Vornado to Report Q2 Earnings: What's in the Cards?

Vornado Realty Trust VNO is scheduled to report second-quarter 2024 results on Aug 5, after market close. The quarterly results are likely to reflect a year-over-year decrease in revenues and funds from operations (FFO) per share.

In the last reported quarter, this New York-based real estate investment trust's (REIT) FFO plus assumed conversions as adjusted per share of 55 cents missed the Zacks Consensus Estimate by 5.2%. Results displayed lower-than-anticipated top-line growth.

Over the trailing four quarters, Vornado's FFO plus assumed conversions as adjusted per share surpassed the Zacks Consensus Estimate on two occasions, met on another and missed on the remaining period, the average beat being 3.5%. This is depicted in the graph below:

U.S. Office Market

Per a Cushman & Wakefield CWK report, although the U.S. economy is now slowing, job growth remains healthy. CWK expects office-using job growth to be moderate for the remainder of the year before picking up in 2025.

National absorption of negative 18.2 million square feet (msf) for the second quarter improved from the negative 25.5 msf recorded in the previous quarter, bringing the four-quarter rolling total to a negative 69.6 msf. The second quarter of 2024 marked the 10th straight quarter for office demand being negative.

The Cushman & Wakefield report highlights that despite the weaker trends at the national level, demand for office spaces outperforms in some markets. In the first half of 2024, 28 markets reported positive absorption.

In addition, occupiers' growing preference for high-quality office properties has played a key role in leading to positive absorption rates in these markets.

Nonetheless, the second-quarter national vacancy rate reached a record high of 20.5%, increasing 55 basis points (bps) sequentially and 180 bps year over year. The national asking rent increased to $37.91 in the second quarter from $37.78 in the previous quarter.

Projections

Although Vornado has a portfolio of premium office assets strategically situated in sought-after markets like New York, Chicago and San Francisco, its performance in the to-be-reported quarter is likely to have been affected by the choppy environment in the office real estate market.

Also, competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants, might have partly limited VNO's ability to increase rents and/or backfill tenant move-outs and vacancies during the quarter.

The Zacks Consensus Estimate for quarterly revenues is pegged at $435.6 million, suggesting a decrease of 7.8% from the year-ago quarter's reported figure.

The consensus mark for Vornado's New York revenues stands at $355.1 million, indicating a decline from $362.5 million in the prior-year quarter. The consensus estimate for occupancy in the New York office portfolio is pegged at 89.50%, down from 91.90% reported a year ago.

Further, high interest rates are expected to have been a spoilsport during the to-be-reported quarter. Elevated rates imply high borrowing costs for the company, which would affect its ability to purchase or develop real estate.

The company's activities during the to-be-reported quarter were inadequate to garner analysts' confidence. The Zacks Consensus Estimate for the quarterly FFO per share has been revised a cent downward to 55 cents over the past two months. The figure also suggests a 23.6% decline from the prior-year period's reported number.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict a surprise in terms of FFO per share for Vornado this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.

Vornado has an Earnings ESP of -3.20% and currently carries a Zacks Rank of 4 (Sell).

Stocks That Warrant a Look

Here are two stocks from the broader REIT sector — Hudson Pacific Properties and Apple Hospitality REIT APLE — that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.

Hudson Pacific Properties, slated to release quarterly numbers on Aug 7, has an Earnings ESP of +4.35% and carries a Zacks Rank of 3 at present.

Apple Hospitality, scheduled to report quarterly numbers on Aug 5, has an Earnings ESP of +12.21% and carries a Zacks Rank of 2.

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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