Vornado Rises 57.6% in Three Months: Will the Trend Last?
Shares of Vornado Realty Trust VNO have gained 57.6% in the past three months, outperforming its industry’s growth of 20.8%.
The company owns 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. A healthy balance sheet position supports its growth endeavors.
Last week, VNO, with Medline, announced an agreement to increase Medline’s presence at THE MART by 110,000 square feet. The long-term lease agreement with Vornado will run until 2036. This expansion positions Medline as one of the largest tenants at Vornado’s 3.7-million-square-foot property in downtown Chicago.
Analysts seem bullish about this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2024 FFO per share has been revised marginally upward over the past month to $2.17.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
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, media and other firms are set to bolster rental revenues in the forthcoming quarters. Moreover, office occupiers remain keen to grow their office footprints in New York. Per management, the New York office leasing market, particularly in Midtown, continues to be upbeat in the second half of the year.
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.
VNO’s Timely Portfolio-Repositioning Efforts
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.
VNO’s Solid Balance Sheet Position
Vornado enjoys solid balance sheet strength. As of June 30, 2024, the company had $2.7 billion of liquidity, consisting of $1.1 billion of cash and cash equivalents and restricted cash and $1.6 billion available under its $2.2 billion revolving credit facilities. 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.
Risks Likely to Affect VNO’s Positive Trend
However, with persistent macroeconomic uncertainty and a hybrid working environment, it is expected that near-term demand for office spaces will remain choppy.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Lamar Advertising LAMR and Four Corners Property Trust FCPT, 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 Lamar’s 2024 FFO per share is pinned at $8.09, suggesting year-over-year growth of 8.3%.
The Zacks Consensus Estimate for Four Corners’ 2024 FFO per share stands at $1.73, indicating an increase of 3.6% from the year-ago reported figure.
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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Vornado Realty Trust (VNO) : Free Stock Analysis Report
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