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Should You Retain Vornado Realty (VNO) in Your Portfolio Now?
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Vornado Realty Trust (VNO - Free Report) boasts a concentration of high-quality office properties strategically located in markets of New York, Chicago and San Francisco. It is poised to benefit from tenants’ healthy demand for premier office spaces with class-apart amenities. However, the overall choppy office real estate landscape and a high interest rate environment raise concerns for the company.
What’s Aiding VNO?
Vornado's focus on having assets in a few select high-rent, high-barrier-to-entry markets, along with a diversified tenant base that includes several industry bellwethers, are expected to drive steady cash flows and fuel its growth over the long term.
The office-using job growth and the expansion of technology, finance and media firms are set to bolster rental revenues in the upcoming periods. New York continues to attract office occupiers aiming to expand their workspace.
Rents in the newly constructed or best-in-class redeveloped assets, which offer ample amenities at transit-centric locations, have risen. Hence, the company is well-positioned to benefit from the emerging trend.
Vornado is making opportunistic developments and divestitures in addition to business spin-offs. Strategic sell-outs provide the company with the dry powder to reinvest in opportunistic developments and redevelopments. In May 2024, Vornado sold 49.9% interest in 50-70 West 93rd Street to its joint venture partner and received net proceeds of $2 million. Hence, timely portfolio-repositioning initiatives are likely to drive growth over the long term. Moreover, in the second quarter of 2024, Vornado sold two condominium units at 220 Central Park South (CPS) for net proceeds of around $31.6 million.
Vornado enjoys a healthy balance sheet strength. As of Jun 30, 2024, the company had $2.7 billion of liquidity. Further, apartment sales at 220 CPS are likely to add to its cash balance and enhance financial strength. A flexible financial position will enable it to take advantage of future investment opportunities and fund its development projects.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 26.7% compared with the industry’s growth of 12%.
Image Source: Zacks Investment Research
What’s Hurting VNO?
With persistent macroeconomic uncertainty and a hybrid working environment, it is expected that near-term demand for office spaces will remain choppy. Vornado has high office market exposure in New York City. This makes the company’s cash flows vulnerable to the macroeconomic situation prevailing in that region.
Vornado is troubled by the current high interest rate setting. Elevated rates result in significant borrowing expenses for the company, impacting its capacity to acquire or develop real estate assets. With a substantial debt load, Vornado's share of total debt as of Jun 30, 2024, was approximately $10.1 billion. Moreover, with high interest rates still in place, the dividend payout may seem to be less attractive than the yields on fixed-income and money market accounts.
Solid dividend payouts remain the biggest attraction for REIT investors. However, in December 2023, Vornado announced a dividend of 30 cents per share for the fourth quarter of 2023, which marked a reduction of 20% from the prior payout. The company anticipates paying a single common share dividend in the fourth quarter of 2024 as part of its common share dividend policy for the year. We estimate a year-over-year decline in FFO as adjusted in 2024. Hence, any significant turnaround in dividend payment is likely to remain elusive in the near term.
In conclusion, given the above-mentioned factors, it seems wise to retain VNO in your portfolio right now.
The Zacks Consensus Estimate for Crown Castle’s 2024 funds from operation (FFO) per share has moved marginally northward over the past month to $6.97.
The Zacks Consensus Estimate for Lamar’s current-year FFO per share has been marginally raised over the past month to $8.08.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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Should You Retain Vornado Realty (VNO) in Your Portfolio Now?
Vornado Realty Trust (VNO - Free Report) boasts a concentration of high-quality office properties strategically located in markets of New York, Chicago and San Francisco. It is poised to benefit from tenants’ healthy demand for premier office spaces with class-apart amenities. However, the overall choppy office real estate landscape and a high interest rate environment raise concerns for the company.
What’s Aiding VNO?
Vornado's focus on having assets in a few select high-rent, high-barrier-to-entry markets, along with a diversified tenant base that includes several industry bellwethers, are expected to drive steady cash flows and fuel its growth over the long term.
The office-using job growth and the expansion of technology, finance and media firms are set to bolster rental revenues in the upcoming periods. New York continues to attract office occupiers aiming to expand their workspace.
Rents in the newly constructed or best-in-class redeveloped assets, which offer ample amenities at transit-centric locations, have risen. Hence, the company is well-positioned to benefit from the emerging trend.
Vornado is making opportunistic developments and divestitures in addition to business spin-offs. Strategic sell-outs provide the company with the dry powder to reinvest in opportunistic developments and redevelopments. In May 2024, Vornado sold 49.9% interest in 50-70 West 93rd Street to its joint venture partner and received net proceeds of $2 million. Hence, timely portfolio-repositioning initiatives are likely to drive growth over the long term. Moreover, in the second quarter of 2024, Vornado sold two condominium units at 220 Central Park South (CPS) for net proceeds of around $31.6 million.
Vornado enjoys a healthy balance sheet strength. As of Jun 30, 2024, the company had $2.7 billion of liquidity. Further, apartment sales at 220 CPS are likely to add to its cash balance and enhance financial strength. A flexible financial position will enable it to take advantage of future investment opportunities and fund its development projects.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 26.7% compared with the industry’s growth of 12%.
Image Source: Zacks Investment Research
What’s Hurting VNO?
With persistent macroeconomic uncertainty and a hybrid working environment, it is expected that near-term demand for office spaces will remain choppy. Vornado has high office market exposure in New York City. This makes the company’s cash flows vulnerable to the macroeconomic situation prevailing in that region.
Vornado is troubled by the current high interest rate setting. Elevated rates result in significant borrowing expenses for the company, impacting its capacity to acquire or develop real estate assets. With a substantial debt load, Vornado's share of total debt as of Jun 30, 2024, was approximately $10.1 billion. Moreover, with high interest rates still in place, the dividend payout may seem to be less attractive than the yields on fixed-income and money market accounts.
Solid dividend payouts remain the biggest attraction for REIT investors. However, in December 2023, Vornado announced a dividend of 30 cents per share for the fourth quarter of 2023, which marked a reduction of 20% from the prior payout. The company anticipates paying a single common share dividend in the fourth quarter of 2024 as part of its common share dividend policy for the year. We estimate a year-over-year decline in FFO as adjusted in 2024. Hence, any significant turnaround in dividend payment is likely to remain elusive in the near term.
In conclusion, given the above-mentioned factors, it seems wise to retain VNO in your portfolio right now.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Crown Castle Inc. (CCI - Free Report) and Lamar Advertising (LAMR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Crown Castle’s 2024 funds from operation (FFO) per share has moved marginally northward over the past month to $6.97.
The Zacks Consensus Estimate for Lamar’s current-year FFO per share has been marginally raised over the past month to $8.08.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO), a widely used metric to gauge the performance of REITs.