Nov. 4 (Bloomberg) -- Vornado Realty Trust, the third- biggest U.S. real estate investment trust, rose 12 percent in New York after beating analysts' earnings projections on gains from the sale of real estate.

Third-quarter net income excluding items was $1.26 a share, higher than the $1.22 projected by analysts. Revenue rose 6.3 percent to $677.1 million, New York-based Vornado said today in a statement.

Vornado owns about 34 million square feet (3.16 million square meters) of offices, almost all in New York and Washington, and another 24.6 million square feet of malls and retail properties in the U.S. Vornado said today the credit crisis and the slowing economy may lower profit in future quarters.

``They have less exposure to financial services tenants than other New York owners,'' said Michael Knott, REIT analyst for Green Street Advisors of Newport Beach, California. ``There seems to be a little less headline risk, but it's not like their tenants are completely immune to the economic downturn.''

Manhattan provided Vornado with 29 percent of its 2007 revenue, according to a Sept. 16 UBS AG report. Banking and securities firms contributed 15 percent of its sales, compared with 42 percent for competitor SL Green Realty Corp. and 22 percent for Boston Properties Inc.

Vornado rose $8.16 to $75.10 in New York Stock Exchange composite trading. The shares dropped 28 percent in the past 12 months, compared with a 38 percent fall in the Bloomberg REIT Index.

Net Income Drops

Net income declined to $45.7 million, or 20 cents a share, from $130.8 million, or 74 cents, a year earlier, Vornado said today. Funds from operations, a measure of cash flow, dropped to $1.06 a share.

Vornado said the value of its joint ventures and financial investments may also decrease as the credit freeze continues.

``Our existing real estate portfolio may be affected by tenant bankruptcies, store closures, lower occupancy and effective rents,'' the company said in a regulatory filing. ``It is difficult to predict when or if these markets will return to historical capacity and pricing levels.

The company said Circuit City Stores Inc., the electronics retailer that plans to close a fifth of its 721 U.S. stores, leases 12 Vornado locations and pays about $8.1 million in annual rent.

Retail Income

Retail income ``remained surprisingly buoyant'' in the quarter, wrote Wachovia Securities REIT analyst Christopher Haley today in a research note. New rents are running 13 percent ahead of expiring rents on the same space, he said, though that is down from a 21 percent spread the year before.

Vornado's total expenses in the third quarter jumped 10 percent to $467.5 million. Income from continuing operations fell to $53.5 million from $121.4 million a year earlier. The drop was caused in part by a $14.6 million expense from sales of stock in Alexander's Inc., a Vornado-controlled REIT which owns office and retail properties in the New York area.

Steven Roth, chairman of Vornado, said in April he wants to ``simplify and prune'' the company by selling businesses outside its office and retail operations, while building up cash to take advantage of falling property values. The company has about $4 billion of cash and unused credit, Levy said.

Last week, the company agreed to pay $44.8 million for 8 million shares of Lexington Realty Trust, a New York-based investor in single-tenant corporate office and industrial buildings. Vornado now owns about 17.6 percent of Lexington, when combined with shares it previously held.

Vornado owns 1 and 2 Penn Plaza in New York, Democracy Plaza in Bethesda, Maryland, the Green Acres Mall in Valley Stream, New York, and Chicago's Merchandise Mart showroom center, the world's largest commercial building with 4.2 million square feet.

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net.

Last Updated: November 4, 2008 16:27 EST