Earnings Scorecard: Vornado Realty Trust

Mar. 2.11 | About: Vornado Realty (VNO)

Vornado Realty Trust (NYSE:VNO), a leading real estate investment trust (REIT), reported fiscal 2010 fourth quarter recurring funds from operations (FFO) of $1.17 per share, which beat the Zacks Consensus Estimate by 8 cents. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review

For full year 2010, Vornado reported FFO of $1.1 billion or $6.05 per share, versus $583.6 million or $3.36 in the previous year. Adjusted FFO during the reported fiscal was $1.0 billion or $5.38 per share, compared with $848.6 million or $4.89 in 2009. Recurring FFO per share for fiscal 2010 marginally missed the Zacks Consensus Estimate by a penny.

Total revenues during the reported quarter were $713.0 million compared with $706.6 million in the year-ago period. Total revenues during the quarter were well ahead of the Zacks Consensus Estimate of $690 million.

For full year 2010, total revenues were $2.8 billion compared with $2.7 billion in the prior year. Total revenues during the reported fiscal marginally beat the Zacks Consensus Estimate of $2.7 billion.

Earnings Estimate Revisions- Overview

Fiscal earnings estimates have moved up for Vornado since the earnings release, meaning that analysts are bullish about the long-term performance of the company. Let’s dig into the earnings estimate details.

Agreement of Estimate Revisions

In the last 7 days, fiscal 2011 earnings estimates were raised by 4 analysts out of 13 covering the stock, while 1 had lowered the same. For fiscal 2012, 1 out of 12 analysts covering the stock have revised their estimates upward, while 1 has lowered it during the same time period. This indicates a positive directional movement for the fiscal year earnings.

Magnitude of Estimate Revisions

Earnings estimates for fiscal 2011 have increased by 6 cents in the last 7 days to $5.48. For fiscal 2012, earnings estimates have also increased by 4 cents to $5.66 during the same time period. This is encouraging news for the company. Vornado is the largest publicly traded office REIT in the New York region. The core properties of the company are performing at a high level and it is maintaining strong occupancies in its New York City office and retail portfolios. We believe this puts the company well ahead of many of its competitors, who have assets in weak markets struggling with high vacancies and little pricing power.

Moving Forward

The long-term earnings estimate picture for Vornado is optimistic. Vornado has office properties in two of the best long-term office markets in the country, New York City and Washington DC. These high-barrier markets have held up comparatively well and have enabled the company to continue increasing rents.The company also has a strong balance sheet with manageable near-term debt maturities and adequate liquidity to take advantage of distressed selling as asset values of office and retail properties continue to drop.

However, the company’s retail properties and Toy ‘R’ Us investment has suffered in the recent past due to prolonged recession, which in turn has negatively affected earnings. Vornado owns about 32.7% of Toys ‘R’ Us – the leading global retailer of dedicated toys and baby products. This undermines the long-term growth potential of the company.

We maintain our ‘Neutral’ rating on Vornado, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating, indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Brookfield Properties Corporation (NYSE:BPO), one of the competitors of Vornado.