Vornado Realty Invests in JCP - Analyst Blog

Vornado Realty Trust (VNO), a leading real estate investment trust (REIT), has recently acquired beneficial ownership of approximately 10% of the common shares of J. C. Penney Company Inc. (JCP), a premier fashion specialty retailer in the U.S. The acquisition was made through the wholly-owned subsidiaries of Vornado Realty.

The strategic move was intended to capitalize on Vornado Realty’s expertise to better manage the real estate assets of J. C. Penney. Currently, J.C. Penney operates 1,108 department stores across the U.S., out of which it owns 416.

Vornado Realty is the largest publicly traded office REIT in the New York region, concentrating mostly on Class A office properties. The company also owns retail space, and temperature-controlled logistics and refrigerated warehouses. Besides its properties, Vornado Realty has investments in other REITs, industrial buildings and Toys ‘R’ Us. The company currently owns about 32.7% of Toys ‘R’ Us.

Vornado Realty has a strong asset portfolio in two of the best long-term office markets in the U.S. – the New York City and Washington DC. We believe this puts the company well ahead of many competitors, who have assets in less desirable markets that are struggling with high vacancies and little pricing power.

However, we expect continued volatility in the office sector with increasing job cuts. The continued troubles in the residential sector are also weighing on commercial property operations. The credit crunch has widened the bid-ask spread between buyers and sellers of commercial real estate, which has caused deal volumes to fall dramatically. This has affected the top-line growth of the company.

We maintain our long-term Neutral rating on Vornado Realty, which currently has a Zacks #2 Rank that translates into a short-term Buy recommendation and indicates that the stock is expected to perform well above the overall U.S. equity market for the next 1-3 months.