Vornado Realty Trust (VNO), a leading real estate investment trust (REIT), reported first quarter 2011 FFO (funds from operations) of $505.9 million or $2.64 per share, versus $353.8 million or $1.87 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.

The reported FFO per share during first quarter 2011 surpassed the Zacks Consensus Estimate of $1.97. After adjusting items for comparability, FFO during the first quarter of 2011 was $338.5 million or $1.77 per share, compared with $348.6 million or $1.84 in the prior-year quarter.

Total revenues during the reported quarter were $737.1 million compared with $685.3 million in the year-ago period. Total revenues during the quarter were well ahead of the Zacks Consensus Estimate of $692 million.

Same-store occupancy in the company’s New York City and Washington, DC office portfolio was 95.7% and 93.4%, respectively, at quarter-end. Same-store EBITDA (earnings before interest, tax, depreciation and amortization) on GAAP basis decreased 1.7% and increased 5.1% during the quarter in the New York City and DC office portfolios, respectively, compared with the year-earlier quarter.

The company’s retail portfolio is continuing its improved performance; same-store occupancy was 92.4% at quarter-end, while same-store EBITDA (GAAP) increased 3.9% versus the year-ago quarter. In the Merchandise Mart segment, same-store occupancy was 90.8% (office) and 93.1% (showroom), while same-store EBITDA (GAAP) increased 8.6% year-over-year.

During the reported quarter, rents increased 16.3% (cash basis) and 16.6% (GAAP) compared with the previous rents in New York City office segment. In Washington DC, rents increased 3.3% (cash) and 10.2% (GAAP) versus expiring rents. Retail rents increased 24.3% (cash) and 31.1% (GAAP) over in-place rents.

Vornado acquired 95% ownership interest in One Park Avenue, a 932,000 square foot office building in New York, for $374.0 million during the quarter. The company also formed a 50/50 joint venture with SL Green Realty Corp. (SLG) to own the mezzanine debt of 280 Park Avenue, a 1.2 million square foot office building in Manhattan.

During the quarter, Vornado sold 2 office buildings in Washington DC for $127 million, resulting in net gain of $45.9 million. In addition, the company also sold 2 retail properties for a total of $38.7 million in cash, which resulted in net gains of $5.3 million.

Vornado has a healthy balance sheet with very manageable near-term debt maturities and plenty of cash. At quarter-end, the company had $618.4 million of cash and cash equivalents and total outstanding consolidated debt of $13.7 billion. The FFO payout ratio (based on FFO as adjusted for comparability) during the reported quarter was 38.9% compared to 35.3% in first quarter 2010.

Vornado is the largest publicly traded office REIT in the New York region. The core properties of the company are 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 of its competitors, who have assets in weak markets struggling with high vacancies and little pricing power. We maintain our ‘Neutral’ recommendation on Vornado, which presently has a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation.

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