Vornado Realty Trust Eyes 2027 Earnings Rebound

Vornado Realty Trust ((VNO)) has held its Q1 earnings call. Read on for the main highlights of the call.

Vornado Realty Trust’s latest earnings call struck a cautiously upbeat tone as management balanced near‑term earnings pressure with a clear path to stronger growth after 2026. Executives emphasized tight supply in prime locations, robust leasing pipelines, and accretive acquisitions as reasons for optimism, even as higher interest costs and elevated tenant improvement spending weigh on current cash flow.

Leasing Momentum Signals Strength in Core Markets

Manhattan office demand looked surprisingly resilient, with nearly 12 million square feet leased in the first quarter, the best Q1 since 2014. Vornado highlighted 3.7 million square feet of leasing in 2025, its second‑best year ever, and another 426,000 square feet released in early 2026, over 1 million square feet more now in active negotiations.

Rents Rising and Mark‑to‑Market Still in Vornado’s Favor

The company is capturing meaningful rent upside as leases roll, reporting average starting Manhattan rents of $103 per square foot in Q1. GAAP mark‑to‑market gains of 11.7% and nearly 10% on a cash basis suggest embedded growth, with management expecting free rent and tenant incentives to gradually trend lower.

Park Avenue Plaza Deal Adds Immediate Accretion

Vornado’s 49% stake in Park Avenue Plaza gives it exposure to a 1.2 million square foot, 99% leased tower with an 11‑year average lease term. Purchased at roughly $950 per square foot, or about 65%–70% below replacement cost, and financed with sub‑3% debt through 2031, the asset is projected to add around $0.10 per share of annual GAAP earnings on a full‑run‑rate basis.

Balance Sheet Liquidity Underpins Strategic Flexibility

The REIT ended the quarter with $2.6 billion of liquidity, including $1.2 billion of cash and $1.4 billion of undrawn credit lines. Management stressed that no major financings are needed for roughly 18 months and pointed to a long history of prefunding large developments to avoid forced capital raises in volatile markets.

Share Buybacks Underscore Management’s Valuation Conviction

Vornado has been aggressively repurchasing stock, buying back 7 million shares for about $180 million at an average price of $25.80 under its $200 million program. With roughly 90% of that plan completed, the board approved another $300 million in potential repurchases, signaling confidence that the shares trade below intrinsic value.

PENN District Progress Sets Up a 2027 Earnings Inflection

Leasing at PENN 1 and PENN 2 is expected to be largely locked down by 2026, with GAAP rents ramping through that year and flowing more fully into 2027. The portfolio’s roughly $200 million of signed but not yet commenced leases could equate to about $0.40 per share of earnings over time, with revenues pacing in at around 10%–12% per quarter.

Disciplined Capital Allocation in Prime Redevelopments

Beyond Park Avenue Plaza, Vornado is repositioning 623 Fifth Avenue as a 383,000 square foot boutique office asset, reinforcing its focus on high‑quality locations. Management reiterated a preference for selective acquisitions in gateway corridors using non‑recourse, project‑level financing, aiming to capture upside while tightly managing risk.

San Francisco Portfolio Benefits from Improving Demand

The recovery narrative is not limited to New York, with San Francisco showing surprising strength at key properties. At 555 California, rents on significant leases have exceeded $160 per square foot, supported by renewed demand from technology and artificial intelligence tenants alongside financial services firms.

FFO Compression Reflects One‑Off Items and Higher Interest

Comparable funds from operations fell to $0.52 per share in the first quarter, down from $0.63 a year earlier, a drop of about 17%. Management attributed the decline primarily to the absence of last year’s PENN 1 ground‑rent accrual reversal and to higher net interest expense, partially offset by other operating contributions.

350 Park Master Lease Creates Temporary Earnings Drag

Changes to the master lease at 350 Park, linked to the Citadel redevelopment transaction, will weigh on near‑term earnings. Management expects roughly five to six months of drag before project costs are capitalized, emphasizing that new interim rent matches the building’s mortgage maturity and does not represent a lasting revenue uplift.

Higher Financing Costs Amid Market Volatility

Capital markets remain open, but borrowing has become more expensive as treasury yields climb about 30 basis points and credit spreads widen 40–50 basis points. While Vornado can still access funding for top‑tier assets, management acknowledged that the overall cost of debt is modestly higher than earlier in the year.

Elevated Leasing Costs Pressure Near‑Term Cash Flow

Tenant improvement and leasing costs are expected to stay elevated through 2026 and 2027 as Vornado invests aggressively to capture high‑quality demand. These upfront costs will weigh on funds available for distribution and cash flow in the short run, but management anticipates notable improvement once free‑rent periods and heavy TI cycles burn off.

Localized Weakness in Chicago and Overleveraged Assets

Not all markets are moving in sync, with Chicago singled out as a laggard where concessions remain high and the pace of normalization slow. The company also acknowledged a small set of overleveraged or underwater assets where it is uneconomic to invest heavily to renew tenants, which dampens headline occupancy statistics.

Legal Overhang from PENN 1 Litigation

Management disclosed ongoing litigation tied to the PENN 1 complex but offered no substantive update or timetable for resolution. The inability to comment on potential outcomes leaves a pocket of uncertainty around this matter and its possible financial implications.

Revenue Timing Nuances from Verizon Sublet at PENN 2

Verizon’s decision not to build out space at PENN 2 and instead sublet it created a technical bump in GAAP revenue recognition. While this helps reported earnings in 2026, the ultimate economics still depend on subtenant demand or other resolutions, leaving some timing and magnitude risk around the final cash outcome.

Conservative FFO Outlook with Growth Pushed to 2027

Management reiterated a cautious view for the next two years, indicating that full‑year 2026 comparable FFO should be only slightly better than 2025, with improvement building quarter by quarter. The sharper earnings acceleration is reserved for 2027, when PENN District lease‑ups mature, Park Avenue Plaza fully contributes, TIs recede, and interest expense eases after bond repayments.

Vornado’s call painted a picture of a landlord working through a transitional earnings period while steadily strengthening its long‑term earnings power. For investors, the trade‑off is clear: accept muted FFO growth through 2026 in exchange for exposure to tightly supplied, high‑rent assets that could drive a more pronounced rebound in 2027 and beyond, especially if leasing momentum and rent mark‑to‑markets hold up.