Vornado FFO Falls 35% as Income From J.C. Penney Stake Drops

Vornado Realty Trust, owner of more than 100 million square feet (9.3 million square meters) of U.S. properties, said fourth-quarter funds from operations dropped 35 percent as income from its stake in J.C. Penney & Co fell.

FFO, which gauges a property company’s ability to generate cash, was $280.4 million, or $1.46 a share, compared with $432.9 million, or $2.27, a year earlier, the New York-based real estate investment trust said today in a regulatory filing. Vornado was expected to have FFO of $1.24 a share, the average estimate of 10 analysts in a Bloomberg survey.

Income from Vornado’s 11 percent stake in the Plano, Texas-based retailer declined to $40.1 million from $97.9 million at the end of 2010, according to the filing. Vornado’s year-earlier results included a gain of about $54 million from its sale in October 2010 of a 45 percent share of the Warner Building, an office property at 1299 Pennsylvania Ave. in Washington.

“We expect continued earnings volatility related to the J.C. Penney investment” as well as Vornado’s stakes in the toy merchant Toys ‘R’ Us Inc. and other companies outside its real estate holdings, John Guinee, an analyst at Stifel Nicolaus & Co. in Baltimore, said in a Feb. 3 report.

FFO after adjustments to remove items that aren’t comparable quarter to quarter, including the J.C. Penney income, totaled $220.1 million, or $1.15 a share, up from $218.3 million a year earlier. Adjusted FFO was unchanged on a per-share basis. Revenue rose 5.5 percent to $741.8 million.

Washington Offices

Vornado had 20.6 million square feet of offices in the Washington market, including northern Virginia, and 19.2 million square feet in Manhattan as of Sept. 30, according to a third-quarter filing. It also owns street retail properties in Manhattan, shopping malls across the U.S. and Chicago’s Merchandise Mart showroom complex.

Occupancy at the company’s Washington-area office properties fell to 88.7 percent at the end of last year, from 94 percent at the end of 2010, according to the filing.

Vornado faces lease expirations in northern Virginia, where it expects the U.S. Defense Department to vacate about 2.4 million square feet as it shifts operations from rented space to military bases, Vornado said in the filing.

“Whether it’s state, local or federal government, if you’re planning on growth, you can’t,” said Tim Pire, portfolio manager for Chicago-based Heitman LLC, which said it held 797,668 Vornado shares on behalf of clients as of Dec. 31.

‘Bumpy Demand’

The office vacancy rate in northern Virginia rose to 16.5 percent at the end of last year, the highest since 2004, and will probably increase because of corporate job cuts and Defense Department departures, brokerage Cushman & Wakefield Inc. said in a January report.

Space demand in the District of Columbia is expected to be “bumpy” in an election year, the New York-based firm said in a separate report.

Occupancy at Vornado’s New York office properties was 95.6 percent, unchanged from a year earlier. Revenue from the New York offices rose less than 1 percent to $281.3 million, while in Washington it fell 1 percent to $157.6 million.

Fourth-quarter results were announced after the close of regular U.S. trading. Vornado fell 0.6 percent to $84.21 today in New York. The shares have lost 10 percent the last 12 months, compared with a 3 percent advance in the Bloomberg REIT Index.

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