Vornado Pinned at Neutral


On Dec 27, 2013, we reiterated our long-term Neutral recommendation on Vornado Realty Trust (VNO). The decision is based on the company’s recent divestitures and opportunistic acquisitions, third-quarter results and current market environment.  
Why Neutral?
Vornado has a diversified tenant base that includes several industry bellwethers like Bank of America Corporation (BAC) and The Home Depot Inc. (HD). The company also continues to strategically expand its portfolio with a number of office and retail assets in recent times in attractive locations like Madison Avenue and Fifth Avenue in Manhattan, and simultaneously offloaded retail property in Tampa, Fla. 
Furthermore, most recently, Vornado accomplished the sale of a 360,000 square foot office building - 866 United Nations Plaza – in Manhattan for $200 million. Strategic sell-outs provide the company the cash reserves to be invested in opportunistic acquisitions. These factors go a long way in enhancing its profitability. 
In November, Vornado reported its third-quarter 2013 adjusted FFO (funds from operations) per share of $1.27, which exceeded the Zacks Consensus Estimate by 11 cents. Moreover, this compared favorably with the year-ago figure of $1.03. Results were driven by a rise in operating income.
Nevertheless, though going forward, its New York portfolio is expected to grow with office leasing activity progressing well and retail sales and rental rates improving, the Washington DC portfolio is anticipated to remain stressed with lower pace of leasing activity. Moreover, the company faces stiff competition from commercial property developers. As such, we reaffirm our Neutral stance.
Over the last 60 days, the Zacks Consensus Estimate for 2013 FFO per share remained flat at $4.58, but it fell to $4.77 from $4.80. The stock currently has a Zacks Rank #4 (Sell).
Other Stock to Consider
Investors interested in the REIT Equity Trust – Other industry may consider another stock – CubeSmart (CUBE) – that carries a Zacks Rank #2 (Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.
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