Bear of the Day: Vornado Realty Trust (VNO)
Vornado Realty Trust VNO, the owner and manager of a considerable portfolio of premium office real estate has been crushed by the shifting commercial real estate market, and explosion of work from home jobs. VNO has endured considerable downgrades to its earnings expectations over the last 18 months giving it a Zacks Rank #5 (Strong Sell).
Company
Vornado Realty Trust is a leading US real estate investment trust (REIT) specializing in commercial properties. Established in 1982, Vornado owns, develops, and manages prime office buildings, retail centers, and residential properties in major markets such as New York City and Washington, DC. The company focuses on strategic investments, value creation through renovations and repositioning. Vornado is also recognized for its commitment to sustainability and is the largest owner of LEED-certified property in the United States, with more than 27 million square feet of LEED-certified properties.
Challenged Environment
Shares in the VNO REIT have suffered over the last five years, down -72% over that time. This is significantly worse than the industry average and broad market. Vornado has a high concentration of buildings in metropolitan areas that have changed dramatically since the Covid-19 pandemic.
While office buildings in NYC were once thought of as premier assets, they have been completely upended by the transition to work from home. While top of the market assets, like those owned by Vornado have held up a bit better than the rest of the market, Manhattan landlords are still struggling to fill their properties. Q1 office vacancy in Manhattan was estimated at 16% and analysts expect more distress in the sector.
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Earnings Estimates
Record high vacancies, as well as a high interest rate environment, which strains real estate businesses does not bode well for VNO’s earnings expectations. Analysts are in near unanimous agreement in downgrading estimates across timeframes.
Current quarter earnings have been revised lower by -4.5% over the last two months and are expected to decline -23% YoY. FY23 earnings have been cut by -4.2% and are projected to slide -20% YoY.
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Valuation
Because of the severe decline VNO’s share prices over the last two years, its valuation is at a 10-year low. Vornado Realty Trust is trading at a one-year forward earnings multiple of 6.2x, which is well below the industry average of 14.7x, and below its 10-year median of 18x.
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Conclusion
Vornado Realty Trust is under tremendous pressure, and it does not look like things will be getting better anytime soon. While the 9.7% dividend yield may have been the only thing drawing in investors today it may not be worth the risk. Vornado announced a -29% cut in the dividend in January, and in April announced that all dividend payments will be postponed until the end of 2023.
Because of the reasons listed above it is recommended that investors steer clear of Vornado Realty Trust.
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Vornado Realty Trust (VNO) : Free Stock Analysis Report
