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What to Expect From Vornado (VNO) This Earnings Season?

Zacks Equity Research

Vornado Realty Trust VNO is scheduled to report first-quarter 2019 results on Apr 29, after the closing bell. Results are expected to display year-over-year (y/y) growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this NY-based real estate investment trust (REIT) delivered a negative surprise of 7.22% in terms of FFO per share. Lower sequential occupancy and net operating income (NOI) at its New York and theMART portfolios negatively impacted results.

Over the trailing four quarters, Vornado surpassed the Zacks Consensus Estimate in two occasions for as many misses, witnessing average positive surprise of 1.89%. This is depicted in the graph below:

Vornado Realty Trust Price and EPS Surprise


Vornado Realty Trust Price and EPS Surprise | Vornado Realty Trust Quote

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

Factors to Consider

In first-quarter 2019, Vornado made strategic attempts to improve its core business by executing opportunistic divestures that provided the company with the dry powder to reinvest in opportunistic acquisitions and redevelopments.

In early March, Vornado divested all the shares of Lexington Realty Trust and Urban Edge Properties it owned. With this, it will record a financial statement gain of around $16.1 million and $62.4 million, respectively, in the quarter.

In addition, revenues for the to-be-reported quarter are pinned at $547.5 million, indicating year-over-year growth of 2.1% from the year-ago reported tally. Moreover, the Zacks Consensus Estimate for first-quarter 2019 lease termination fees is pegged at $0.88 million, up from the year-ago tally of $0.35 million.

Notably, economic tailwinds like upbeat consumer sentiment and continued healthy growth in the job market have resulted in increased consumer spending and helped bring the mojo back in the retail sector.However, the New York City retail market continued to soften as indicated by higher vacancy and declining rents. In fact, per a CBRE Group CBRE report, average asking rents in Ney York City’s retail corridors witnessed persistent fall, with the average declining 8.6% in the Jan-Mar quarter. Further, newly developed properties were brought to the market at lower-than-average asking rents, intensifying competition for the retail space. In addition, it unfavorably impacted occupancy at the existing retail centers, while landlords were compelled to re-price rents at the existing vacant spaces.

These numbers suggest lower rental growth at Vornado’s Manhattan street retail portfolio.

Additionally, it will record prepayment penalty of $22.5 million relating to the redemption of 5% senior unsecured notes worth $400 million due January 2022. This will affect the company’s net income and FFO by 11 cents per share.

Lastly, Vornado's results will include a net loss of $4.1 million from other items. This will decrease the company’s first-quarter FFO by 2 cents per share.

Earnings Whispers

Our proven model does not conclusively show that Vornado is likely to beat estimates this quarter. 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. 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.

Earning ESP: Vornado’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell), which decreases the predictive power of ESP.

Stocks That Warrant a Look

Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mack-Cali Realty Corporation CLI, slated to report first-quarter results on May 1, has an Earnings ESP of +1.2% and a Zacks Rank of 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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