Wednesday, January 31, 2007

Vornado is expected to top Blackstone's bid for Equity Office Properties. The bid will likely be $55 to $57 per share. Analyst's estimate EOP to have a FFO of $2.35 per share in 2007. This puts the sale at a multiple of 23 to 24 times expected FFO, much higher than EOP's recent low teen multiple. I am not sure of Vornado's interest other than principal ego.

As public company Vornado will be more constrained in its use of leverage than Blackstone. Private equity firms buy REITs so that they can take the leverage from 40% to 50% to a level of 70% or more, the proceeds of which make a nice payday for the private equity firms. Vornado, as a public company, would be punished by the markets if it tried this leverage play.

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