Is It Wise To Hold Vornado (VNO) In Your Portfolio Right Now?

We have updated our research report on Vornado Realty Trust (NYSE:VNO) on Aug 22, 2016.

Earlier in August, Vornado reported second-quarter 2016 funds from operations (“FFO”) per share of $1.21, missing the Zacks Consensus Estimate of $1.25. The figure also came in lower than the prior-year tally of $1.71 per share.

Results reflect weaker-than-expected revenue numbers and a fall in occupancy in both the New York and Washington DC portfolio. Total revenue came in at $621.7 million for the second quarter, up 0.9% year over year. However, it lagged the Zacks Consensus Estimate of $626.5 million.

What’s Good About Vornado, and What Not?

Vornado – with high-quality office assets located in high-rent, high barrier-to-entry markets, a diverse tenant base and decent balance sheet – is poised for long-term growth. The company, which has been subject to criticism for venturing into too many sectors, has made consistent efforts in recent times to streamline its business. It has opted for divestitures, including spin-offs like that of Urban Edge Properties (NYSE:UE) , and resorted to opportunistic investments to improve its long-term growth scope.

In fact, during the quarter, the company contributed $19.65 million for a 50% equity stake in a joint venture, which would develop a 33,000 square foot office and retail building on Houston Street in Manhattan.

Further, it sold a 47% ownership stake in 7 West 34th Street – a 477,000 square foot Manhattan office building leased to Amazon.com, Inc. (NASDAQ:AMZN) – and retained the residual 53% stake. Based on a property value of around $561.0 million, this sale helped the company reap net proceeds of nearly $127.4 million.

However, even if the divestitures pay off in the long run, the dilutive impact on earnings from such asset dispositions cannot be avoided either in the near term. Further, at quarter end, same-store occupancy in the New York portfolio was 96.0%, reflecting a contraction of 20 basis points sequentially and 50 bps year over year. On the other hand, same-store occupancy in the Washington DC portfolio was 84.0%, down 80 bps, both sequentially and year over year. Moreover, stiff competition and any rise in interest rate in the upcoming period can add to its woes.

Nevertheless, the Zacks Consensus Estimate for 2016 and 2015 has remained stable at $4.89 and $5.55, respectively, over the past seven days. Currently, Vornado carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Investors interested in the retail REIT industry may consider a better ranked stock – CoreSite Realty Corporation (NYSE:COR) – holding a Zacks Rank #2 (Buy).