New York based fully-integrated real estate investment trust, Vornado Realty Trust (VNO), released its second quarter earnings, reporting revenues of $380 million, up 10% year over year, notes Todd Shaver, editor of Bull Market Report.

Funds From Operations stood at $153 million, or $0.80 per share, compared to $203 million, or $1.06 per share during the same period last year. The REIT currently yields 5.0%.

VNO’s properties were adversely impacted by the COVID-19 pandemic, with many tenants forced to shut shop last year, and despite the reopenings, retail tenants continue to be bogged down with restrictions and occupancy limitations, along with the reduced international travel and tourism revenues, further impacting their financial health.

During the quarter, the Trust has commenced legal proceedings against certain tenants for non-payment of rent, but it may agree to rent deferrals or abatements on a limited basis.

Other factors squeezing VNO’s cash flows include cancellation of trade shows at theMART, lower revenues from building management services, signages and parking lots, as most office tenants continuing to work from home.

The Trust, however, remains optimistic about market conditions going forward, with occupancy rates, resale prices, and demand for office space in New York gradually gaining momentum.

The Trust is currently in talks with a Fortune 100 company requiring 400,000 square feet in office space for its 2,800 employees, while also just completing delivery of 730,000 square feet for Facebook.

Vornado continues to struggle with the so-called ‘Penn Fatigue’, referring to its Penn District projects, which it expects to be the crowning jewel of the west side New York.

Having spent nearly a decade acquiring real estate around Penn Station, it will shortly begin demolition of Hotel Pennsylvania, which it shut down last quarter, with costs expected at $150 million.

Vornado ended the quarter with cash of $2.2 billion, and total debt at $8.6 billion. With consistent cash flows and a strong pipeline of new projects, it remains well-positioned for further growth, especially with regards to prime projects in New York City. Our target price is at $59, and the Sell Price at $39.

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