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Vornado Realty (VNO) Q3 FFO and Revenues Beat Estimates

Vornado Realty Trust VNO reported third-quarter 2017 funds from operations (FFO) per share of 52 cents, beating the Zacks Consensus Estimate by a penny.

Total revenues came in at $528.8 million in the reported quarter, surpassing the Zacks Consensus Estimate of $527.8 million. Moreover, total revenues increased 5.2% year over year.

Results reflect growth in occupancy and same-store net operating income (NOI) in the New York portfolio.

Notably, in July, the company completed the spin-off of its Washington, DC segment. This included 37 office properties aggregating more than 11.1 million square feet, five multi-family properties with 3,133 units and five other assets totaling around 406,000 square feet of space. Also, it comprised 18 future development assets aggregating more than 10.4 million square feet of estimated potential development density as well as $412.5 million of cash.

Vornado Realty Trust Price, Consensus and EPS Surprise

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

Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Behind the Headline Numbers

In the New York portfolio, 452,000 square feet of office space and 51,000 square feet of retail space were leased in the reported quarter. Also, 36,000 square feet and 61,000 square feet of space in theMart and 555 California Street, respectively, were leased.

At the quarter end, same-store occupancy in the New York portfolio was 96.9%, up 30 basis points (bps) sequentially and 110 bps year over year. Same-store occupancy in theMART was 98.7%, down 20 bps sequentially, but up 50 bps year over year. Further, same-store occupancy in 555 California Street was 94.2%, up 350 bps sequentially and 390 bps year over year.

During the third quarter, for the New York portfolio, same-store net operating income (NOI) increased 13.8% year over year. The same for theMART grew 17.0% and 13.2% for 555 California Street, respectively, year over year.

As of Sep 30, 2017, Vornado had nearly $1.3 billion of cash and cash equivalents, down from $1.5 billion as of Dec 31, 2016.

Our Viewpoint

Vornado’s premium assets in high-rent, high barrier-to-entry markets and a diverse tenant base are likely to drive its growth. In addition to this, the company recently announced the extension of one of the two $1.25-billion revolving credit facilities. The extended credit facility will improve its liquidity position.

In a bid to improve its core business operations, Vornado has been aggressively disposing its non-strategic assets. In July, it completed the spin-off of its Washington, DC business. This made the company a New York-based office and retail REIT. The streamlining efforts are a strategic fit and will likely propel the company’s growth over the long term. However, the earnings dilutive impact cannot be bypassed in the near term. Further, stiff competition and hike in interest rates remain concerns.

Currently, Vornado carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Vornado have declined 9.0% in the past three months, underperforming the 1.1% loss incurred by its industry.

We now look forward to the earnings releases of Essex Property Trust, Inc. ESS, Extra Space Storage Inc. EXR and Regency Centers Corporation REG, all of which are scheduled to report their numbers on Nov 1.

Note:  FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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