Vornado Reports $224.9 Million Loss on J.C. Penney Stake

Vornado Realty Trust, the real estate investment trust that owns office and retail properties, said it had a $224.9 million loss on its 11 percent interest in J.C. Penney Co.

The owner of more than 100 million square feet (9 million square meters) of U.S. properties concluded that the stake is “other-than-temporarily” impaired, the New York-based landlord said in its annual report, filed yesterday.

“Our conclusion is based on the severity of the decline in the stock and our inability to forecast a recovery in the near term,” Vornado said in the filing.

Vornado invested in Plano, Texas-based J.C. Penney in 2010 along with William Ackman’s Pershing Square Capital Management LP, with a plan to close stores, wind down the retailer’s catalog business and implement a new selling strategy. J.C. Penney closed yesterday at $21.02, down 38 percent in two years.

“We weren’t expecting it, but it’s not a surprise,” Alex Goldfarb, analyst with Sandler O’Neill & Partners LP, said of the J.C. Penney loss. He has a hold rating on Vornado shares. Goldfarb said he believes “that the other investments Vornado is involved in take away from the core of their business, which is their office and retail portfolio.”

Vornado yesterday reported fourth-quarter funds from operations, a measure of cash flow used by REITs, of $55.9 million, or 30 cents a share, down from $280.4 million, or $1.46, a year earlier. Adjusted to eliminate certain one-time items, including the J.C. Penney loss, FFO was $1.22 a share, compared with $1.03 a year earlier.

Vornado executives probably will be asked about their strategy for the J.C. Penney investment on the REIT’s quarterly conference call, scheduled for today, Goldfarb said.

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