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Vornado (VNO) Up 21.1% 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 21.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Vornado's FFO Meets Estimates in Q3, Revenues Miss

Vornado Realty's third-quarter 2023 FFO plus assumed conversions as adjusted per share of 66 cents matched the Zacks Consensus Estimate. However, the figure declined 18.5% year over year.

Results displayed lower-than-anticipated revenues. A rise in operating expenses during the quarter was a concern.

Total revenues came in at $451 million in the reported quarter, missing the Zacks Consensus Estimate of $460 million. On a year-over-year basis, revenues declined nearly 1.4%.

Quarter in Detail

In the reported quarter, total same-store NOI (at share) came in at $271.3 million compared with the prior-year quarter’s $279.8 million. The metric for the New York and 555 California Street portfolios improved 4% and 2.9%, respectively. However, the same-store NOI (at share) for THE MART portfolio declined 54% from the prior-year period.

Operating expenses increased 5.5% to $233.7 million year over year.

During the quarter, in the New York office portfolio, 236,000 square feet of office space (190,000 square feet at share) was leased for an initial rent of $93.33 per square foot and a weighted average lease term of 7.9 years. The tenant improvements and leasing commissions were $12.87 per square foot per annum or 13.8% of the initial rent.

In the New York retail portfolio, 29,000 square feet were leased (21,000 square feet at share) at an initial rent of $373.28 per square foot and a weighted average lease term of 8.4 years. The tenant improvements and leasing commissions were $26.02 per square foot per annum or 7% of the initial rent.

Additionally, at THE MART, 68,000 square feet of space (63,000 square feet at share) was leased for an initial rent of $54.71 per square foot and a weighted average lease term of 5.2 years. The tenant improvements and leasing commissions were $10.46 per square foot per annum or 19.1% of the initial rent.

Vornado ended the quarter with occupancy in the New York portfolio at 89.9%, down 40 basis points (bps) year over year. Occupancy in THE MART declined to 76.8% from 87.3%. Further, occupancy in 555 California Street also declined 20 bps to 94.5%.

Portfolio Activity

On Aug 28, 2023, Vornado entered into Manhattan’s first public-private partnership venture with Hudson Pacific Properties, Blackstone, the City of New York and New York City Economic Development Corporation to build a 266,000-square-foot purpose-built studio campus at Pier 94 with a joint investment of around $350 million.

Balance Sheet

Vornado exited third-quarter 2023 with cash and cash equivalents of $1 billion, down from $1.1 million as of Jun 30, 2023.

During the quarter ended Sep 30, 2023, it repurchased 302,200 common shares for $5.9 million at an average price of $19.61 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Vornado has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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 this revision 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, American Tower (AMT), has gained 14.1% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

American Tower reported revenues of $2.82 billion in the last reported quarter, representing a year-over-year change of +5.5%. EPS of $1.26 for the same period compares with $2.36 a year ago.

American Tower is expected to post earnings of $2.33 per share for the current quarter, representing a year-over-year change of -0.4%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for American Tower. Also, the stock has a VGM Score of F.

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