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Is a Beat in Store for Vornado (VNO) This Earnings Season?
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Vornado Realty Trust (VNO - Free Report) is scheduled to report fourth-quarter and full-year 2022 results on Feb 13, before the opening bell. While the quarterly results are likely to exhibit revenue growth, funds from operations (FFO) per share might reflect a decline.
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 9.46%. The quarterly results reflected better-than-anticipated top-line growth. Healthy leasing activity was witnessed across all portfolios.
Over the trailing four quarters, Vornado surpassed the Zacks Consensus Estimate on all occasions, the average beat being 6.98%. This is depicted in the graph below:
Per a Cushman & Wakefield (CWK - Free Report) report, the U.S. office market has been experiencing a decline in demand for office space, with overall office absorption negative in each quarter of 2022. Moreover, with remote and hybrid work systems, office space per office worker has been shrinking.
The national vacancy rose 140 basis points year over year to 18.2%. The national asking rent was $37.38 for the fourth quarter. The overall gross leasing activity declined for two consecutive quarters after hitting 387 million square feet (msf) in second-quarter 2022. The same for the four quarters ending fourth-quarter 2022 was recorded at 339 msf.
Nonetheless, per the Cushman & Wakefield report, gross leasing for 2022 was 5% above the 20-year historical average, implying that the leasing market remains very active despite businesses continuing to downsize.
Vornado’s 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 flight-to-quality preference of office tenants. This is anticipated to have led to healthy leasing activity during the fourth quarter, which makes us optimistic about its results.
A diversified tenant base, which includes several industry bellwethers, is expected to have led to stable cash flow generation during the quarter.
Also, with consumers’ increased preference for in-person shopping experience, the retail real estate market is witnessing a rebound. This is likely to have aided the company’s Manhattan street retail performance during the to-be-reported quarter.
VNO’s top line is expected to have improved amid these tailwinds. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $444.6 million, suggesting 5.6% growth from the year-ago quarter’s reported figure.
Further, Vornado expects around $600 million of non-cash impairment charges to reflect in its fourth-quarter 2022 results. Of this $600 million, roughly $480 million refers to the company’s common equity investment in the Fifth Avenue and Times Square JV (“Retail JV”).
In 2020, Vornado recognized an impairment charge of $409 million. Together, these two impairment charges effectively reverse a portion of the $2.559 billion gain in relation to the 2019 required write-up for the seven properties it transferred to the Retail JV in April 2019.
The Zacks Consensus Estimate for the quarterly FFO per share has been unchanged at 67 cents over the past month. The same suggests a 17.3% fall from the prior-year period’s reported number.
For the full year, the Zacks Consensus Estimate for FFO per share has been unchanged at $3.10 over the past month. However, the figure indicates an 8.4% increase from the year-earlier reported figure on revenues of $1.80 billion.
Earnings Whispers
Our proven model predicts a surprise in terms of FFO per share for VNO this season. The combination of a positiveEarnings ESP and a Zacks Rank #3 (Hold) or higher — increases the odds of a beat. That’s just the case here.
Earnings ESP: Vornado has an Earnings ESP of +6.13%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are some other 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:
Public Storage (PSA - Free Report) is scheduled to report quarterly figures on Feb 21. PSA has an Earnings ESP of +0.22 % and a Zacks Rank #3 currently.
SBA Communications (SBAC - Free Report) is scheduled to report quarterly figures on Feb 21. SBAC has an Earnings ESP of +0.08% and a Zacks Rank of 3 currently.
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Is a Beat in Store for Vornado (VNO) This Earnings Season?
Vornado Realty Trust (VNO - Free Report) is scheduled to report fourth-quarter and full-year 2022 results on Feb 13, before the opening bell. While the quarterly results are likely to exhibit revenue growth, funds from operations (FFO) per share might reflect a decline.
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 9.46%. The quarterly results reflected better-than-anticipated top-line growth. Healthy leasing activity was witnessed across all portfolios.
Over the trailing four quarters, Vornado surpassed the Zacks Consensus Estimate on all occasions, the average beat being 6.98%. This is depicted in the graph below:
Vornado Realty Trust Price and EPS Surprise
Vornado Realty Trust price-eps-surprise | Vornado Realty Trust Quote
Per a Cushman & Wakefield (CWK - Free Report) report, the U.S. office market has been experiencing a decline in demand for office space, with overall office absorption negative in each quarter of 2022. Moreover, with remote and hybrid work systems, office space per office worker has been shrinking.
The national vacancy rose 140 basis points year over year to 18.2%. The national asking rent was $37.38 for the fourth quarter. The overall gross leasing activity declined for two consecutive quarters after hitting 387 million square feet (msf) in second-quarter 2022. The same for the four quarters ending fourth-quarter 2022 was recorded at 339 msf.
Nonetheless, per the Cushman & Wakefield report, gross leasing for 2022 was 5% above the 20-year historical average, implying that the leasing market remains very active despite businesses continuing to downsize.
Vornado’s 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 flight-to-quality preference of office tenants. This is anticipated to have led to healthy leasing activity during the fourth quarter, which makes us optimistic about its results.
A diversified tenant base, which includes several industry bellwethers, is expected to have led to stable cash flow generation during the quarter.
Also, with consumers’ increased preference for in-person shopping experience, the retail real estate market is witnessing a rebound. This is likely to have aided the company’s Manhattan street retail performance during the to-be-reported quarter.
VNO’s top line is expected to have improved amid these tailwinds. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $444.6 million, suggesting 5.6% growth from the year-ago quarter’s reported figure.
Further, Vornado expects around $600 million of non-cash impairment charges to reflect in its fourth-quarter 2022 results. Of this $600 million, roughly $480 million refers to the company’s common equity investment in the Fifth Avenue and Times Square JV (“Retail JV”).
In 2020, Vornado recognized an impairment charge of $409 million. Together, these two impairment charges effectively reverse a portion of the $2.559 billion gain in relation to the 2019 required write-up for the seven properties it transferred to the Retail JV in April 2019.
The Zacks Consensus Estimate for the quarterly FFO per share has been unchanged at 67 cents over the past month. The same suggests a 17.3% fall from the prior-year period’s reported number.
For the full year, the Zacks Consensus Estimate for FFO per share has been unchanged at $3.10 over the past month. However, the figure indicates an 8.4% increase from the year-earlier reported figure on revenues of $1.80 billion.
Earnings Whispers
Our proven model predicts a 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 a beat. That’s just the case here.
Earnings ESP: Vornado has an Earnings ESP of +6.13%. 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 of 3. You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.
Other Stocks That Warrant a Look
Here are some other 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:
Public Storage (PSA - Free Report) is scheduled to report quarterly figures on Feb 21. PSA has an Earnings ESP of +0.22 % and a Zacks Rank #3 currently.
SBA Communications (SBAC - Free Report) is scheduled to report quarterly figures on Feb 21. SBAC has an Earnings ESP of +0.08% 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 represents FFO — a widely used metric to gauge the performance of REITs.