EUR 850.00 For Business Accounts Only

Morningstar | Vornado Reports Mixed 1Q Results; Maintaining Our $76 FVE

Vornado Realty Trust reported first-quarter results roughly in line with our expectations, as short-term negative impacts were outweighed by the continued strength of the company’s core portfolio. Adjusted funds from operations came in at $0.79 per share, down from $0.91 per share a year earlier. The decrease was largely attributed to an $0.08 per share impact from a noncash expense for the vesting of previously issued operating partnership units and Vornado restricted stock. Although these results are less than stellar, FFO on a cash basis increased 4.5% and cash basis same-store net operating income increased around 3%. These increases were buoyed by the strength of the company’s New York office portfolio, which continues to post impressive numbers despite the softness of the overall market due to supply additions in the Hudson Yards development. Given management’s solid execution of its New York strategy, we expect to maintain our $76 fair value estimate for no-moat-rated Vornado.

Within the company’s segments, NOI from the Merchandise Mart was up around 1% with a negative impact from the Publicis vacancy while 555 California Street increased 15% over a year earlier. Same-store cash NOI from the New York office portfolio was up 4.4% with New York retail up 1.2%. On an aggregated basis, the company’s overall New York NOI increased 2.6%. Despite significant supply additions coming on line in New York City, the local economy has continued to perform well. During the first quarter, the city generated over 10,000 office-using jobs. Despite the media fallout surrounding Amazon’s decision to withdraw its plans for a headquarters in Long Island City, we still view New York as a strong market that will continue to attract businesses and high-paying jobs. In the long term, this should benefit Vornado, which has proved its ability to execute its New York-based strategy effectively.