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Vornado (VNO) to Report Q2 Earnings: What's in the Cards?

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Vornado Realty Trust (VNO - Free Report) is scheduled to report second-quarter 2022 results on Aug 1, after the closing bell. The quarterly results are likely to reflect growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this New York-based real estate investment trust’s (REIT) FFO plus assumed conversions, as adjusted, surpassed the Zacks Consensus Estimate by 3.95%. The quarterly results reflect year-over-year growth in same-store net operating income (NOI) across its portfolio.

Over the trailing four quarters, Vornado surpassed the Zacks Consensus Estimate on three occasions and missed the mark in one, the average beat being 3.01%. 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

Factors at Play

Per a Cushman & Wakefield (CWK - Free Report) report, for the second quarter, the recovery in the office market has not been consistent across the United States. Although office-using employment increased 1.9% in the first half of 2022, the office absorption rate has been negative in the last eight out of nine quarters. For second-quarter 2022, the U.S. office sector witnessed a negative net absorption of 7.8 million square feet (msf).

The Cushman & Wakefield report also highlights that the vacancy trend reflects unevenness across the U.S. office market. On a year-over-year basis, the national vacancy climbed 110 basis points to 17.6% in the second quarter. For the quarter, effective rents decreased 2.4% year over year, while the national asking rent was $37.03.

However, there has been a rebound in gross leasing activity, and the four-quarter rolling total leasing is more than 360 msf for the second consecutive quarter. Although there has been improvement in gross leasing, it remains lower than the three-year lead up to the pandemic, wherein the four-quarter rolling leasing averaged 395 msf in 2017-2019.

As for Vornado, its portfolio of premium assets in a few select high-rent, high barrier-to-entry markets of New York, San Francisco and Chicago is likely to have benefited from the improving leasing scenario in the office real-estate market post the health crisis.

Also, with widespread vaccination drives, the retail market is anticipated to have experienced a rebound. These factors might have led to growth in rental revenues during the second quarter for Vornado.

The Zacks Consensus Estimate for second-quarter revenues is pegged at $428.8 million, suggesting 13.2% growth from the year-ago quarter’s reported figure.

Also, the Zacks Consensus Estimate for Vornado’s New York property rentals is pegged at $264 million, indicating a 9.5% increase from the prior-year quarter’s reported figure.

However, the rising supply of office properties remains a major concern for VNO. It faces intense competition from developers, owners and operators of office properties and other commercial real estates, including sublease space available from its tenants. This affects Vornado’s ability to attract and retain tenants at relatively higher rents than its competitors.

Also, with mall traffic still lower than the pre-pandemic levels and a change in the shopping preferences of customers to online retailing, Vornado is less likely to have achieved its full leasing potential in the second quarter.

VNO’s activities during the second quarter were not adequate to secure analyst confidence. The Zacks Consensus Estimate for the quarterly FFO per share has moved downward by 2.5% to 79 cents over the past two months. However, the same suggests a 14.5% increase from the prior-year period’s reported number.

Earnings Whispers

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for VNO this season. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — increases the odds of an FFO beat. However, that’s not the case here.

Earnings ESP: Vornado has an Earnings ESP of -0.29%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Vornado currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.

Stocks That Warrant a Look

Here are some stocks that are worth considering from the REIT sector as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:

SBA Communications (SBAC - Free Report) is slated to release second-quarter earnings on Aug 1. SBAC has an Earnings ESP of +0.95% and a Zacks Rank of 3 at present.

American Tower (AMT - Free Report) is scheduled to report quarterly figures on Jul 28. AMT has an Earnings ESP of +1.71% and a Zacks Rank of 3 currently.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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.