Here's Why You Should Retain Vornado Realty (VNO) Stock Now
Amid an improving office real estate market, a portfolio of high-quality assets in a few select high-rent, high-barrier-to-entry regional markets in the United States positions Vornado Realty Trust VNO well for growth.
Along with a high market share in New York City office and Manhattan street retail, VNO has a controlling interest in 555 California Street and owns theMART in Chicago's River North District, which are iconic office assets in signature cities.
Vornado is likely to benefit from a combination of office-using job growth, higher space utilization and expansion of technology, financial and media companies.
Also, office occupiers are keen on growing their office footprint in New York City, where rents in the newly constructed or best-in-class redeveloped assets have risen. Vornado is well-placed to benefit from the emerging trend, given its ability to offer top-quality office spaces in this market.
Vornado’s diversified tenant base, which includes several industry bellwethers, assures a stable cash flow generation for the company and fuels its long-term growth.
To improve its core business, Vornado has been following a capital-recycling program. This gives it ample dry powder to reinvest in opportunistic developments and redevelopments and enhance overall portfolio quality. In August 2022, Vornado entered into an agreement to sell 40 Fulton Street for $102 million. The sale of this 251,000 square feet Manhattan office and retail building is likely to be completed in fourth-quarter 2022.
Vornado enjoys solid balance-sheet strength. It exited the third quarter of 2022 with $3.3 billion of liquidity. Additionally, VNO’s current cash flow growth is projected at 48.78% compared with the 9.70% growth expected for the industry.
Although shares of this Zacks Rank #3 (Hold) company have lost 21.3% in the past three months compared with the industry’s decline of 18.2%, analysts seem bullish on the stock.
The Zacks Consensus Estimate for Vornado’s 2022 funds from operations (FFO) per share has been revised marginally upward over the past week to $3.07.
Image Source: Zacks Investment Research
However, a rise in the supply of office properties is a key concern for Vornado. Also, intense competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants, limits VNO’s ability to increase rents and/or backfill tenant move-outs and vacancies.
Vornado has a major market share, both office and retail, in New York City. This makes it susceptible to the economic conditions prevailing in that region, which could hurt the company’s cashflows and impede growth.
A hike in interest rates is likely to increase borrowing costs, affecting the company’s ability to purchase or develop real estate.
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties VICI, Equity Commonwealth EQC and Gladstone Commercial GOOD, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is currently pegged at $1.91.
The Zacks Consensus Estimate for Equity Commonwealth’s ongoing year’s FFO per share has presently stands at 16 cents.
The Zacks Consensus Estimate for Gladstone Commercial’s 2022 FFO per share is pegged at $1.57, presently.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Vornado Realty Trust (VNO) : Free Stock Analysis Report
Gladstone Commercial Corporation (GOOD) : Free Stock Analysis Report
Equity Commonwealth (EQC) : Free Stock Analysis Report
VICI Properties Inc. (VICI) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
