Vornado Realty Trust’s VNO ability to cater to the rising demand for premier office spaces with class-apart amenities is likely to drive leasing activity. Its portfolio-repositioning efforts also augur well. A healthy balance sheet position supports the company’s growth endeavors. However, ongoing choppiness in the office real estate market, geographic concentration of assets and competition raise concerns.
This month, the office real estate investment trust (REIT) company reported third-quarter 2024 funds from operations (FFO) plus assumed conversions on an adjusted basis of 52 cents per share, which beat the Zacks Consensus Estimate of 51 cents. However, the figure declined 21.2% year over year. The results displayed better-than-anticipated top-line growth.
What’s Aiding Vornado Realty?
Vornado Realty owns a portfolio of top-quality office properties in a few select high-rent, high-barrier-to-entry markets of New York, Chicago and San Francisco. It boasts a concentration of high-quality assets and a strategic focus on expanding its market share in the New York City office market.
VNO’s focus on having assets in a few select high-rent, high barrier-to-entry geographic markets, as well as a diversified tenant base that includes several industry bellwethers, is expected to drive steady cash flows and fuel its growth over the long term.
Vornado Realty is well-positioned to benefit from the rising rents for the best-in-class redeveloped assets offering abundant amenities at transit-centric locations. Given its ability to offer top-quality office spaces, backed by its redevelopment efforts, it can capitalize on this emerging trend of office-using job growth.
Vornado Realty is focused on improving its core business by making opportunistic developments and divestitures in addition to business spin-offs. Strategic sell-outs provide the company with the dry powder to reinvest in opportunistic developments and redevelopments. The timely portfolio-repositioning initiatives are likely to drive growth over the long term.
VNO has a healthy balance sheet and ample liquidity. As of Sept. 30, 2024, the company had $2.6 billion of liquidity, comprising of $1 billion of cash and cash equivalents and restricted cash and $1.6 billion available under its $2.2 billion revolving credit facilities. A flexible financial position will enable it to take advantage of future investment opportunities and fund its development projects.
In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 26.3% compared with the industry's growth of 0.7%.
Image Source: Zacks Investment Research
What’s Hurting Vornado Realty Trust?
With persistent macroeconomic uncertainty and a hybrid working environment, it is expected that near-term demand for office spaces will remain choppy in this market. We estimate a year-over-year decrease of 2.5% in total revenues in 2024.
Vornado Realty has high office market exposure in New York City, along with significant street retail there (86.5% of its net operating income at share for the third quarter of 2024). This concentrated portfolio makes the company’s cash flows vulnerable to the macroeconomic situation prevailing in that region.
VNO faces competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants. This affects the company’s ability to attract and retain tenants at relatively higher rents than its competitors, adversely affecting its long-term profitability.
Solid dividend payouts remain the biggest attractions for REIT investors. Although in December 2023, Vornado Realty announced a dividend of 30 cents per share for the fourth quarter of 2023, it marked a reduction of 20% from the prior payout. The company anticipates paying a single common share dividend in the fourth quarter of 2024 as part of its common share dividend policy for the year. We estimate a year-over-year decline of 17.9% in FFO as adjusted in 2024. Hence, any significant turnaround in the dividend payment is likely to remain elusive in the near term.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Welltower WELL and Cousins Properties CUZ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s 2024 FFO per share is pinned at $4.26, suggesting year-over-year growth of 17%.
The Zacks Consensus Estimate for Cousins Properties 2024 FFO per share is pegged at $2.68, indicating an increase of 2.3% from the year-ago reported figure.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpVornado Realty Trust (VNO) : Free Stock Analysis Report
Cousins Properties Incorporated (CUZ) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.