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Vornado (VNO) Down 10.1% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Vornado (VNO). Shares have lost about 10.1% in that time frame, underperforming the S&P 500.

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

Vornado's FFO and Revenues Surpass Estimates in Q2

Vornado Realty’s second-quarter 2022 FFO plus assumed conversions as adjusted per share of 83 cents topped the Zacks Consensus Estimate of 79 cents.

Vornado’s results display better-than-anticipated top-line growth. The same-store net NOI improved across the portfolio.

Total revenues came in at $453.5 million in the reported quarter, surpassing the Zacks Consensus Estimate of $433.3 million.

Further, on a year-over-year basis, both FFO per share and revenues grew 20.3% and 19.7%, respectively.

Behind the Headlines

In the reported quarter, total same-store NOI (at share) improved 7.1% year over year. While the metric at theMART increased 8.3%, the same for the New York portfolio grew 7.1% year over year. The same-store NOI (at share) of Vornado’s 555 California Street climbed 6.1%.

However, operating expenses jumped 16.4% to $222.3 million year over year.

During the quarter, in the New York office portfolio, 301,000 square feet of office space (231,000 square feet at share) was leased for an initial rent of $85.27 per square foot and a weighted average lease term of 11.5 years. The tenant improvements and leasing commissions were $10.40 per square foot per annum, or 12.2% of initial rent.

In the New York retail portfolio, 8,000 square feet were leased (all at share) at an initial rent of $626.76 per square foot and a weighted average lease term of 12.7 years. The tenant improvements and leasing commissions were $66.28 per square foot per annum, or 10.6% of initial rent.

Additionally, at theMART 59,000 square feet of space (all at share) was leased for an initial rent of $56.33 per square foot and a weighted average lease term of 4.7 years. The tenant improvements and leasing commissions were $4.23 per square foot per annum, or 7.5% of initial rent.

Vornado ended the quarter with occupancy in the New York portfolio at 90.8%, up 80 basis points (bps) year over year. Occupancy in theMART declined 50 bps from the prior year period to 88.6%, while occupancy in 555 California Street fell by 360 bps to 94.2%.

On Jun 17, 2022, Vornado closed the sale of Center Building for $172.75 million. The sale of the eight-story 498,000 square foot office building located at 33 00 Northern Boulevard in Long Island City, NY, generated net proceeds of $58.95 million.

Balance Sheet

Vornado exited second-quarter 2022 with cash and cash equivalents of $988.4 million, up from $973.8 billion as of Mar 31, 2022.

In June 2022, Vornado completed the refinancing of 100 West 33rd Street, a 1.1-million-square-foot building, and 770 Broadway, a 1.2-million-square-foot Class A Manhattan office building, for $480 million and $700 million, respectively.

In the same month, it amended and extended one of its two revolving credit facilities. It also extended the maturity of its $800 million unsecured term loan from February 2024 to December 2027.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Vornado has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 B. 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. It's no surprise Vornado has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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