Here's Why BMO Is 'A Fan' Of Vornado Realty

Vornado Realty Trust VNO is a real estate investment trust considered to be one of New York's premier office and retail landlords with an underappreciated outlook that investors should take advantage of, according to BMO.

The Analyst

BMO Capital Markets' John Kim initiated coverage of Vornado Realty with an Outperform rating and $85 price target.

The Thesis

Vornado is the second largest landlord in New York City and boasts a portfolio of "trophy assets," Kim said in the note. The company also records higher cash SS NOI growth versus its peers at a 7 percent compounded annual growth since 2012. It holds a high degree of exposure to Manhattan's West Side at 38 percent of NOI, which bodes well as demise of the New York City real estate market is either "premature" or "greatly exaggerated."

Vornado is projected to generate $2.6 billion in cash proceeds through 2020 from the sale of 220 Central Park South condo units, which will yield $860 million in earnings, Kim said. The company also identified another $1 billion of non-core sales in the near term, which puts the conversation of a stock buyback program back on the discussion table.

Granted, the company's 25 percent of NOI exposure to the retail market coupled with a 7 percent year-over-year decline in market rents has some investors concerned, the analyst wrote. However, these concerns are "more than priced in" at current levels.

Price Action

Shares of Vornado Realty Trust were trading higher by 1 percent Friday at $69.36.

Related Links:

Stifel Turns Bullish On New York's Largest Owner Of Commercial Real Estate

The Most Expensive Properties In The World