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Vornado (VNO) to Post Q1 Earnings: What's in the Offing?

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Vornado Realty Trust (VNO - Free Report) is scheduled to report first-quarter 2021 results on May 1, after the closing bell. Results are projected to display year-over-year declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, this New York-based real estate investment trust (REIT) surpassed the Zacks Consensus Estimate by 3.1% in terms of FFO per share plus assumed conversions as adjusted. Results reflected better-than-anticipated revenue numbers.

Over the preceding four quarters, Vornado surpassed the Zacks Consensus Estimate once and missed in the other three, the average negative surprise being 8.9%. This is depicted in the graph below:

Vornado Realty Trust Price and EPS Surprise


Vornado Realty Trust Price and EPS Surprise

Vornado Realty Trust price-eps-surprise | Vornado Realty Trust Quote

Let’s see how things have shaped up for this announcement.

Given Vornado’s high exposure in New York City (87% of its net operating income at share or NOI for 2020) and significant street retail, the company’s first-quarter results are expected to continue to be adversely impacted bythe COVID-19 pandemic.

Notably, rent and vacancy changes for retail were minimal but still tended to be negative, per the preliminary trend announcement for the commercial real estate of Moody's Analytics REIS. Vacancy rate increased to 10.6% in the first quarter from 10.5% in the fourth quarter of 2020, while average asking rent of $21.32 per square foot in the first quarter edged down from the prior quarter’s $21.34.

Moreover, the company is not immune to store closures and retailer bankruptcies. The tepid retail real estate environment is likely to have curbed its growth momentum in the to-be-reported quarter, as secular industry headwinds continue to dampen industry fundamentals. Additionally, rent relief and deferral requests from its tenants are anticipated tohave hurt revenue growth.

Moreover, the pandemic’s adverse impacts continued to overwhelm the U.S. office real estate market in the first quarter of 2021, resulting in negative net absorption and an increase in vacancy rates. In fact, since the U.S. economy slashed around three million office-using jobs in March and April of 2020, the United States has added only 1.9 million office-using jobs through March 2021. Moreover, the work-from-home scenario has been continuing to put downward pressure on leasing.

Specifically, going by a Cushman & Wakefield (CWK - Free Report)  report, the U.S. office sector witnessed negative net absorption of 41.1 million square feet, marking the third consecutive quarter of such decline. In fact, from last March, 138.4 million square feet of office space was shed in the United States. Further, vacancy increased to 16.4% in the March-end quarter from 13% a year ago.

Such a lackluster environment is expected to have led to occupancy loss at the company’s office properties in the quarter under review. Moreover, amid the pandemic, the shutdown of Hotel Pennsylvania is expected to have led to a NOI decline in its New York City segment.

Also, the Zacks Consensus Estimate for rentals for the company’s New York properties is pegged at $237 million. This indicates a year-over-year decline of 20.7%.

Moreover, trade show cancellations are likely to have continued affecting revenues and NOI at the MART. Amid these, the Zacks Consensus Estimate for first-quarter revenues is pegged at $375.7 million, suggesting a year-over-year decline of 15.5%.

Nonetheless, the company is likely to have continued with the sale of condominium units at its residential construction project — 220 Central Park South. Gains from such sales are likely to have improved FFO plus assumed conversions per share for first-quarter 2021.

In fact, prior to the first-quarter earnings release, the Zacks Consensus Estimate for first-quarter FFO per share has seen positive revision, indicating bullish analyst sentiments. In fact, the consensus mark has been revised marginally north over the past 30 days to 63 cents. However, it suggests a decline of 12.5% from the year-ago reported figure.

Earnings Whispers

Our proven model cannot conclusively predict a beat in terms of FFO per share for Vornado this time around. The combination of a positive Earnings ESP and Zacks Rank #3 (Hold) or better increases the odds of a FFO beat. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Vornado has an Earnings ESP of +4.54%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell).

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a beat this quarter:

Digital Realty Trust, Inc. (DLR - Free Report) , scheduled to report quarterly numbers on Apr 29, currently has an Earnings ESP of +1.06% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CubeSmart (CUBE - Free Report) , slated to release quarterly numbers on Apr 29, has an Earnings ESP of +3.14% and a Zacks Rank of 3 at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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