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Vornado Realty (VNO) Q2 FFO and Revenues Beat Estimates

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Vornado Realty Trust (VNO - Free Report) reported second-quarter 2017 funds from operations (FFO) per share of $1.35, beating the Zacks Consensus Estimate of $1.26. The number also increased 11.6% year over year.

However, the results reflect a fall in occupancy in the Washington DC and 555 California Street portfolio.

In the reported quarter, total revenue came in at $626 million, up 0.7% year over year. The figure also surpassed the Zacks Consensus Estimate of $610.81 million.

Vornado Realty Trust Price, Consensus and EPS Surprise


Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Behind the Headline Numbers

In the New York portfolio, Vornado leased 543,000 square feet of office space and 24,000 square feet of retail space in the reported quarter. Also, the company leased 91,000 square feet and 5,000 square feet of space in the Mart and 555 California Street, respectively. It also leased 196,000 square feet of office space in Washington DC.

At the quarter end, same-store occupancy in the New York portfolio was 96.6%, flat sequentially and up 60 basis points (bps) year over year. Further, same-store occupancy in the Washington DC portfolio was 90.4%, down 20 bps sequentially and 160 bps year over year.

Same-store earnings before interest, tax, depreciation and amortization edged down 0.5% year over year for the New York portfolio. For the Washington D.C. portfolio, the figure descended 2.7%.

As of Jun 30, 2017, Vornado had $1.4 billion of cash and cash equivalents, down from $1.5 billion as of Dec 31, 2016.

Other Important Developments

On Jul 17, the company completed the spin-off of JBG SMITH properties from its Washington, D.C.-based business and merged the same with the operating company and specific Washington, D.C. metropolitan area assets of The JBG Companies (JBG). This move led to the formation of an independent public company — JBG SMITH Properties (JBGS) — which started trading on the NYSE on Jul 18.

Our Viewpoint

Although Vornado has Class A office assets located in high-rent, high barrier-to-entry markets and a diverse tenant base, which have the capability to support a turnaround over the long term, its results in the second quarter were disappointing.

After being criticized for venturing into too many sectors, Vornado started repositioning its portfolio through property dispositions. The earnings dilutive impact of the same cannot be bypassed. Further, the company faces stiff competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants. This influences the company’s ability to attract and retain tenants at relatively higher rents than its competitors, thereby adversely affecting its long-term profitability.

Also, persistent office space efficiency trends continue to limit any robust additional demand for office space. Furthermore, hike in interest rates remains a key concern for the company.

Currently, Vornado carries a Zacks Rank #5 (Strong Sell).

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

Q2 Earnings Schedule of Other REITs

We now look forward to the earnings releases of other REITs like Condor Hospitality Trust, Inc. (CDOR - Free Report) , Piedmont Office Realty Trust, Inc. (PDM - Free Report) and CyrusOneInc (CONE - Free Report) . While Condor Hospitality Trust is scheduled to announce results on Aug 7, Piedmont and CyrusOne are slated to report Q2 numbers on Aug 2.

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