Vornado Realty Trust: some analysts and investors said this may be as good as it gets for now

But some investors and analysts are raising

questions about how much growth can be

expected from Vornado

By A.D. PRUITT
Wall Street Journal
11/2/10

Vornado Realty Trust, one of the nation's largest commercial landlords, reported a 26% decline in third-quarter profit, but the results were stronger than expected as the company benefited from higher rents and occupancy levels at its retail properties.

The results, released Tuesday, suggest that commercial-property markets in the nation's urban centers are on the mend. But some investors and analysts are raising questions about how much growth can be expected from Vornado and its shares, which last week hit a 52-week high.

Excluding debt-related payments and other items, funds from operations—a profitability metric for real-estate investment trusts—rose to $1.22 a share in the third quarter from $1.18 a share in the same period last year. Profit fell to $104.3 million, or 52 cents a share, from the year-ago period when the company benefited from a gain from discontinued operations. Revenue rose 5.3%, to $707 million.

Vornado has benefited from strong leasing and rental rates in Washington, D.C., where demand for office space from the federal government has propped up the market. Another core market, New York City, has seen rents and occupancy declines stabilize.

The company's results come in the wake of stronger-than-expected earnings recently reported by other office REITs Boston Properties Inc. and SL Green Realty.

But with Vornado's stock up 24% since the beginning of the year, some analysts and investors said this may be as good as it gets for now. Acquisitions have been difficult because few desirable properties have come to market and when they have prices have been bid up.

"Vornado is so large there is a constant concern on how they can deploy capital in such a way that will help to grow the wealth of the company. It takes a lot to move the needle," said Michael Knott, an analyst at Green Street Advisors.

He said there has been an element of surprise with the company in terms of their investment choices, including its recent 9.9% stake in retailer J.C. Penney Co. "I think there is an uncertainty or complexity discount priced into the stock that's been pretty consistent," Mr. Knott said.

Grandpa's 2 cents worth on Vornado