Executive Summary / Key Takeaways

• Manhattan-Centric Strategy Driving Growth: Vornado Realty Trust is strategically positioned as a prime-pitch Manhattan-centric REIT, capitalizing on New York City's robust Class A office market, characterized by strong demand, diminishing supply, and rising rents, which management explicitly defines as a "landlord's market."
• Significant Operational and Financial Momentum: The company has demonstrated exceptional operational execution in 2025, marked by substantial leasing volumes, impressive mark-to-market gains, and strategic asset dispositions and refinancings that have significantly bolstered liquidity and deleveraged the balance sheet.
• PENN District as a Core Growth Engine: The ongoing transformation of the PENN District into a "city within a city" is a primary value driver, with PENN 2 nearing full lease-up ahead of schedule and projected to deliver substantial incremental cash yield, underpinning significant future earnings growth.
• Strong Outlook with 2027 as Inflection Point: Vornado anticipates comparable FFO to be slightly higher in 2025, flattish in 2026 due to strategic redevelopments and asset sales, but projects "significant earnings growth" in 2027 as major lease-ups fully materialize, supported by a robust development pipeline including 350 Park Avenue and 623 Fifth Avenue.
• Differentiated Competitive Edge: Vornado's commitment to sustainability leadership and its comprehensive "WorkLife" amenity program provide a distinct competitive advantage, attracting top-tier tenants and enhancing operational efficiency in a competitive urban real estate landscape.

The Resurgence of Manhattan: Vornado's Strategic Foundation

Vornado Realty Trust operates as a fully-integrated real estate investment trust, with its business primarily conducted through Vornado Realty L.P. The company has honed its strategy to focus predominantly on its Manhattan portfolio, particularly within the "Class A better building market," a segment it identifies as a narrower, more resilient portion of New York City's vast office landscape. This strategic concentration is rooted in the belief that Manhattan is "the strongest real estate market in the country, and I mean the strongest by far."

The current market dynamics in New York City underscore Vornado's strategic conviction. The Class A "better building" market, comprising approximately 180 million square feet, is experiencing robust tenant demand, with available space "evaporating quickly." Midtown core better building vacancy has reportedly dropped to 6.2%. This tightening supply is exacerbated by "hysterically high" construction costs and "stubbornly high" interest rates, which have "frozen" new supply. Management notes that a new Class A tower's replacement cost has risen to around $2,500 per square foot, making new developments challenging to pencil out. This confluence of factors creates a definitive "landlord's market," setting the stage for "strong, maybe even surging rent growth" in the coming years.

Vornado's competitive positioning within this environment is formidable. The company consistently reports leading performance among its New York peers and the national office sector. Its primary direct competitors, such as SL Green Realty Corp. (SLG), Boston Properties (BXP), Empire State Realty Trust (ESRT), and Alexandria Real Estate Equities , also vie for market share in high-quality urban commercial real estate. However, Vornado distinguishes itself through its pronounced sustainability leadership, with 100% of its in-service office buildings LEED certified, and its comprehensive "WorkLife" amenity program. This focus on environmental performance and tenant experience provides a tangible competitive edge, attracting environmentally conscious tenants and potentially leading to lower long-term operating costs through energy efficiency.

While competitors like BXP specialize in innovation-driven sectors such as life sciences, Vornado's "technological differentiation" in real estate lies in its ability to deliver highly efficient, amenity-rich, and sustainably certified spaces. The "WorkLife program," for instance, acts as a technological differentiator by integrating advanced building management systems and tenant-facing digital platforms to enhance user experience and operational efficiency. This program, coupled with sustainable building practices, aims to create environments that inspire collaboration and innovation, a critical draw for modern tenants. This approach allows Vornado to command premium rents and maintain high occupancy, even as some rivals face challenges in older, less modernized portfolios. The company's unique ownership of signage in Times Square and the PENN District, where it controls the underlying buildings, provides "perpetual control, a unique competitive advantage and the highest margins in the business," further diversifying its competitive moat.

Operational Momentum and Strategic Transformation

Vornado's recent operational achievements vividly illustrate its strategic execution. For the first nine months of 2025, the company leased an impressive 3.7 million square feet overall, including 2.8 million square feet of Manhattan office space. This volume led the marketplace, with average starting rents of $99 per square foot and positive mark-to-markets of +11.9% GAAP and +8.3% cash, excluding the significant NYU master lease.

The PENN District remains the centerpiece of Vornado's transformation strategy. This "city within a city" is rapidly taking shape, with PENN 2 now 78% occupied, having leased over 1.3 million square feet since its inception. The incremental cash yield for PENN 2 has been raised to 10.2%, reflecting strong leasing at average starting rents of $112 per square foot in the third quarter of 2025. PENN 1 has also seen substantial activity, with 1.6 million square feet leased at average starting rents of $94 since its redevelopment began. The district continues to attract top-tier tenants, including Verizon Communications (VZ), which signed a 203,000 square foot headquarters lease at PENN 2, joining Universal Music Group (UMGNF) and Major League Soccer. Management projects that PENN 2 will "easily on track to hit and exceed our year-end guidance of 80%" occupancy.

