Vornado Realty Trust (VNO)

Vornado Realty Trust (VNO) is a diversified REIT (real estate investment trust) company that operates through five segments viz. Office properties; Retail, including strip centers, regional malls; Merchandise Mart; Temperature Controlled Logistics and Others Investments. VNO earns major revenues from its Office segment that contributed 57.7% of total revenues in third quarter of 2006. VNO’s Office segment operates an upper-quality office portfolio in New York City with 26 office properties, whereas suburbs of Washington D.C. has 91 office properties.

The US office real estate industry fundamentals have seen continued recovery, led by steady job growth and economic expansion that have driven national office vacancies down from the 18% peak in fourth quarter of 2003 to around 13% in third quarter of 2006. The situation in Washington D.C. and New York have been no different with improvement in metropolitan office area-wise employment of 3.5% and 0.9% respectively on Y-o-Y basis for Nov, 06, combined with tame levels of new supply have contributed best earnings growth for REITs operating in these regions. During 2007, New York and Washington D.C. will continue to see positive net absorption, with low new supply and positive rent rolls, however latter has recently seen a large pick in supply.

VNO’s Office segment in New York had occupancy rate of 97.4% as of Sep.06 with about manageable near term lease expiry of 13.8% through 2008. Additionally, the company is growing its investment in this vibrant city, which can be witnessed by recent acquisition of 350 Park Avenue office tower, mixed-use property of Manhattan Mall and Bruckner Plaza Shopping Center. VNO along with two other REITs veteran is planning to acquire Equity Office Properties Trust, to create preeminent positions in the New York City, Washington, Boston, San Francisco and Los Angeles markets.

VNO’s Office segment in Washington D.C. had occupancy rate of 91.2% as of Sep.06 with currently 34.7% of its rents expiry till the end of 2008. VNO has cash chest of $387 mn, $261 mn of marketable securities and lower debt/assets leverage ratio of 0.5% compared to industry average of 0.6%, makes it acquisition savvy. With recent acquisitions in the high rental New York City, positive industry synergies, and lower rollovers, together make VNO an attractive buy.