Vornado Realty Trust (VNO), a leading real estate investment trust (REIT), reported recurring funds from operations (FFO) of $1.18 per share for the fiscal 2010 second quarter, which exceeded the Zacks Consensus Estimate by 12 cents. Funds 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.
Below we cover 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
Total revenues during the reported quarter were $696.1 million compared with $673.8 million in the year-ago period. Total revenue during the quarter beat the Zacks Consensus Estimate of $660 million.
Same-store occupancy in the company’s New York City and Washington, DC portfolios were 95.5% and 95.0%, respectively, at quarter-end. Same-store EBITDA (earnings before interest, tax, depreciation and amortization) on a GAAP basis increased 2.2% and 6.9% during the quarter in the New York City and DC office portfolios, respectively, compared with the year-earlier quarter.
(Read our full coverage on this earnings report: Vornado Tops Estimates)
Earnings Estimate Revisions- Overview
Fiscal earnings estimates have climbed for Vornado since the earnings release, meaning that analysts are bullish about the long-term performance of the company. Lets dig into the earnings estimate details.
Agreement of Estimate Revisions
In the last 30 days, fiscal 2010 earnings estimates were raised by 5 analysts out of 12 covering the stock, while 2 have lowered. For fiscal 2011, five out of 11 analysts covering the stock revised their estimates upward, while only 1 lowered it. This indicates a clear positive directional movement for fiscal year earnings.
Magnitude of Estimate Revisions
Earnings estimates for fiscal 2010 have increased by 2 cents in the last 30 days to $5.13. For fiscal 2011, earnings estimates have increased by 3 cents to $5.29. This is encouraging news for the company. Management further observed that the core properties of the company are performing at a high level with strong occupancies in its New York City office and retail portfolios.
Moving Forward
The long-term earnings estimate picture for Vornado is positive. Vornado Realty is the largest publicly traded office REIT in the New York region concentrating on Class A office properties. We believe this puts the company well ahead of many competitors, who have assets in less desirable markets still struggling with high vacancies and little pricing power.
However, we expect continued volatility in the office sector with increasing job cuts. The continued troubles in the residential sector are also weighing on commercial property operations. The credit crunch has widened the bid-ask spread between buyers and sellers of commercial real estate, which has caused deal volumes to fall dramatically. This has affected the top-line growth of the company.
Currently, we maintain our long-term Neutral rating on Vornado with a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1-3 months.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These Earnings Estimate Scorecard articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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