Here's Why You Should Retain Vornado Realty (VNO) Stock Now
Vornado Realty Trust’s VNO top-quality office properties, strategically located in exclusive, high-demand markets such as New York, Chicago and San Francisco, are positioned to capitalize on the strong desire for top-tier assets boasting exceptional amenities. However, the unsettled office market could temporarily dampen the desire for office properties, impacting leasing activity to a certain degree. The challenge is compounded by elevated interest rates, which contribute to the company's current challenges.
Vornado's focus on select high-rent, high-barrier markets, along with a diversified tenant base, is projected to ensure consistent cash flow and sustained growth. While rental revenues may moderate in 2023-2024, we estimate a 7.6% year-over-year improvement in 2025.
Employment growth in office sectors, enhanced space efficiency and the expansion of tech, finance and media firms are set to bolster rental revenues in the coming periods. New York continues to attract office occupiers aiming to expand their workspace.
Elevated rents in recently built or excellently revitalized properties, featuring ample amenities in well-connected areas, have surged. Vornado, adept at providing premium office spaces through its redevelopment initiatives, is poised to capitalize on this emerging trend effectively.
With a concentration on enhancing its primary operations, Vornado is actively engaged in targeted expansions and divestitures, along with strategic business spin-offs. These deliberate divestitures furnish the company with the necessary resources to reinvest in advantageous development and revitalization projects. VNO entered into an agreement to dispose of four Manhattan retail properties for $100 million in late July 2023. In July 2023, it disposed of The Armory Show in New York for $24.4 million.
Vornado has a strong balance sheet and ample liquidity. As of Jun 30, 2023, the company had $3.2 billion of liquidity. Moreover, VNO has been securing loan refinancing in recent times, enabling it to reduce interest rates on borrowings and extend debt maturities. A flexible financial position will enable it to take advantage of future investment opportunities and fund its development projects.
Shares of this Zacks Rank #3 (Hold) company have rallied 20.3% in the past month against the industry’s decline of 3.1%.
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However, amid persistent macroeconomic uncertainty, choppy office market conditions are expected to dampen the short-term demand for office properties, subsequently impacting leasing activity to a certain degree.
Vornado is troubled by the current high interest rate setting. These elevated rates result in significant borrowing expenses for the company, potentially impacting its capacity to acquire or develop real estate assets. With a considerable debt load, Vornado's share of total debt as of Jun 30, 2023 amounted to around $10.3 billion.
The company's second-quarter 2023 performance was marred by elevated net interest costs, affecting its growth in funds from operations (FFO) per share. Management foresees an extra interest expense of approximately 40 cents per share for 2023 attributed to the ongoing rise in interest rates.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower WELL, W.P. Carey WPC and Omega Healthcare Investors OHI. Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s current-year FFO per share has moved nearly 1% northward over the past month to $3.51.
The Zacks Consensus Estimate for W.P. Carey’s 2023 FFO per share has moved marginally upward in the past two months to $5.36.
The Zacks Consensus Estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised marginally upward over the past week to $2.83.
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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Vornado Realty Trust (VNO) : Free Stock Analysis Report
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