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NEW YORK (

TheStreet

) --

Vornado Realty Trust

(VNO) - Get Vornado Realty Trust Report

shares edged up Tuesday after the

real estate investment trust beat quarterly earnings expectations.

Vornado beat expectations by a penny per share with a healthy uptick in funds from operations. Funds from operations, or FFO, is a performance figure used by REITs to define cash flow from operations. The metric removes the profit-reducing effect of depreciation.

>>14 REIT Earnings: Behind the Numbers

Vornado, a REIT that invests primarily in office and retail properties in New York City and Washington, posted third-quarter FFO of $248.96 million, or $1.31 per share, compared with year-earlier FFO of $234.25 million, or $1.25 per share.

Excluding one-time items, adjusted quarterly FFO was $230.92 million or $1.22 per share, up from from $221.38 million, or $1.18 per share, in the third quarter of 2009. That beat expectations for adjusted FFO of $1.21 per share.

Net income got a boost $43.3 million of net gains from the sale of certain real estate properties, though the line item fell to $95.2 million, or 52 cents per share, from $126.4 million, or 70 cents per share, in the year-earlier quarter.

Revenue jumped 5.3% to $707 million, easily surpassing expectations for revenue of $682.1 million.

Shares gained 0.8% Tuesday to trade at $88.75.

Focused competitors in the commercial real estate sector, according to

Revere Research, include

TheStreet Recommends

Corporate Office Properties Trust

(OFC) - Get Corporate Office Properties Trust Report

,

Brandywine Realty Trust

(BDN) - Get Brandywine Realty Trust Report

,

Douglas Emmet

(DEI) - Get Douglas Emmett, Inc Report

and

MPG Office Trust

(MPG)

, among others.

Corporate Office Properties shares ticked up 1.1%, Brandywine 0.8% and MPG 7.3%. Douglas Emmet lost 1.1%.

REIT's have a distinct advantage over broader market investing, Greg Genovese, president and CEO of Pacific Valley Realty Capital, told

TheStreet

recently. He said the group's rise is due in part to the equities' ability to generally offer better yields and cash flow than dividend-paying stocks.

There is simply more demand for REITs nowadays as well, he said, and that demand continues to increase.

Morningstar

(MORN) - Get Morningstar, Inc. Report

noted that REITs have been catching on with a number of exchange-traded fund investors who consider them as potential hedges against inflation. The investment research firm pointed to inflows of $312 million to the

iShares Dow Jones U.S. Real Estate

(IYR) - Get iShares U.S. Real Estate ETF Report

, and $371 million of net inflows to the

Vanguard REIT Index

(VNQ) - Get Vanguard Real Estate ETF Report

in the third quarter as evidence of the growing interest in REITs.

Genovese added that the REIT sector as a whole has not yet fully recovered from its highs before the recession, offering greater upside potential for investors in the space because "the blood has already been spilled and the liquidity crisis is no longer what it was."

-- Written by Miriam Marcus Reimer in New York.

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