Vornado Realty Trust (NYSE:VNO) is refurbishing its two office buildings near Penn Station, in the hopes of increasing the frequency of workers traveling through the transit hub. This will create a growth driver for the company in the upcoming future. Vornado is a REIT investing in office buildings and street retail in Manhattan.
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“I don’t think anyone understands the ‘Wow’ we are about to unveil,” Chairman Steven Roth said. In yesterday’s trading session, Vornado stock collected 13% gains.
Vornado Trying to Evade the Tornado
The pandemic era gave birth to the new work norm, which meant avoiding difficult commutes and delivering more productivity by working from home.
However, Vornado, through its new real estate project encircling Manhattan’s Penn Station, believes commuters will increase their travel frequency. The real estate company has invested $1.2 billion to revamp two of its office buildings near the midtown transit hub, which serves commuters from several subway lines with two more to be added from 2027.
Real estate firm Colliers data, as reported The Wall Street Journal, indicates that the rate of Manhattan office space that is available or about to become available peaked at 17.4% at May end, the highest level since at least 2000.
Penn’s Status
Vornado has almost fully leased the Penn 1 building since its recent $450 million renovation, thereby pushing rents higher to $100/sq.foot from $60. However, Penn 2 remains a challenge. While it has already rented seven floors to Madison Square Garden for its corporate headquarters, it is still looking for an anchor tenant for the building’s “bustle.”
Providing convenience to commuters, Vornado’s renovated buildings offer them the ability to directly hop into both Penn 1 and Penn 2 from the train stations. Both buildings offer multiple amenities like a hotel-style public lobby, a market, a restaurant, giant screens playing sports during happy hours, and access to health, fitness, and medical needs.
In mid-June, high-end fitness operator, Life Time Group signed a lease agreement with Vornado for occupying floor space on the first three floors of PENN 1 for a large gym and seven pickleball courts along with a lounge and bar on the ground floor.
Additionally, the company also plans the project with one complex offering residential, retail, and office so that employees who live there can avoid any type of transit during the workweek.
Meanwhile, Vornado’s two office towers do not face refinancing risk as the has invested in these projects utilizing its profits raked in from sales of a luxury supertall condominium tower.
Vornado, a Troubled Situation
In the past six months, Vornado has seen its stock price go down by 22.1%. Recent quarterly results indicate a drop in net income ($5.17 million from $26.5 million in the prior-year quarter) and funds from operations ($0.61 from $0.80 earlier).
To add to the concerns, the REIT’s dividend payouts stand postponed until the end of 2023. In 2022, the company paid a total of $2.12/share or $435 million in cash.
Is Vornado a Good Stock to Buy?
Of the seven Wall Street Analysts covering VNO stock, four rate it a Hold while three assign a Sell rating to the stock, taking the average analyst consensus rating to Moderate Sell. The average analyst price target is set at $15.57, which marks a 5.6% downside potential from current levels.
