Analyst Note
| Kevin Brown |No-moat-rated Vornado Realty Trust reported mixed second-quarter results amid a challenging environment for office real estate. The company reported adjusted funds from operations of $0.69 per share, above the $0.56 reported in the second quarter of 2020 but below the $0.91 reported in 2019. Same-store cash net operating income was up 0.40% on a sequential basis and 0.50% year over year. Office utilization rates have shown some improvement over the last quarter with companies encouraging their employees to return to the office, but the convenience of working from home and the recent spike in coronavirus cases have resulted in a markedly slow transition as employees remain hesitant to return to the office. The weakness in the New York office market is evident from the fact that cash re-leasing spreads were down 4.4% in the second quarter. We continue to expect rental rates, occupancy, and re-leasing spreads in the New York office real estate market to remain weak for a couple of years. In the long run, we believe that remote work and hybrid remote work solutions will gain increasing acceptance, but offices will continue to play an essential role in facilitating collaboration, harnessing innovation, and maintaining company culture. After incorporating second-quarter results, we are maintaining our $50 fair value estimate.