May 6 (Bloomberg) -- Vornado Realty Trust, which controls about 100 million square feet of U.S. commercial real estate, recorded $98.8 million of losses in the first quarter from its investment in struggling retailer J.C. Penney & Co.
The real estate investment trust had a $39.5 million non-cash impairment loss on shares of the retailer it holds, a $36.8 million loss on shares it sold and a $22.5 million loss from the decline in value of J.C. Penney derivatives, Vornado said today in a statement announcing its first-quarter earnings. The New York-based company’s funds from operations, a measure of cash flow used by REITs, fell 42 percent to $201.8 million, or $1.08 a share.
J.C. Penney and non-property investments are overshadowing Vornado’s performance as an owner and developer of office and retail properties, said Alexander Goldfarb, a Sandler O’Neill & Partners LP analyst. The REIT reported quarterly rental revenue of $499.2 million, up 5.1 percent from a year earlier.
“The question is how long do they want to continue to be there, and how long does Vornado want to sit through the restructuring that J.C. Penney has to go through,” Goldfarb, who raised his rating on Vornado to buy from hold in March, said in a telephone interview. “Their core businesses are good. If they could get rid of this other stuff, the core would be more valuable.”
As it did in February, when it announced a $224.9 million impairment from its J.C. Penney shares, Vornado today described the first-quarter losses as “other than temporary.” The company in March sold 10 million J.C. Penney shares, leaving it with 6.1 percent of the chain’s common stock.
J.C. Penney last month fired Chief Executive Officer Ron Johnson and reinstated his predecessor Myron E. Ullman III. It said last week it would air commercials apologizing for “mistakes” that alienated customers.
J.C. Penney is up 13 percent since March 5, the day Vornado sold about half its interest in the company. Vornado shares are up 4.4 percent since then.
After adjusting for the impact of J.C. Penney and other mostly one-time items, Vornado’s first quarter FFO was $1.14 a share, up from 98 cents a year earlier.
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