Vornado Realty Trust (VNO) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate a positive outlook with strong leasing activity, strategic developments, and a robust buyback plan. Despite some uncertainties, like specific rent levels and timelines, the company's strategic projects and leasing pipeline are promising. The market cap suggests moderate stock movement, thus predicting a positive stock price reaction in the 2% to 8% range.
Key Financial Performance
Leased Office Space 4.6 million square feet leased in 2025, with 3.7 million square feet in Manhattan, 446,000 square feet in San Francisco, and 394,000 square feet in Chicago. This was the highest Manhattan leasing volume in over a decade and the second-highest year on record.
Average Starting Rents in Manhattan $98 per square foot, with mark-to-markets of +10.4% GAAP and +7.8% cash. This excludes the 1.1 million square foot master lease with NYU.
Fourth Quarter New York Office Deals 25 deals totaling 560,000 square feet at average starting rents of $95 per square foot. Mark-to-markets were +8.1% GAAP and +7.2% cash.
PENN 2 Leasing 908,000 square feet leased in 2025 at average starting rents of $109 per square foot, with an average term of over 17 years. Fourth quarter leasing included 231,000 square feet at $114 per square foot.
PENN 1 Leasing 420,000 square feet leased in 2025 at average starting rents of $97 per square foot. Since redevelopment, 1.7 million square feet leased at $94 per square foot.
Office Occupancy Increased from 88.8% to 91.2% in 2025.
Comparable FFO $2.32 per share for 2025, slightly higher than 2024. Fourth quarter comparable FFO was $0.55 per share, down from $0.61 in Q4 2024, due to higher net interest expense and lease termination income in the prior year.
Same-Store GAAP NOI Up 5% for the quarter, while same-store cash NOI was down 8.3%.
Liquidity $2.39 billion, including $978 million in cash and $1.41 billion in undrawn credit lines.
Stock Buyback 2,352,000 shares repurchased for $80 million at an average price of $34 per share in recent months. Total buyback since 2023: 4,376,000 shares for $109 million at an average price of $25 per share.
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Operating Highlights
PENN District Transformation: The transformation of the PENN District has been well-received, with high-quality office spaces and unmatched amenities. PENN 2 leased 908,000 square feet in 2025 at $109 per square foot, with an average term of over 17 years. PENN 1 leased 420,000 square feet at $97 per square foot. Both projects exceeded original underwriting.
New Developments: Construction will commence on 350 Park Avenue in April 2026, with Citadel as the anchor tenant. Acquired 623 Fifth Avenue for $218 million to redevelop into a premium boutique office space. Acquired 3 East 54th Street for $141 million for potential mixed-use development.
Sunset Pier 94: Opened Manhattan's first purpose-built film studio facility, with all six soundstages leased by Paramount and Netflix.
Manhattan Office Market: Manhattan is experiencing the best landlord's market in 20 years, with robust tenant demand and rising rents. Vornado leased 3.7 million square feet in Manhattan in 2025, the highest in over a decade.
San Francisco Market: 555 California Street in San Francisco has 95% occupancy, with rents exceeding $160 per square foot.
Leasing Performance: Leased 4.6 million square feet across Manhattan, San Francisco, and Chicago in 2025. Achieved 91.2% office occupancy, up from 88.8%.
Financial Metrics: Comparable FFO for 2025 was $2.32 per share. Liquidity stands at $2.39 billion, with $978 million in cash and $1.41 billion in undrawn credit lines.
Stock Buyback: Repurchased 2.35 million shares for $80 million in recent months, with a total of 4.37 million shares repurchased since 2023.
Debt Refinancing: Refinanced nearly $3.5 billion of debt, extended maturities, and issued $500 million in 7-year bonds at 5.75%.
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Risk or Challenges
Regulatory and Legal Risks: The company acknowledges the presence of risks, uncertainties, and other factors that could materially impact results, as highlighted in their SEC filings. This includes potential legal and regulatory challenges.
Economic and Market Conditions: The company notes a disconnect between stock price and asset value, indicating potential market volatility or misalignment. Additionally, the broader decline in real estate stocks could signal economic uncertainties.
Supply Chain and Development Risks: The company is involved in multiple large-scale development projects, such as 350 Park Avenue and PENN 15. These projects carry risks related to construction delays, cost overruns, and tenant acquisition.
Tenant and Leasing Risks: While leasing activity is robust, there is a reliance on high-value tenants and long-term leases. Any economic downturn or tenant default could impact financial performance.
