Vornado Realty Trust VNO recently announced that its second-quarter 2019 financial results will include certain items that will reduce its funds from operation (FFO) plus assumed conversions per share by 5 cents. However, this amount will be excluded in the FFO, as adjusted figure.
The items include a non-cash impairment losses and related write-offs, substantially all on 608 Fifth Avenue, reducing FFO per share by 38 cents per share. Also, the company projected its share of loss from real estate fund investments at 10 cents per share, as well as other net charges of 1 cent. Yet, the company estimates an after-tax net gain on the sale of 220 Central Park South condominium units to increase FFO per share by 44 cents.
These items will, however, have a positive impact of $12.37 per share on the company’s net income for the quarter. Similar to FFO, the adjusted net income will exclude the impact.
Moreover, Vornado mentioned in its press release that its second-quarter 2019 net income, net income, as adjusted, FFO and FFO as adjusted will comprise an $8.4-million (at share) reduction in income, owing to the non-cash write-off of straight-line rent receivables as well as $5.6 million of non-cash expense for the time-based equity compensation approved relating to the earlier declared new leadership group. The company also stated that in each of the next two quarters, additional non-cash expense associated with these awards will be $2.4 million.
Vornado owns a portfolio of premium assets in high-rent, high barrier-to-entry markets. Notably, the company is redeploying sale proceeds to fund strategic acquisitions and redevelopments. Further, amid stable economic and job-market environment, demand for the company’s office spaces will likely be healthy.
The company has also resorted to aggressive disposition of assets in recent years, in a bid to reposition its portfolio. While such streamlining efforts are a strategic fit for the long haul, the earnings dilutive impact cannot be bypassed in the near term. This apart, stiff competition from market players limits rent growth.
Also, shares of this Zacks #4 (Sell) Ranked company have underperformed the industry it belongs to, year to date. The company’s shares have gained 5.5%, while the industry has recorded growth of 20.1%, during this time period.
Stocks to Consider
Investors can also consider better-ranked stocks from the REIT industry like Duke Realty Corp. DRE, Lamar Advertising Company LAMR and PS Business Parks, Inc. PSB. While Lamar Advertising Company sports a Zacks Rank #1 (Strong Buy), Duke Realty and PS Business Parks carry a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Duke Realty’s Zacks Consensus Estimate for 2019 funds from operations (FFO) per share moved marginally north to $1.42 in a month’s time.
Lamar’s FFO per share estimates for the current year inched up 0.3% to $5.83 over the past two months.
PS Business Parks’ Zacks Consensus Estimate for the ongoing year’s FFO per share moved up 0.6% to $6.71 in the past month.
Note: Funds from operations (FFO) is a widely used metric to gauge the performance of REITs rather than net income as it indicates cash flow from their operations. FFO is obtained after adding depreciation and amortization to earnings and subtracting the gains on sales.
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