Vornado Realty Trust (VNO), a leading real estate investment trust (REIT), reported fourth quarter 2010 FFO (funds from operations) of $335.8 million or $1.76 per share, versus $0.02 million or break-even results 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 fourth quarter of 2010 was $224.2 million or $1.17 per share, compared with $186.1 million or $1.02 in the prior-year quarter. The recurring FFO per share during fourth quarter 2010 surpassed the Zacks Consensus Estimate by 8 cents.

For full year 2010, Vornado reported FFO of $1.1 billion or $6.05 per share, versus $583.6 million or $3.36 in the previous year. Adjusted FFO during the reported fiscal was $1.0 billion or $5.38 per share, compared with $848.6 million or $4.89 in 2009. Recurring FFO per share for fiscal 2010 marginally missed the Zacks Consensus Estimate by a penny.

Total revenues during the reported quarter were $713.0 million compared with $706.6 million in the year-ago period. Total revenues during the quarter were well ahead of the Zacks Consensus Estimate of $690 million.

For full year 2010, total revenues were $2.8 billion compared with $2.7 billion in the prior year. Total revenues during the reported fiscal marginally beat the Zacks Consensus Estimate of $2.7 billion.

Same-store occupancy in the company’s New York City and Washington, DC office portfolio was 95.6% and 94.3%, respectively, at quarter-end. Same-store EBITDA (earnings before interest, tax, depreciation and amortization) on GAAP basis increased 0.1% and 5.4% 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 also doing well: same-store occupancy was 92.3% at quarter-end, while same-store EBITDA (GAAP) increased 5.8% versus the year-ago quarter. In the Merchandise Mart segment, same-store occupancy was 92.5%, while same-store EBITDA (GAAP) decreased 4.2% year-over-year.

During the quarter, rents decreased 1.3% (cash basis) and increased 4.3% (GAAP) compared with the previous rents in New York City office segment. In Washington DC, rents decreased 1.7% (cash) and increased 5.7% (GAAP) versus expiring rents. Retail rents increased 12.8% (cash) and increased 19.7% (GAAP) over in-place rents.

Vornado sold two office buildings in Washington DC spanning 319,000 square feet of space during the quarter for $127 million. The company expects to raise net proceeds of $107 million from the asset sale, and would record $44 million as profit from the transaction in first quarter 2011.

Vornado sold the properties to Washington Real Estate Investment Trust (WRE), a premier REIT in the greater Washington metro region. The company sold 1140 Connecticut Avenue, a twelve story office building totaling 184,135 square feet, for $80.25 million. The property, strategically located in the heart of Washington’s Central Business District area, is 99% leased.

Washington Real Estate also purchased 1227 25th Street, an eight story office building totaling 130,434 square feet, for $47.0 million. The property, projected to produce a stabilized cash yield of 8.7%, is located in close proximity to 2445 M Street office building that was acquired by Washington Real Estate in 2008. Consequently, the acquisition offers scope to generate operating synergies and provides expansion space to its tenants. The company funded the deal through available cash and capacity under its line of credit.

Vornado has a healthy balance sheet with very manageable near-term debt maturities and plenty of cash. At year-end 2010, the company had $690.8 million of cash and cash equivalents and total outstanding consolidated debt of $13.8 billion. The FFO payout ratio during the reported quarter was 55.6% compared to 63.7% in fourth quarter 2009.

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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