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Vornado Realty (VNO) to Post Q3 Earnings: What Lies Ahead?

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Vornado Realty Trust VNO is scheduled to report third-quarter 2018 results on Oct 29, after the closing bell. Results are expected to display year-over-year growth in revenues and funds from operations (FFO) per share in the Jul-Sep quarter.

In the last reported quarter, this NY-based real estate investment trust (REIT) delivered a positive surprise of 13.4% in terms of FFO per share. Also, total revenues of $541.82 million surpassed the Zacks Consensus Estimate $536.3 million.

Over the trailing four quarters, Vornado surpassed the Zacks Consensus Estimate in all occasions, witnessing an average positive surprise of 6.04%. 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

The U.S. retail real estate industry has been reeling under pressure from store closures and retailer bankruptcies, and the recent data from Reis shows that the regional mall vacancy rate jumped to 9.1% in the third quarter, from 8.6% in the prior quarter, and 8.3% a year ago.

Amid this turbulent retail environment, Vornado’s efforts to strengthen its retail portfolio in high-rent markets like Manhattan are a strategic fit. This will likely support its top-line performance. In fact, in September, Vornado purchased 46% share in a retail property in New York for $442 million, making it the sole owner of the condominium. Also, the occupancy at the company’s New York retail portfolio is expected to remain sequentially unchanged at 96%.                    

Further, the company is exiting non-core investments through strategic divestures. This is expected to have provided the company with the dry powder to reinvest in opportunistic acquisitions. In fact, in August, the company sold its stake in the office condominium of 666 Fifth Avenue. Financial statement gain, amounting to $134 million, will be reflected in its Sep-end earnings relating to this transaction.

Importantly, the company announced that the third-quarter 2018 financial results will include certain items that will decrease its FFO per share including assumed conversions by 2 cents. However, this amount will be excluded in the adjusted FFO plus assumed conversions per share figure.

Further, earnings dilution from aggressive disposition of assets is expected to have weighed on the company’s bottom-line growth in the quarter under review.

Prior to the third-quarter earnings release, there is lack of any solid catalyst for raising optimism about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for FFO per share remained unchanged at 96 cents over the past month. Also, this indicates a year-over-year decline of 28.9%.

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 -1.85%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Iron Mountain Incorporated IRM, scheduled to release earnings on Oct 25, has an Earnings ESP of +0.62% and a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank stocks here.

Welltower Inc. WELL, slated to report Sep-end quarter results on Oct 30, has an Earnings ESP of +1.06% and a Zacks Rank of 3.

Public Storage PSA, set to release quarterly figures on Oct 30, has an Earnings ESP of +0.27% and a Zacks Rank #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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