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What's in Store for Vornado (VNO) Stock in Q1 Earnings?

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Vornado Realty Trust (VNO - Free Report) is scheduled to report first-quarter 2018 results on Apr 30, after the closing bell. Revenues and funds from operations (FFO) per share are expected to decline year over year.

In the prior quarter, this NY-based real estate investment trust (REIT) delivered a positive surprise of 5.4% in terms of FFO per share. The results reflected growth in occupancy and same-store net operating income (NOI) in the New York portfolio.

Over the trailing four quarters, Vornado surpassed the Zacks Consensus Estimate in three occasions and missed in one, witnessing an average negative surprise of 0.22%. This is depicted in the graph below:

Vornado Realty Trust Price and EPS Surprise

Shares of Vornado have underperformed the industry in the last three months. While the company’s shares have lost 9.6%, the industry has witnessed a decline of 7.3%.

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

Factors to Consider

Vornado boasts a concentration of high-quality assets and a strategic focus on expanding its market share in New York City office and Manhattan street retail. In addition, the company owns 555 California Street in the heart of San Francisco's Financial District as well as the MART in Chicago's River North District, which are iconic assets in signature cities. This focus on having assets in such a few select high-rent, high barrier-to-entry geographic markets, as well as a diversified tenant base that includes several industry bellwethers, are expected to drive steady cash flows and fuel growth engine in the to be reported quarter.

Vornado has been actively repositioning its portfolio. In line with this, it has been involved in opportunistic acquisitions and divestitures along with business spin-offs. Though such efforts to streamline its business are commendable, the dilutive effects of these moves cannot be avoided in the near term.

Moreover, the company announced that the first-quarter 2018 financial results will include certain items that will have a negative impact of 37 cents on its total FFO attributable to common shareholders plus assumed conversions. However, this amount will be excluded from its corresponding adjusted figure.

Vornado will be recording $34.7 million worth of expenses, relating to the change in fair value of marketable securities as a result of new GAAP accounting standard effective Jan 1, 2018.  Earlier, the same was recognized through “accumulated other comprehensive income” on the company’s consolidated balance sheets and did not impact its consolidated statements of income.

Moreover, Vornado will be recording $23.5 million of expenses that are linked to its share of possible additional New York City real property-transfer taxes.

The company will also record expenses of $14.5 million, relating to the write off of issuance costs of Series G and Series I, which were redeemed in January 2018.

Vornado will also report net loss from other items, amounting to $6.5 million.

The company stated that the aforementioned figures are preliminary estimates and are conditioned on the completion of the financial closing procedures. Hence, it does not assure any consistency between these estimates and the final results.

We also anticipate a fall in the company’s total revenues in the to-be-reported quarter. The Zacks Consensus Estimate for total revenues for the first quarter is pegged at $533 million. This reflects a decline of 14.1% as compared with the prior-year quarter.

Further, the company’s management and leasing fees are expected to remain flat, sequentially. The Zacks Consensus Estimate of $2.71 million indicates no change from the prior quarter.

Prior to the first-quarter earnings release, there is lack of any solid catalyst for raising optimism about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for FFO per share, which is now 88 cents, witnessed a decline of 1.1% over the past month. Also, this indicates a year-over-year decline of 18.5%.

In addition, over the past month, the Zacks Consensus Estimate for first-quarter 2018 FFO per share, stands at 88 cents decreased 1.1%, reflecting analysts’ bearish sentiments.

Earnings Whispers

Our proven model does not conclusively predict FFO beat for Vornado this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here as you will see below.

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

Zacks ESP: The Earnings ESP for Vornado is -10.63%.

Zacks Rank: Vornado has a favorable Zacks Rank #3. However, we also need to have a positive ESP to be confident of a positive surprise.

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 positive surprise this quarter:

Taubman Centers, Inc. (TCO - Free Report) , slated to release earnings on Apr 26, has an Earnings ESP of +0.47% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Simon Property Group, Inc. (SPG - Free Report) , scheduled to release quarterly numbers on Apr 27, has an Earnings ESP of +0.50% and a Zacks Rank #3.

RLJ Lodging Trust (RLJ - Free Report) , slated to release first-quarter results on May 14, has an Earnings ESP of +2.68% and a Zacks Rank #3.

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

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