Source: https://www.vno.com
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If you are looking into investing in real estate via Real Estate Investment Trusts (REIT) especially in key markets such as New York City, Chicago and San Francisco, may want to check out Vornado Realty Trust (NYSE: VNO).
So, who is Vornado Reality Trust? The company was founded in Maryland back in 1982 and is now currently in New York City. But the history of the company’s history goes further into the past.
There was once a discount store chain known as Two Guys founded in 1947 by Sidney and Herbert Hubschman. In 1959, Two Guys acquired O.A. Sutton Corporation, which manufactures the Vornadio line of electric fans and was renamed later to Vornado Inc.
By the 1970s, Vornado began divesting its retail operations and in 1980, Interstate Properties Inc., owned by Steven Roth, acquired an 18% stake in Vornado. By 1981, Interstate Properties took control of the firm after winning a proxy struggle against existing management. And in 1983, Vornado Inc. was converted into a REIT, Vornado Realty Trust.
And for those wondering if there is any relation between the REIT and the Vornado fans or heaters, back in 1989, the Vornado name was licensed to Vornado Air, LLC, which manufactures cooling and heating equipment. But they have no relation to each other.
According to their website:
VORNADO REALTY TRUST IS A PREEMINENT OWNER, MANAGER AND DEVELOPER OF OFFICE AND RETAIL ASSETS
Vornado’s portfolio is concentrated in the nation’s key market — New York City — along with the premier asset in both Chicago and San Francisco. Vornado is also the real estate industry leader in sustainability policy. The company owns and manages over 26 million square feet of LEED certified buildings and received the Energy Star Partner of the Year Award, Sustained Excellence 2020. In 2012, Vornado commemorated 50 years on the NYSE.
In fact, the VNO is involved with active ownership, active management and active development.
In New York City, Vornado Realty Trust (NYSE: VNO) has 20.6 million square feet of Manhattan office space in 33 properties, 2.7 million square feet of Manhattan street retail space in 65 properties and THE PENN DISTRICT is their premier interconnected campus-like development currently consisting of 9 million square feet in a dozen buildings and land sites surrounding New York’s Pennsylvania Station, the busiest transportation hub in North America.
The company also has a 32.4% interest in Alexander’s Inc. (NYSE: A:X) which owns seven properties in the greater New York Metropolitan area including 731 Lexington Avenue, the 1.1 million square foot Bloomberg, L.P. headquarters building.
While in San Francisco, the company has a 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet.
While in Chicago, the 3.7 million square foot Mart and more.
Source: Schwab.com
Currently Vornado Realty Trust (NYSE: VNO) had a closing price of $46.52 and has a 52-week range of $29.79 and $50.91. The market cap is $8.9 billion, an enterprise value of $17.0 billion and has 191.5 million shares outstanding. While 75% shares are held by institutions.
Schwab’s Equity Rating right now is at a D as of July 9th. And is at D for underperforming and has a price volatility outlook of high (Above average price volatility). The sentiment grade and stability grade as of July 9th, was given a Negative.
Ned Davis Research (NDR) gave it an Equity Focus Ranks Rating of “Sell”, Argus gives it a “Buy”, raising their target price to $56 and feel much more positive with the new CFO Michael Franco and the reopening of the new Moynihan Train Hall in New York.
Reuters report gave a concensus recommendation of “HOLD” and Market Edge Second Opinion Weekly gave it a rating of “LONG”.
It’s important to note that the some of the negative rating is more than likely brought upon the uncertainty of the real estate market. The Biden administration proposed the elimination of the 1031 exchange to raise tax revenue to fund the American Families Plan.
According to Morningstar’s Equity Analyst Report, “Over the past several years, REITs have disposed of tens of billions in assets each quarter and yet only rarely used a 1031 exchange to avoid capital gains taxes. If REITs pay out 90% of taxable income as dividends to shareholders, they avoid paying any corporate taxes. As a pass-through investment vehicle, the dividends paid by REITs are not considered qualified income like dividends paid by most other companies and thus are usually taxed at the highest tax bracket for each shareholder. However, part of the dividend can be reclassified as capital gains and thus taxed at a significantly lower level. Therefore, if the REIT recognizes capital gains on dispositions, the taxes owed by the shareholder on the dividend payment received from the REIT falls. This means it is to the shareholders advantage that the REIT regularly disposes of assets and records capital gains. Thus, REITs tend to only use the 1031 exchange when dispositions in a given year are so high that the capital gains recorded exceed the amount of the dividend payment that can be converted from ordinary income to capital gains income. We believe that the elimination would therefore have a very small impact on the few times when disposition activity is extremely high and can easily be avoided by strategic management decisions”.
There are a lot of other factors that make some investors worry about REITs that specialize in office and retail assets, especially companies who are open to Work at Home, challenges of brick and mortar stores as many turned to shopping online during the Pandemic.
But Vornado Realty Trust (NYSE: VNO) tends to be in a position thanks to their active portfolio which includes developments near Hudson Yards and also strong assets in NYC, Chicago and San Francisco.
But we will see what happens as we approach fall and winter for the second year and an unknown situation with the Covid-19 Delta
As for the dividend, VNO’s quarterly dividend is $0.53 ($2.12 annually) and an annual dividend yield at 4.56%. The earnings per share was -$1.829 and a forward P/E of $144.02.
While 2013-2014 featured an annual dividend of $2.92 and a consistent $2.62 dividend from 2015-2017. Unfortunately, it has dropped in 2018 and in 2020, due to the pandemic, it was at its lowest of $2.38 and 2021, is expected to be around $2.12.
While no one likes to see dropping dividends, I liked VNO for its potential if people returned to the office, leases are resigned and tenant payments become stronger for 2022 and up. Considering the unknowns of the Delta variant of covid and rising interest rates, while its uncertain of what kind of market we will have later in the year, I do like the potential of VNO thanks to their current assets and upcoming projects.
As always, perform your due diligence and do a lot of research before investing. Talk to a financial advisor and find out if Vornado Realty Trust (NYSE: VNO) would be a perfect investment for you.
