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What's in the Offing for Vornado (VNO) This Earnings Season?

Zacks Equity Research

Vornado Realty Trust VNO is scheduled to report third-quarter results on Oct 28, after the market closes. Results are projected to display year-over-year (y/y) decline in revenues and funds from operations (FFO) per share.

In the last reported quarter, this New York-based real estate investment trust (REIT) reported a negative surprise of 3.19% in terms of FFO per share. The decline in FFO as adjusted was attributed to 4 cents per share of non-cash write-off of straight-line rent receivables and 3 cents per share of non-cash expense for the time-based equity compensation granted in relation to the previously-announced new leadership group.

Over the preceding four quarters, Vornado missed the Zacks Consensus Estimate on all occasions, the average negative surprise being 6.41%. This is depicted in the graph below:

Vornado Realty Trust Price and EPS Surprise

Vornado Realty Trust Price and EPS Surprise

Vornado Realty Trust price-eps-surprise | Vornado Realty Trust Quote

Let’s see how things have shaped up for this announcement.

Factors to Consider

Vornado noted that net gain on sale of real estate will have an impact on third-quarter earnings results. In fact, gain on sale of its 25% interest in 330 Madison Avenue gain is expected to increase its net income by 88 cents per share for the September-end quarter. Further, the company announced that sale of condominium units at Vornado’s residential tower development, 220 Central Park South will increase both net income per share and FFO per share by 54 cents in the quarter. (Read more: Vornado Releases List of Items to be Included in Q3 Results)

Notably, store closures and bankruptcies have been affecting the retail real estate market, for long, which is undergoing structural changes. Nonetheless, rebound in consumer sentiment and healthy retail spending amid job growth enabled the retail real estate industry to enjoy higher rents in the to-be-reported quarter. 

In fact, recent data from Reis shows that Regional Mall vacancy rate expanded 10 basis points sequentially to 9.4% for the quarter ended Sep 30, 2019. Nonetheless, rent growth was 0.2% in the quarter.

Amid this, occupancy at the company’s New York retail portfolio for third-quarter 2019 is estimated to have declined to 95% from the year-ago quarter’s 97%. Additionally, occupancy at its New York office portfolio is expected to have remained flat at 97%. 

Further, the Zacks Consensus Estimate for total revenues is pegged at $467.8 million, indicating y/y decline of 13.7%

Lastly, prior to its quarterly earnings release, the company has been witnessing downward estimate revisions. As such, the Zacks Consensus Estimate for the July-September quarter’s FFO per share has been revised 1.1% downward to 88 cents over the past month, reflecting analysts’ bearish sentiments. Also, it represents a year-over-year decline of 9.3%

Earnings Whispers

Our proven model doesn’t conclusively predict a positive surprise in terms of FFO per share for Vornado this time around. The combination of a positive Earnings ESP and Zacks Rank #3 (Hold) or better increases the odds of a FFO beat. But that’s not the case here.

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 -2.74%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

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

Stocks That Warrant a Look

Digital Realty Trust, Inc. DLR, scheduled to release earnings on Oct 29, has an Earnings ESP of +2.61% and carries a Zacks Rank of 3, at present.

Senior Housing Properties Trust SNH, slated to report July-September quarter results on Nov 7, has an Earnings ESP of +3.23% and currently holds a Zacks Rank of 2.

Stag Industrial, Inc. STAG, set to release quarterly figures on Oct 30, has an Earnings ESP of +1.1% and carries a Zacks Rank of 3, at present.

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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