Factors Setting The Tone For Vornado (VNO) In Q2 Earnings

Vornado Realty Trust (NYSE:VNO) is scheduled to report second-quarter results on Jul 29, after the closing bell. Results are projected to display year-over-year decline in revenues and funds from operations (FFO) per share.

In the last reported quarter, this NY-based real estate investment trust (REIT) delivered a negative surprise of 13.19% in terms of FFO per share. The company exited the quarter with lower year-over-year occupancy at its New York and theMART portfolios. Further, a decline in same-store NOI witnessed in these segments affected results.

Over the preceding four quarters, Vornado missed the Zacks Consensus Estimate on three occasions and surpassed in the other, the average negative surprise being 2.26%. This is depicted in the graph below:

Vornado Realty Trust Price and EPS Surprise

Let’s see how things have shaped up for this announcement.

Factors to Consider

The retail real estate market showed signs of recovery in second-quarter 2019, as indicated by the increase in average net asking rents and total retail sales. Per a report by CBRE Group (NYSE:CBRE) , rebound in consumer sentiment enabled the retail industry to enjoy higher average net asking rents of $18.01 per square foot.

Furthermore, net absorption of retail space totaled nearly 3.6 million square feet of space during the quarter, suggesting elevated demand for retail space. The favorable retail environment is expected to have benefited Vornado’s retail properties that are predominantly present in Manhattan.

Also, amid stable economic environment and job-market growth, demand for the company’s New York City office portfolio is likely to have remained high. Amid this, revenues for the to-be-reported quarter are pinned at $542.6 million, calling for year-over-year growth of 0.14%.

In addition, occupancy in the company’s New York retail and office portfolio is estimated to have been unchanged at 97% sequentially for the quarter ended Jun 30, 2019.

Moreover, in the second quarter, Vornado made strategic attempts to improve its core business by executing opportunistic divestures that provided the company with the dry powder to reinvest in opportunistic acquisitions and redevelopments. In June, Vornado announced an agreement to sell its 25% interest in 330 Madison Avenue.

This apart, in April, Vornado announced the sale of 45.4% common equity interest in its portfolio of high street retail properties at Upper Fifth Avenue and Times Square (NYSE:SQ), to a group of institutional investors. The transaction will reflect a tax gain of nearly $735 million and financial statement gain of around $2.6 billion in second-quarter 2019. Moreover, after-tax net gain on the sale of 220 Central Park South condominium units will improve FFO per share by 44 cents.

However, Vornado’s properties too are expected to be to impacted by a number of store closures at the priciest retail corridors that continue to torment the retail industry. During the quarter under review, British apparel brand, Topshop, joined a growing list of retailers that announced store closures, shutting doors at all of its 11 U.S. stores. The apparel chain is a tenant at Vornado’s 608 Fifth Avenue. Hence, the company will record a non-cash impairment losses and related write-offs, substantially all on 608 Fifth Avenue, reducing FFO per share by 38 cents per share.

Lastly, prior to its quarterly earnings release, the company has been witnessing downward estimate revisions. As such, the Zacks Consensus Estimate for the June-end quarter’s FFO per share has been revised marginally downward to 93 cents over the past week, reflecting analysts’ bearish sentiments. Also, it represents a year-over-year decline of 15.5%

Earnings Whispers

Our proven model does not conclusively show that Vornado is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: Vornado’s Earnings ESP is -3.51%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

Corporate Office Properties Trust (NYSE:OFC) , slated to report quarterly figures on Jul 29, has an Earnings ESP of +0.66% and carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Healthcare Realty Trust Incorporated (NYSE:HR) set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds a Zacks Rank #3.

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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