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Vornado (VNO) Q1 FFO & Revenues Miss Estimates, NOI Down

Zacks Equity Research

Vornado Realty Trust VNO reported first-quarter 2019 funds from operations (FFO) plus assumed conversions, as adjusted of 79 cents per share, missing the Zacks Consensus Estimate of 91 cents. Also, the reported figure compares unfavorably with the year-ago tally of 91 cents.

The decline in FFO as adjusted was attributed to 8 cents per share of non-cash expense for the vesting of previously-issued OP Units and Vornado’s restricted stock.

The company exited the quarter with lower year-over-year occupancy at its New York and theMART portfolios. Further, a decline in same-store net operating income (NOI) witnessed in these segments unfavorably impacted results.

Total revenues came in at $534.7 million in the reported quarter, missing the Zacks Consensus Estimate of $547.5 million. Nonetheless, the reported figure compares favorably with the year-ago tally of $536.4 million.

Behind the Headline Numbers

In the New York portfolio, 396,000 square feet of office space (350,000 square feet of space at share) and 49,000 square feet of retail space (43,000 square feet of space at share) were leased in the March-end quarter. Also, 159,000 square feet of area was leased in theMart and 61,000 square feet was leased at 555 California Street (43,000 square feet at share).

At the end of the reported quarter, occupancy in the New York portfolio was 97%, flat sequentially, and shrinking 10 basis points (bps) year over year. Occupancy in theMART was 94.9%, down 20 bps sequentially and 420 bps year over year. Furthermore, occupancy in 555 California Street was 99.4%, remaining flat sequentially, and up 160 bps year over year.

During the first quarter, total same-store net operating income (NOI) edged down 0.1% year over year. In fact, same-store NOI at the company’s share edged down 0.1% year over year for the New York portfolio. The same for theMART declined 4.3%, while at 555 California Street it grew 7.3%, year over year, respectively.

As of Mar 31, 2019, Vornado had nearly $307 million of cash and cash equivalents, down from $570.9 million as of the prior-year end.

Our Viewpoint

In first-quarter 2019, Vornado made strategic attempts to improve its core business by executing opportunistic divestures that provided the company with the dry powder to reinvest in opportunistic acquisitions and redevelopments.

Vornado Realty Trust Price, Consensus and EPS Surprise

Vornado Realty Trust Price, Consensus and EPS Surprise | Vornado Realty Trust Quote

However, the choppy retail real estate environment remains a drag for the company’s Manhattan street retail portfolio. Further, decline in same-store NOI is disappointing. 

Currently, Vornado carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Cousins Properties Incorporated CUZ reported FFO per share of 20 cents in the January-March quarter, in line with the Zacks Consensus Estimate. The figure came in higher than the prior-year reported tally of 15 cents. 

Duke Realty Corporation’s DRE first-quarter 2019 core FFO per share of 33 cents surpassed the Zacks Consensus Estimate of 32 cents. Moreover, the figure came in ahead of the year-ago quarter’s reported tally of 30 cents.

Ventas, Inc. VTR delivered first-quarter normalized FFO of 99 cents, beating the Zacks Consensus Estimate of 96 cents. The reported figure, however, came in lower than the prior year’s $1.05.

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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