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Earnings Scorecard: Vornado Realty

VNO BPO

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Vornado Realty Trust (VNO - Analyst Report), a leading real estate investment trust (REIT), reported second quarter 2012 funds from operations (FFO) of $0.89 per share, compared to $1.27 in the year-earlier quarter.

We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review

After adjusting items for comparability, FFO during the second quarter of 2012 was $211.6 million or $1.13 per share, compared with $220.3 million or $1.15 in the prior-year quarter. The recurring FFO per share during second quarter 2012 surpassed the Zacks Consensus Estimate of $0.96.

Total revenues during the reported quarter were $700.6 million compared with $696.0 million in the year-ago period. Total revenues during the quarter were well ahead of the Zacks Consensus Estimate of $685 million.

Same-store occupancy in the company’s New York City and Washington, DC portfolios were 95.4% and 85.9%, respectively, at quarter-end. Same-store EBITDA (earnings before interest, tax, depreciation and amortization) on GAAP basis increased 2.9% and decreased 8.1% during the quarter in the New York City and DC portfolios respectively, compared with the year-earlier quarter.

(Read our full coverage on this earnings report:   Vornado Adjusted FFO Beats Estimates)

Earnings Estimate Revisions - Overview

Fiscal earnings estimates have been a mixed bag for Vornado Realty since the earnings release, meaning that analysts are skeptical about the long-term performance of the company. Let’s dig into the earnings estimate details.

Agreement of Estimate Revisions

In the last seven days, 2012 earnings estimates were raised by three analysts out of nine covering the stock, while one had lowered. For 2013, three out of nine analysts covering the stock have revised their estimates down, while only one have increased it during the same time period. This indicates that the earnings estimates for the current year have a positive directional movement, while that of the following year is skewed towards the negative.

Magnitude of Estimate Revisions

Earnings estimates for 2012 have remained steady in the last seven days at $4.99. For 2013, earnings estimates have dropped by 7 cents during the last seven days to $5.05, which signifies that although the market fundamentals are gradually improving, they are yet to reach their optimum range to gain sufficient investor confidence over a long-term period.

Moving Forward

The long-term earnings estimate picture for Vornado Realty is neutral. Vornado Realty has office properties in two of the best long-term office markets in the country, New York City and Washington DC.

These high-barrier markets have held up comparatively well and have enabled the company to continue increasing rents. The company also has a strong balance sheet with manageable near-term debt maturities and adequate liquidity to take advantage of distressed selling as asset values of office and retail properties continue to drop.

However, the company’s retail properties and Toy ‘R’ Us investment has suffered in the recent past due to recession, which in turn has negatively affected earnings. Vornado Realty owns about 32.7% of Toys ‘R’ Us – the leading global retailer of dedicated toys and baby products. This undermines the long-term growth potential of the company.

We maintain our Neutral rating on Vornado Realty, which currently has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for Brookfield Properties Corporation (BPO - Snapshot Report), one of the competitors of Vornado Realty.

Note: FFO, a widely used metric to gauge the performance of REIT, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrated stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/

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