Vornado Realty Appears Likely To Spin Off D.C. Properties

Vornado Realty Trust (NYSE: VNO), which is undergoing a business transition process to strengthening its core operations, has spun-off its shopping center unit and could do the same with its Washington D.C. properties, Argus’s Jacob Kilstein said in a report. He maintained a Hold rating on the company.

Vornado Realty reported its 2Q16 adjusted FFO at $233 million, or $1.23 per share, down from $239 million, or $1.25 per share, in 2Q15. AFFO came in short of the consensus estimate of $1.25 per share, with the shortfall being driven by oversupply in the New York market, competition from Airbnb, and weakness in Washington D.C., analyst Kilstein noted.

The FFO per share estimates for 2016 and 2017 have been reduced from $5.05 to $4.93 and from $5.45 to $5.44, respectively.

Possible Spin Off

Vornado Realty’s Washington D.C. segment has been weighing on performance. “The company is pursuing a “prune-and-simplify” strategy, and recently completed the spinoff of its strip shopping centers and malls,” Kilstein mentioned. He added that Vornado Realty could further streamline its operations by spinning off the Washington D.C. business.

The analyst commented that an upgrade in rating may be considered “on signs of a spinoff of the Washington business, a bottom in the Washington leasing market, or a non-fundamental pullback that raised the dividend yield closer to 3.0%.”

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