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Factors Setting the Tone for Vornado's (VNO) Q4 Earnings

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Vornado Realty Trust VNO is scheduled to report fourth-quarter and full-year 2019 results on Feb 18, 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) reported a positive surprise of 2.30% in terms of FFO per share. Total same-store NOI in the New York portfolio and 555 California buoyed the company’s performance.

Over the preceding four quarters, Vornado exceeded the Zacks Consensus Estimate on one occasion and missed in other three, the average negative surprise being 5.33%. 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.

Factors to Consider

Vornado Realty has noted that its fourth-quarter 2019 results will include certain items, resulting in an increase in net income attributable to common shareholders of 72 cents per share. These items will also increase its FFO plus assumed conversions per share by 74 cents, per the company. However, this amount will be excluded in the FFO, as adjusted figure and net income, as adjusted tally.

In fact, Vornado mentioned that in the fourth-quarter results, it will report after-tax net gain on sale of 220 Central Park South condominium units of $173.6 million or 85 cents per share, which will increase its net income and FFO per share for the period. Other unspecified items are also expected to improve its FFO per share by 2 cents. However, the company’s share of loss from real estate fund investments of $26.6 million or 13 cents per share would have adversely impacted the company’s net income and FFO.

Notably, store closures and bankruptcies have been plaguing the retail real estate market, for long, which has been undergoing structural changes. In addition, the recent data from Reis shows that the retail and the Mall vacancy rates both increased in the quarter. Particularly, the retail vacancy rate inched up 0.1% to 10.2% in the December-end quarter. Further, retail rent growth was just 0.1%, while mall rents remained flat. Nevertheless, leasing activity in the New York office market is likely to have remained healthy backed by technology and financial tenants.

Amid this, occupancy at the company’s New York retail portfolio for fourth-quarter 2019 is estimated to have declined to 95% from the year-ago quarter’s 97%. Additionally, occupancy at its New York office portfolio is expected to have remained flat at 97%.

The Zacks Consensus Estimate for total revenues is pegged at $462.95 million, suggesting a decline of 14.8% year on year. However, prior to its quarterly earnings release, the company has been witnessing upward estimate revisions. As such, the Zacks Consensus Estimate for the October-December quarter’s FFO per share has been revised 1.2% upward to 83 cents over the past month, reflecting analysts’ bullish sentiments. Nevertheless, it represents a year-over-year decline of 7.78%.

Here is What Our Quantitative Model Predicts

Our proven model predicts a beat in terms of FFO per share for Vornado this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Vornado currently carries a Zacks Rank of 3 and has an Earnings ESP of +1.56%.

Other Stocks That Warrant a Look

Here are a few other 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:

Realty Income Corporation O, scheduled to release earnings on Feb 19, has an Earnings ESP of +1.25% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ventas, Inc. (VTR - Free Report) , slated to report fourth-quarter results on Feb 20, has an Earnings ESP of +0.81% and holds a Zacks Rank of 3, at present.

Kite Realty Group Trust KRG, set to release quarterly numbers on Feb 18, has an Earnings ESP of +0.74% and carries a Zacks Rank of 3, currently.

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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