Beyond the PENN District, Vornado is actively reshaping its portfolio. The company completed a 70-year master lease with New York University (NYU) for 1.08 million square feet at 770 Broadway in May 2025. This transaction, which included a $935 million prepaid lease payment, allowed Vornado to repay a $700 million mortgage and generated an $803.25 million gain on sales-type lease, absorbing 500,000 square feet of vacancy. In September 2025, Vornado strategically acquired the 623 Fifth Avenue office condominium for $218 million. This 383,000 square foot building, currently 75% vacant, is slated for redevelopment into a premier boutique office building, with a budgeted 9% yield on cost and a target delivery by year-end 2027. The 350 Park Avenue development, a 1.85 million square foot tower with Citadel as an anchor, received unanimous City Council approval, with demolition scheduled for March 2026.

The Manhattan retail market is also experiencing a resurgence, with Vornado achieving rents consistent with historical highs in Times Square. The company plans to rejuvenate 700 front feet of retail along Seventh Avenue and 34th Street, transforming inherited "junk" retail into modern offerings to enhance the gateway to the PENN District. Vornado's signage business is thriving, with 2025 revenue projected to be its highest ever, benefiting from "perpetual control" over prime Times Square and PENN District locations.

Financial Health and Outlook

Vornado's financial performance in 2025 reflects its strategic initiatives and the improving market. For the nine months ended September 30, 2025, net income attributable to common shareholders surged to $842.25 million, or $4.19 per diluted share, a substantial increase from $7.07 million, or $0.04 per diluted share, in the prior year. This dramatic improvement was largely driven by the $803.25 million gain from the 770 Broadway master lease and a $76.16 million gain from the UNIQLO disposition. Third-quarter FFO attributable to common shareholders was $117.37 million, or $0.58 per diluted share, up from $99.26 million, or $0.50 per diluted share, in Q3 2024. This FFO growth was primarily due to the NYU master lease and higher NOI from the signage business.

The company's balance sheet has seen significant strengthening. As of September 30, 2025, Vornado boasted immediate liquidity of $2.60 billion, comprising $1.20 billion in cash and $1.40 billion available on its revolving credit facilities. Since the beginning of 2025, Vornado has generated $1.5 billion in net proceeds from sales and financings, paid down $900 million in debt, and increased its cash by $500 million. The net debt-to-EBITDA ratio improved to 7.3x from 8.6x at the start of the year, with further improvements expected as income from PENN 1 and PENN 2 comes online. Management expressed "unbelievable pride" in reducing the debt ratio and pre-funding massive developments at PENN, keeping major assets unencumbered.

Looking forward, Vornado's guidance points to a clear trajectory. The company expects 2025 comparable FFO to be "slightly higher" than 2024. For 2026, comparable FFO is projected to be "flattish" compared to 2025, primarily due to anticipated noncore asset sales and income temporarily taken offline for the 34th Street and Seventh Avenue retail redevelopment. However, 2027 is highlighted as the "inflection year," with "significant earnings growth" expected as the full positive impact of PENN 1 and PENN 2 lease-up takes effect. Management anticipates that New York office occupancy will increase into the low 90s over the next year or so, potentially reaching historical levels of 94% or higher in the coming years. The dividend outlook is positive, with expectations to pay at least $0.74 per share for 2025, and a move towards a "more normalized quarterly dividend" with growth anticipated from 2027's increased earnings.

Risks and Competitive Dynamics

Despite the optimistic outlook, Vornado operates in a dynamic environment with inherent risks. Fluctuations in interest rates and inflation could impact financial performance, as could a broader economic downturn. The company faces ongoing litigation regarding the PENN 1 ground lease, where a court ruling vacated a favorable arbitration panel decision, potentially increasing annual rent from $15.00 million to $20.22 million if the ground lessor prevails on appeal. Additionally, Alexanders, Inc. (ALX), a partially owned affiliate, is in discussions with lenders after defaulting on a $300.00 million mortgage loan. The default on the 650 Madison Avenue non-recourse mortgage loan, though Vornado had previously written off its investment, serves as a reminder of real estate market volatility.

In the competitive landscape, Vornado's sustainability leadership provides a strong moat against rivals like SL Green, potentially leading to superior operational efficiency and tenant attraction. Its diversified portfolio across New York, Chicago, and San Francisco offers better risk mitigation compared to ESRT's more concentrated NYC focus. However, Vornado's reliance on the office sector exposes it to shifts in work patterns, a vulnerability that specialized REITs like Alexandria Real Estate Equities (ARE) with their tech and life sciences focus may navigate differently. While Vornado is "not actively marketing" its Chicago and San Francisco assets, it remains "open-minded" to opportunistic acquisitions in San Francisco, believing the market is turning a corner. The company's ability to execute its ambitious development pipeline, particularly 350 Park Avenue and the 623 Fifth Avenue redevelopment, will be critical in maintaining its competitive edge and realizing projected value.

Conclusion

Vornado Realty Trust is in a period of significant transformation and growth, firmly anchored by its strategic focus on the premier Manhattan real estate market. The company's disciplined approach to portfolio optimization, aggressive leasing, and balance sheet deleveraging has positioned it to capitalize on the emerging "landlord's market" in New York City. With the PENN District rapidly maturing into a vibrant urban campus and a robust development pipeline, Vornado is poised for substantial earnings accretion, particularly from 2027 onwards. While challenges such as litigation and market volatility persist, Vornado's strong liquidity, differentiated sustainability initiatives, and proven operational execution underpin a compelling investment thesis, offering investors exposure to a revitalized Manhattan real estate cycle.