Vornado Realty Trust’s VNO trophy office assets in the best sub-markets positionit for growth amid economic improvement and recovery in the job market. However, large-scale asset sales are anticipated to impede near-term earnings growth.
In fact, this New York-focused company owns assets in fast-growing regions that have enabled it to witness improvement in same-store NOI (cash basis) at a CAGR of 7.1%, over the past five years ended 2018. In the upcoming quarters, growth in businesses and corporate sectors expansion will lead to higher absorption of the company’s office spaces.
To leverage on this favorable environment, the company is aimed at improving its portfolio through strategic acquisitions and redevelopments. To fund these, it is monetizing non-core assets and investments.
The company recently divested nearly 18.5 million shares of Lexington Realty Trust LXP it owned, realizing net proceeds of nearly $167.7 million. Simultaneously, it sold all of the 5,717,184 shares of Urban Edge Properties UE, which it owned, for net proceeds of around $108.5 million.
This stake sale provides the company with the dry powder to reinvest in opportunistic acquisitions. In fact, these transactions are a strategic fit for Vornado, and will enhance its liquidity position and financial flexibility.
In the Oct-Dec quarter, Vornado recorded nearly $81.2 million from the sale of 11 condominium units at 220 Central Park South. Sale proceeds will be redeployed in the Penn District redevelopment project. This project offers significant NOI upside potential and value-creation opportunity.
In addition, a 4.8% hike in common share dividends in January indicates prudent capital-deployment efforts. Furthermore, with a strong balance sheet and liquidity position, this increased dividend is likely to remain sustainable.
The company’s properties in the New York City metropolitan area contributed to 89% of its NOI in 2018. Hence, with significant asset concentration in the city, its performance is susceptible to the economic conditions of the region.
Additionally, aggressive disposition of assets, although a strategic fit for streamlining portfolio, will likely result in earnings dilution. This will impact the company’s near-term bottom-line growth.
In February, it reported fourth-quarter 2018 adjusting funds from operations (FFO) per share (with assumed conversions) of 90 cents, missing the Zacks Consensus Estimate of 97 cents. Revenues also declined on a year-over-year basis.
Shares of this Zacks Rank #3 (Hold) company have inched up 1.4% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A better-ranked stock in the same space is Boston Properties, Inc BXP. It currently carries a Zacks Rank of 2 (Buy). The company’s FFO per share estimates for the ongoing quarter have been revised marginally north to $1.65 in a month’s time. Additionally, it has a long-term growth rate of 6.20%.
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Urban Edge Properties (UE): Free Stock Analysis Report
Vornado Realty Trust (VNO): Free Stock Analysis Report
Boston Properties, Inc. (BXP): Free Stock Analysis Report
Lexington Realty Trust (LXP): Free Stock Analysis Report
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