Vornado Realty Trust (VNO) has done well over the past few months, outpacing the broader market while paying a reasonable yield. Analysts see the glass half-full in terms of the trust's management and ability to maintain its business model. However, they are less certain about the real estate market in general and thus have turned cautious on real estate investment trusts (REITs) for now.
Vornado Realty Trust is a fully‑integrated REIT and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership.
As of Dec. 31, 2011, Vornado was owner or partner in real estate holdings that included 30 properties aggregating 20.8 million square feet in midtown Manhattan; 77 properties aggregating 20.5 million square feet, including 63 office properties aggregating 17.5 million square feet and seven residential properties containing 2,424 units in Washington, D.C. and northern Virginia; and, in San Francisco’s financial district, a 70 percent controlling interest in 555 California Street, a three-building office complex aggregating 1.8 million square feet, known as the Bank of America Center.
In addition, Vornado’s retail holdings included 2.2 million square feet in 46 properties in Manhattan; 134 strip shopping centers, regional malls, and single tenant retail assets aggregating 24.2 million square feet, primarily in the northeastern states, California and Puerto Rico; and 5.7 million square feet of showroom and office space, including the 3.5 million square foot Merchandise Mart in Chicago.
As investments, Vornado held a 32.4 percent interest in Alexander’s (ALX), which owns seven properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg headquarters building; 12 percent of the outstanding common shares of Lexington Realty Trust (LXP), which has interests in 222 properties, encompassing approximately 42.1 million square feet across 42 states, generally net-leased to major corporations; a 25 percent interest in Vornado Capital Partners, an $800 million real estate fund; the 1,700 room Hotel Pennsylvania in midtown Manhattan; a 32.7 percent interest in Toys 'R' Us; an 11 percent interest in retailer J.C. Penney (JCP); and a 26.2 percent equity interest in LNR Property Corporation, a mortgage servicer and special servicer.
Vornado Realty Trust has a market cap of $15.43 billion in a sector, real estate investment trusts, where the average company size is $8.21 billion. Its trailing 12-month P/E ratio is 41.76.
Its projected earnings per share growth for the coming year is negative 1.13 percent, compared to a sector average of 23.51 percent.
Healthy balance sheet
Wall Street is broadly bearish on Vornado Realty Trust. Sell or underperform ratings are in from Goldman Sachs, EVA Dimensions, and Thomson Reuters/Verus. Keefe, Bruyette & Woods rate the stock at outperform.
“The company also has a healthy balance sheet and adequate liquidity. Consequently, Vornado is better placed than most of its peers to withstand the economic challenges,” said the analysts at Zacks Investment Research in a recent report.
“However, we expect continued volatility in the office sector with job cuts and a decline in market fundamentals. We maintain our long-term neutral recommendation for the company as we anticipate it to perform in line with the broader market.”
Vornado Realty Trust next reports on Aug. 6.
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