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Vornado (VNO) Up 9.1% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Vornado (VNO). Shares have added about 9.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Vornado due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Vornado’s FFO and Revenues Surpass Estimates in Q3

Vornado’s third-quarter 2022 FFO plus assumed conversions as adjusted per share of 81 cents topped the Zacks Consensus Estimate of 74 cents.

Results displayed better-than-anticipated top-line growth. Healthy leasing activity was witnessed across all portfolios.

Total revenues came in at $457.4 million in the reported quarter, surpassing the Zacks Consensus Estimate of $439.1 million.

On a year-over-year basis, FFO per share and revenues improved by 14.1% and 11.8%, respectively.

Behind the Headlines

In the reported quarter, total same-store NOI (at share) improved 11.7% year over year. While the metric at theMART increased significantly, the same for the 555 California Street portfolio grew 1.3%. The same-store NOI (at share) of the New York portfolio fell 0.8% from the prior-year period.

Operating expenses rose 4.2% to $221.6 million year over year.

During the quarter, in the New York office portfolio, 167,000 square feet of office space (140,000 square feet at share) was leased for an initial rent of $88.99 per square foot and a weighted average lease term of 5.8 years. The tenant improvements and leasing commissions were $16.21 per square foot per annum, or 18.2% of the initial rent.

In the New York retail portfolio, 62,000 square feet were leased (57,000 square feet at share) at an initial rent of $242.89 per square foot and a weighted average lease term of 10.5 years. The tenant improvements and leasing commissions were $17.96 per square foot per annum, or 7.4% of the initial rent.

Additionally, at theMART 67,000 square feet of space (all at share) was leased for an initial rent of $52.20 per square foot and a weighted average lease term of 7.3 years. The tenant improvements and leasing commissions were $11.64 per square foot per annum, or 22.3% of the initial rent.

For VNO’s 555 California Street portfolio, 154,000 square feet of space (108,000 square feet at share) was leased for an initial rent of $98.20 per square foot and a weighted average lease term of 5.6 years. The tenant improvements and leasing commissions were $4.73 per square foot per annum, or 4.8% of the initial rent.

Vornado ended the quarter with occupancy in the New York portfolio at 90.3%, down 10 basis points (bps) year over year. Occupancy in theMART declined 230 bps from the prior year period to 87.3%, while occupancy in 555 California Street fell 340 bps to 94.7%.

On Aug 17, 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. The company expects to recognize a net gain of $33 million from the disposition.

Balance Sheet

Vornado exited third-quarter 2022 with cash and cash equivalents of $845.4 million, down from $988.4 million as of Jun 30, 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Vornado has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Vornado has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Vornado belongs to the Zacks REIT and Equity Trust - Other industry. Another stock from the same industry, Alexandria Real Estate Equities (ARE), has gained 5.4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Alexandria Real Estate Equities reported revenues of $659.85 million in the last reported quarter, representing a year-over-year change of +20.5%. EPS of $2.11 for the same period compares with $1.95 a year ago.

For the current quarter, Alexandria Real Estate Equities is expected to post earnings of $2.13 per share, indicating a change of +8.1% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Alexandria Real Estate Equities. Also, the stock has a VGM Score of D.

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