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Why Vornado Looks Attractive

Trading at a double-digit discount to our fair value estimate, this REIT stands to benefit from a shift in Manhattan office property.

No-moat-rated

The stock, along with office REITs in general, has been beaten down in recent months amidst an improving jobs market and a streamlined portfolio focused almost exclusively on Manhattan. We were pleased with rental rates surrounding Penn Plaza which climbed into the upper-$60s per square foot in 2016 and the first half of 2017. We see this positive trend continuing, as half of lease expirations for 2018 are concentrated in One Penn and Two Penn Plaza, so next year serves as a real opportunity to renew leases at higher rates given the greater appeal for that submarket. We believe Vornado getting hit twice as hard as some of its peers in the past few months was unwarranted. Given our outlook stemming from its existing property position near the Hudson Yards project and a dividend that should hover around 3%, we see Vornado trading at a discount to our $92 fair value estimate as attractive.

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About the Author

Brad Schwer

Equity Analyst

Brad Schwer is an equity analyst for Morningstar Research Services, LLC, a wholly owned subsidiary of Morningstar, Inc. He covers real estate investment trusts.

Prior to joining Morningstar in 2016, Schwer worked at CME Group as an investigator in the market regulation department.

Schwer holds a bachelor’s degree in finance from Illinois State University and a master’s degree in business administration from the University of Chicago Booth School of Business. He is a Level II candidate in the Chartered Financial Analyst® program.

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