$Vornado Realty Trust(VNO-N)$ VNO is scheduled to report fourth-quarter and full-year 2024 results on Feb. 10, after market close. While the company’s quarterly results are likely to display a year-over-year rise in revenues, funds from operations (FFO) per share might display a decline.

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In the last reported quarter, this New York-based real estate investment trust’s (REIT) FFO plus assumed conversions as adjusted per share of 52 cents outpaced the Zacks Consensus Estimate by 2%. Results displayed better-than-anticipated top-line growth.

Over the trailing four quarters, Vornado’s FFO plus assumed conversions as adjusted per share surpassed the Zacks Consensus Estimate on three occasions and missed on the remaining period, the average surprise being 1.8%. This is depicted in the graph below:

Vornado Realty Trust Price and EPS Surprise

Vornado Realty Trust price-eps-surprise | Vornado Realty Trust Quote

U.S. Office Market in Q4

Per a Cushman & Wakefield CWK report, although the overall net absorption was negative in the fourth quarter, certain markets registered improved absorption. U.S. office markets’ vacancy rate grew in the quarter, marking the lowest increase in two-and-a-half years. However, the national asking rent slightly decreased in the quarter.

For the fourth quarter of 2024, the U.S. office net absorption of negative 5.8 million square feet (msf) improved from the negative 13.2 msf recorded in the previous quarter, making it the most stable quarter for office demand in the past two years. This quarter marked the 12th straight quarter to report negative net absorption in the U.S. office sector.

The Cushman & Wakefield report highlights that despite the weaker trends at the national level, demand for U.S. office spaces outperformed in some markets. In the fourth quarter, 44 out of the 93 U.S. markets reported positive net absorption, while full-year absorption was positive in 29 markets. Occupiers’ growing preference for high-quality office buildings has played a key role in leading to positive net absorption rates in these markets.

High-quality offices remain more resilient and are expected to recover faster. In the fourth quarter, Class A absorption remained relatively flat in the country at negative 61,000 square feet. There was a quarter-over-quarter increase in Class A net absorption in two-thirds of U.S. markets, with half of them showing positive results.

Nonetheless, the fourth-quarter national vacancy rate reached 20.9%, increasing 20 basis points (bps) sequentially and 160 bps year over year. Vacancy was flat or declined sequentially in nearly half of U.S. Markets. The national asking rent decreased to $38.20 in the fourth quarter from $38.22 in the previous quarter.

Factors to Consider Ahead of VNO’s Results

Vornado’s portfolio of premium office assets strategically situated in a few select high-rent, high-barrier-to-entry markets of New York, Chicago and San Francisco, is likely to have witnessed healthy demand during the quarter, aiding leasing activity.

A diversified tenant base, which includes several industry bellwethers, is expected to have led to stable cash flow generation during the quarter.

However, its performance in the to-be-reported quarter is likely to have been affected by the choppy environment in the office real estate market.

Further, high interest expenses are expected to have been a spoilsport during the to-be-reported quarter.

VNO’s Projections

The Zacks Consensus Estimate for quarterly revenues is pegged at $447.4 million, suggesting an increase of 1.3% from the year-ago quarter’s reported figure.

The consensus mark for Vornado’s other revenues is pegged at $82.5 million, up from $80.8 million reported in the prior-year quarter.

However, the consensus mark for Vornado’s New York revenues stands at $360.8 million, indicating a decline from $361.1 million in the prior-year quarter.

The consensus estimate for occupancy in the New York office portfolio is pegged at 87.81%, down from 90.70% reported a year ago.

The company’s activities during the to-be-reported quarter were inadequate to garner analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO per share remained unchanged at 51 cents over the past month. The figure also suggests a 19.1% decline from the prior-year period’s reported number.

For the full-year 2024, the Zacks Consensus Estimate for FFO per share is pegged at $2.16. The figure indicates an 17.2% decrease year over year on 1.9% year-over-year decline in revenues to $1.78 billion.

What Our Quantitative Model Predicts

Our proven model predicts a likely surprise in terms of FFO per share for Vornado this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.

Vornado has an Earnings ESP of +0.93% and currently carries a Zacks Rank of 3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks That Warrant a Look

Here are two other stocks from the broader REIT sector — Highwoods Properties HIW and Host Hotels & Resorts HST — that you may want to consider, as our model shows that these, too, have the right combination of elements to report a surprise this quarter.

Highwoods Properties, scheduled to report quarterly numbers on Feb. 11, has an Earnings ESP of +0.22% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Host Hotels is slated to report quarterly numbers on Feb. 19. HST has an Earnings ESP of +2.79% and carries a Zacks Rank of 3 presently.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

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Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report

Highwoods Properties, Inc. (HIW) : Free Stock Analysis Report

Vornado Realty Trust (VNO) : Free Stock Analysis Report

Cushman & Wakefield PLC (CWK) : Free Stock Analysis Report

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