Founded in 1982, Vornado Realty Trust (VNO) is a fully integrated Real Estate Investment Trust (REIT). In 2012, VNO celebrated 50 years on the NYSE. The company’s portfolio is concentrated in New York City, along with premier assets in Chicago and San Francisco. Its New York holdings consists of 27.9 million square feet in 87 properties. The company owns and manages more than  23 million square feet of LEED certified buildings.

While the coronavirus pandemic has engulfed the whole world, New York City was very badly hit. As a result, VNO’s portfolio, which is largely based in New York City, was hugely impacted. Most of its office tenants have been working remotely. Also, many of its tenants have moved to the suburbs seeking lower rents and less congested working environments. In addition, the company has cancelled all trade shows at the MART for 2020 and closed the Hotel Pennsylvania.

VNO stock has declined 44.6% over the past year. Poor investor sentiment and potential downside based on several other factors have made our proprietary system rate VNO as a “Sell.”

Here is how our proprietary POWR Ratings system evaluates VNO:

Trade Grade: D

VNO is currently trading slightly above its 200-day moving average of $36.63, but below its 50-day moving average of $38.34. The stock’s 7.7% loss over the past month reflects short-term bearishness.

The company’s top line has declined 21.9% year-over-year to $364 million for the third quarter ended September 30, 2020. Non-GAAP Funds from Operations (FFO) attributable to common shareholders plus assumed conversions, as adjusted, declined nearly 34% year-over-year to $112.6 million. And its net income has declined 83.5% year-over-year to $53.2 million. EPS declined 83.4% year-over-year to $0.28.

VNO announced a dividend of $0.13 per share on its recently issued Series N Cumulative Redeemable Preferred Shares, on December 4. Also, the company announced a series of senior management changes on December 1: Company’s President Michael Franco has been appointed to the additional position of Chief Financial Officer (CFO). On October 16 VNO announced that it had completed a $500 million refinancing of PENN11, which is a 1.2 million square foot Manhattan office building.

Buy & Hold Grade: D

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, VNO is positioned unfavorably. The stock is currently trading 46.5% below its 52-week high of $68.68.

Looking at the past three years, the company’s net revenue has declined at a CAGR of 10.8%. Also, VNO’s EBITDA declined at a CAGR of 22.9%, and EPS declined at a CAGR of 43.2% over the same period.

Peer Grade: D

VNO is currently ranked #12of 15 stocks in the REITs – Office industry. Other popular stocks in the REITs - Office group are Alexandria Real Estate Equities, Inc. (ARE), Corporate Office Properties Trust (OFC), and Highwoods Properties, Inc. (HIW).

VNO has lost 44.6% over the past year. While ARE gained 10.8% over the past year, OFC and HIW have lost 10.6% and 16.8%, respectively.

Industry Rank: D

The REITs - Office industry is ranked #112 of the 123 StockNews.com industries. The companies in this industry primarily own and manage office properties.

The demand for office properties has fallen significantly as several companies have had to adapt to remote working lifestyle amid the pandemic. Even after the pandemic, it seems unlikely that the demand for office properties will return to pre-pandemic levels because many companies have now adapted to a ‘work-from-home’ culture and see it as beneficial as a permanent measure.

Overall POWR Rating: D (Sell)

Overall, VNO is rated a “Sell” due to its declining business, lack of analyst confidence, and weak price momentum, as determined by the four components of our overall POWR Rating.

Bottom Line

While the company has a diversified portfolio, it derives most of its revenue from its New York City real estate. However, most of its tenants are working remotely and many of them have even moved to cheaper locales. Moreover, during the last-reported quarter, the company conceded that, “The value of our real estate assets may continue to decline, which may result in additional non-cash impairment charges in future periods and that impact could be material.”

Analyst sentiment, which gives a good sense of a stock’s future price movement, is not favorable for VNO. The consensus revenue estimate of $1.6 billion for the next year indicates a decline of 2.4% year-over-year. Its EPS is expected to decline 633.3% for the quarter ending March 2021.

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VNO shares were trading at $36.08 per share on Monday afternoon, down $0.63 (-1.72%). Year-to-date, VNO has declined -42.44%, versus a 15.66% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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