Shares of $Vornado Realty Trust(VNO-N)$ VNO have gained 81% in the past six months, outperforming its industry’s growth of 17.3%.

This office real estate investment trust (REIT) company owns a concentration of high-quality office properties strategically located in markets of New York, Chicago and San Francisco. It is poised to benefit from tenants’ healthy demand for premier office spaces with class-apart amenities. A healthy balance sheet position supports this Zacks Rank #3 (Hold) company’s growth endeavors.

This month, VNO reported third-quarter 2024 funds from operations (FFO) plus assumed conversions on an adjusted basis of 52 cents per share, which beat the Zacks Consensus Estimate of 51 cents. However, the figure declined 21.2% year over year. The results displayed better-than-anticipated top-line growth.

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Let us decipher the possible factors behind the surge in the stock price.

Vornado's focus on having assets in a few select high-rent, high-barrier-to-entry markets, along with a diversified tenant base that includes several industry bellwethers, are expected to drive steady cash flows and fuel its growth over the long term.

The office-using job growth and the expansion of technology, finance, media and other firms are set to bolster rental revenues in the forthcoming quarters. Moreover, office occupiers remain keen to grow their office footprints in New York. During the third quarter of 2024, the company, in its New York office portfolio, leased 454,000 square feet across 18 transactions at an initial rent of $92 per square foot.

Rents in the newly constructed or best-in-class redeveloped assets, which offer ample amenities at transit-centric locations, have risen. Hence, the company is well-positioned to benefit from the emerging trend.

Vornado is making opportunistic developments and divestitures in addition to business spin-offs. Strategic sell-outs provide the company with the dry powder to reinvest in opportunistic developments and redevelopments. In May 2024, Vornado sold 49.9% interest in 50-70 West 93rd Street to its joint venture partner and received net proceeds of $2 million. Hence, timely portfolio-repositioning initiatives are likely to drive growth over the long term. Moreover, in the first nine months of 2024, Vornado sold two condominium units at 220 Central Park South (CPS) for net proceeds of around $31.6 million.

Vornado enjoys solid balance sheet strength. As of Sept. 30, 2024, the company had $2.6 billion of liquidity, consisting of $1 billion of cash and cash equivalents and restricted cash, and $1.6 billion available under its $2.2 billion revolving credit facilities. Further, apartment sales at 220 CPS are likely to add to its cash balance and enhance financial strength. A flexible financial position will enable it to take advantage of future investment opportunities and fund its development projects.

Risks Likely to Affect VNO’s Positive Trend

However, with persistent macroeconomic uncertainty and a hybrid working environment, near-term demand for office spaces is expected to remain choppy.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are OUTFRONT Media OUT and Cousins Properties CUZ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for OUTFRONT Media’s 2024 FFO per share is pinned at $1.73, suggesting year-over-year growth of 5.5%.

The Zacks Consensus Estimate for Cousins Properties 2024 FFO per share stands at $2.68, indicating an increase of 2.3% from the year-ago reported figure.

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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