Puerto Rico.
Funds from operations, which gauges a REIT’s ability to generate cash, fell 32 percent in the second quarter to $166.7 million, or 89 cents a share, Vornado said yesterday. Most of the decline was because of a $58.7 million drop in the value of its investment in J.C. Penney (JCP:US) Co.
Roth said on the call that Vornado is “committed to” hold onto its 11 percent stake in J.C. Penney because it expects to benefit from an upgrade of the Plano, Texas-based retailer’s selling strategy.
“We have enormous confidence in” J.C. Penney Chief Executive Officer Ron Johnson and his team, he said. “They’re in the middle of making some very important and proper mid- course corrections right now. We’re in this thing for the long haul.”
Vornado fell 2.4 percent to $83.59 in New York trading. The shares (VNO:US) have gained 8.8 percent this year, compared with a 14 percent advance in the Bloomberg REIT Index. (BBREIT)
Vornado previously skipped quarterly earnings conference calls, which are standard for most public companies. Roth said at a conference at Georgetown University in April that he felt that by disclosing business activities in regulatory filings, Vornado would provide more detail than their competitors. Chief Financial Officer Joseph Macnow would spend the three days following each quarterly report on the phone, discussing the results individually with investors and analysts.
“That was our preferred form of communication,” Roth said at the Georgetown conference. “Everybody says you guys are idiots, the stock doesn’t trade where it should trade, and the reason is you don’t do conference calls.”
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