J.C. Penney investment hurts Vornado in second-quarter

NEW YORK Mon Aug 6, 2012 6:58pm EDT

NEW YORK (Reuters) - Vornado Realty Trust (VNO.N), owner of U.S. office and retail properties, said its investment in J C Penney (JCP.N) and a lackluster office rental market helped drive down its quarterly results.

The company said on Monday said it recognized a loss of $58.7 million from the mark-to-market of the underlying common shares of its derivative position in the retailer.

"It's not very awe inspiring," said Richard Imperiale, president of Uniplan Investment Counsel Inc.

Vornado, posted second-quarter funds from operations (FFO) attributable to common shareholders of $166.7 million, or 89 cents per share, compared with $243.4 million, or $1.27 per share, a year ago.

Adjusted for non-comparable items, FFO was $211.6 million, or $1.13 per share, versus $220.3 million, or $1.15 per share, a year ago.

FFO, a measure of REIT performance, removes the profit-reducing effect that depreciation has on earnings.

Vornado, with office and retail property in New York, Washington and Chicago, has seen its stock underperform that of its peers for years. The company has been working to focus more on its street-level retail properties and its office buildings while putting some non-core assets up for sale.

It also owns stakes in Toys R Us TOY.UL as well as J.C. Penney, which it has said it wants to keep.

For New York properties that Vornado has owned at least a year, earnings before interest, taxes, depreciation and amortization, or EBITDA, rose 1.5 percent on a cash basis from a year earlier.

Vornado continued to feel the pullback by the U.S. federal government, particularly from the 2005 Defense Base Closure and Realignment Commission, with EBITDA for properties in the Washington, D.C. area falling 9.9 percent.

EBITDA for its retail properties fell 1.3 percent from a year earlier, but EBITDA from its Merchandise Mart showroom properties rose 7.2 percent.

Vornado will hold its first regular quarterly earnings conference calls with industry on Tuesday.

Shares of Vornado on Monday closed down 0.1 percent at $85.60 on the New York Stock Exchange, ahead of its earnings release. Shares rose slightly to $85.69 in light after-hours trade.

Vornado's shares are up 11.4 percent since the beginning of the year. That trailed the 15.4 percent increase for the benchmark MSCI US REIT index.

(Reporting By Ilaina Jonas; Editing by Steve Orlofsky)

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