VNO's Q2 Hit By Toys 'R' Us Losses

NEW YORK CITY—Higher losses on its stake in Toys “R” Us ate into Vornado Realty Trust's results for the second quarter. Net income for the office and retail REIT was off on a year-over-year basis, as was funds from operations, although adjusted FFO showed an increase on the year prior.

For three months ended June 30, net income was $76.6 million, or $0.41 per diluted share, compared to $145.9 million, or $0.78 per diluted share for the quarter ended June 30, 2013. FFO declined to $216.5 million, or $1.15 per diluted share, compared to $235.3 million, or $1.25 per diluted share a year ago, although it edged out a Zacks consensus estimate of $1.11 per share. However, AFFO for Q2 this year and last year was $271.6 million and $239.3 million, or $1.44 and $1.27 per diluted share, respectively.

Six-month comparisons on FFO and AFFO were more favorable for VNO's results in the current year. FFO for the six-month period that ended June 30, 2014 was $463.6 million, or $2.46 per diluted share, compared to $437.2 million, or $2.33 per diluted share for the prior year's six months. Six-month AFFO this year and last was $498.6 million and $450.9 million, or $2.65 and $2.40 per diluted share, respectively.

Toys “R” Us losses, however, were up even more sharply Y-O-Y. The retailer posted negative FFO of $51.9 million for Q2, compared to negative $25.1 million a year ago.   

In a US REIT report issued prior to VNO's quarterly 10-Q filing, Barclays Capital gave the company's stock an “overweight” rating, with a price target of $112 per share. “We believe in the long run, VNO will benefit from its platform and its access to incremental capital sources.” Conversely, though, while a stepped-up repositioning of VNO's portfolio could boost that price per share to $126, a softening of the employment rate in New York City and Washington, DC—its primary markets—could pressure its office occupancy and rents, leading to a downside price target of $74 per share.