Vornado Rebounds with Positive Second Quarter

Vornado Realty Trust reported its second quarter results on Monday, with funds from operations up to $235.3 million, or $1.25 per diluted share, from $166.7 million, or $0.89 per diluted share, for the same period last year.

“It was a positive quarter,” Michael Knott, managing director at Green Street Advisors, told The Commercial Observer. “The first quarter was very noisy from an accounting standpoint.”

Vornado posted a 42 percent year-over-year FFO decline in the first quarter, which was largely attributed to the real estate investment trust’s stake in J.C. Penney Co. The company reported close to $100 million in quarterly losses from its investment in the struggling retailer, nearly $40 million of which came directly from the sale of shares in the company.

The impact of Vornado’s investments has lessened over time, Mr. Knott noted. “The reality is, there’s a trio of investments there, Toys ‘R Us, J.C. Penney and Lexington, and those investments are all fairly small in context of the company’s asset base,” he said, adding that the sooner the REIT can monetize those investments, the more attractive the company will be in the eyes of investors.

Shares in Vornado, which closed just above $84 on Tuesday before falling at Wednesday’s market open, continue to trade at a discount to net asset value.

“The stock is one of the most discounted office names,” Mr. Knott said. “Investors still have Vornado in the penalty box for a variety of reasons and I think that valuation overstates the concerns.”

Vornado continued to strengthen its position in the Manhattan office market during the second quarter with a number of significant leasing transactions, including Facebook’s 10-year, 100,000-square-foot lease at 770 Broadway.

Steven Roth, chairman of Vornado, said in a conference call yesterday that the REIT will invest $12.5 million in 650 Madison Avenue. As reported by The Commercial Observer, Crown Acquisitions and Highgate Holdings agreed to acquire the Plaza District property for $1.3 billion in June.

“I think [Vornado’s] attraction to Manhattan street retail is pretty clear, they’ve made some big investments in the last couple of years and given the fact that street retail is a big component of 650 Madison, it does make sense,” Mr. Knott noted, cautioning that the small investment was unlikely to “move the needle.”

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