Challenging Office Real Estate Environment Impacts Vornado’s Q3 Results; Reducing FVE to $35.50

No-moat-rated Vornado Realty reported third-quarter results that were largely in line with our expectations. The firm reported adjusted funds from operations, or FFO, of $0.81 per share, 14% higher than the $0.71 in FFO during the third quarter of 2021. The year-over-year increase in FFO was mainly on the back of accrual adjustments for the tax-assessed value of the MART, rent commencement on new office and retail leases, and continued recovery of variable businesses, which was partially offset by higher interest expenses. After removing the impact of accrual adjustments for the tax-assessed value of the MART, the adjusted FFO was relatively flat on a year-over-year basis. Same-store cash NOI for the New York portfolio was up 1.1% compared with the previous year's third quarter. The new office leases signed by the company in New York had 1.8% higher cash rents than the previously escalated rents in the third quarter. We have reduced our fair value estimate for Vornado Realty to $35.50 per share from $38 per share after moderating our long-term rent growth and occupancy expectations for the company.