Vornado Realty Has An Intriguing Pipeline, But Where Are The Catalysts?

Vornado Realty TrustVNOa real estate investment trustJohn GuineeVornado's stock rating from Buy to Hold with a price target lowered from $86 to $77.

Vornado continues to be an attractive company on a net asset value discount basis, cash flow generation and value creation, Guinee commented in his downgrade note. But at the same time, this is already known to investors and there's a lack of catalysts that could generate notable upside (see Guinee's track record here).

Vornado's spin-off of its Washington, D.C. ,portfolio to JBG SMITH Properties JBGS is now a "distant memory," and the company's New York pipeline is comprised of deliveries in only 2019 and beyond, Guinee continued. For example, the 220 Central Park South condominium tower is still two years away from completion and a new headquarters for Aetna Inc AET near Chelsea Market also won't be finalized until at least 2019.

Meanwhile, the company is expected to see flat same-store net operating income growth while simultaneously contending with a Manhattan office market that is flush with new supply and tenant turnover is a concern. The company will also see elevated capital expenditure costs along with G&A costs.

Bottom line, investors do have reason to be "happy" with owning the stock ahead of an expected special dividend pay-out in the first half of 2019. However, there are few near-term catalysts to boost the stock higher despite the stock trading at a discount relative to larger Manhattan-centric office REIT peers.

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