Debt and Financing Risks: The company has refinanced a significant portion of its debt, but remains exposed to interest rate fluctuations and the need to maintain favorable credit ratings.
Retail and Asset-Specific Risks: The uncertain future of Saks Fifth Avenue, a key retail tenant, poses a risk to the redevelopment plans for 623 Fifth Avenue. Additionally, the company is replacing 'junky' retail spaces, which may face challenges in attracting new tenants.
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Guidance & Outlook
Manhattan Office Market Outlook: The Manhattan office market is expected to tighten and remain strong for an extended period, driven by robust tenant demand from finance, tech, and other industries amidst declining availability of premium office spaces.
PENN District Leasing Projections: The company expects to complete the lease-up of PENN 2 in 2026, with projected incremental cash yield increasing from 10.2% to 11.6%. PENN 1 and PENN 2 are anticipated to generate significant income shortly, with remaining vacancies being actively marketed.
Development Projects: Construction on the 1.85 million square foot 350 Park Avenue project will commence in April 2026, with delivery expected by the end of 2027. The redevelopment of 623 Fifth Avenue is expected to be completed by the end of 2027, targeting a 10% return on cost. A new residential building at 34th Street and Eighth Avenue is planned to break ground in fall 2026.
2026 Financial Guidance: Comparable FFO for 2026 is expected to be in line with 2025, with significant earnings growth anticipated in 2027 due to the lease-up of PENN 1 and PENN 2.
New York Office Occupancy: Occupancy in New York offices is projected to continue increasing over the next year, building on the current level of 91.2%.
Capital Markets and Financing: The company has refinanced or repaid almost half of its balance sheet since mid-2025, improving its net debt-to-EBITDA ratio to 7.7x. Financing markets for Class A assets in New York remain strong, with tight CMBS spreads and active bank lending.
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Shareholder Return Plan
Stock Buyback Program: Over the last few months, Vornado Realty Trust bought back 2,352,000 shares for $80 million at an average price of approximately $34 per share. Since the board authorization in 2023, the company has bought back a total of 4,376,000 shares for $109 million at an average price of approximately $25 per share. The company views its stock as undervalued and may become more aggressive with buybacks if the disconnect between stock price and asset value continues.
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Key Q&A
Q:Is there anything that's changed in the structure of the 350 Park agreement versus what was originally disclosed in December 2022?
A:Ken Griffin wanted to accelerate the option exercise, leading to amendments in the deal. The main change was giving Vornado and Rudin flexibility to invest between 20% to 36% equity instead of a fixed percentage. Other minor changes were made, but the economics remained largely unchanged.
Q:Can you discuss yield expectations and required rent levels for 350 Park? Is it still Citadel's plan to take 50% of the space?
A:Yield expectations and rent levels will be published closer to the date. Citadel's rent formula remains unchanged, based on a premium to permanent financing costs with a cap and collar. Citadel's appetite for space has grown beyond the original 50% plan, but details will be finalized in the coming months.
Q:Can you provide an update on your overall leasing pipeline and tenant conversations?
A:The leasing pipeline remains strong, with over half of activity from new tenants and the rest from renewals and expansions. Financial services, law firms, and tech tenants are expanding. PENN 1 and 1290 are being prepared for tenant needs, and New York is seeing robust activity.
Q:Would you consider more aggressive stock buybacks given the current stock valuation?
A:Yes, the company views its stock as undervalued and considers it the best investment currently, alongside the 623 Fifth project. They have assets for sale to generate capital for buybacks.
Q:When will cash NOI turn positive, and what is the inflection point?
A:Cash NOI is expected to turn positive in the second half of 2026 as free rent burns off and tenants start paying rent.
Q:What is happening with rents on Upper Fifth Avenue retail, and what is the status of the Meta lease at 657 Fifth Avenue?
A:Rents on Upper Fifth Avenue are improving but have not yet reached peak levels from 4-5 years ago. The Meta lease is under activity, but details are not disclosed. The lease may go long-term.
Q:What is the difference between GAAP occupancy and leased occupancy, and how much of the $200 million difference will be realized by the end of 2027?
A:The $200 million difference is an absolute number, not annualized, and is slightly understated. It will be realized as tenants take occupancy or meet GAAP recognition standards over the next 1-2 years. The leased occupancy is 91.2% in Manhattan, and the physical occupancy is expected to increase.
Q:Can you provide more details on the 623 Fifth project and its potential impact on FFO?
A:The 623 Fifth project is expected to cost $1,200 per square foot and generate a 10% return. It could add $0.11 to FFO. The building will be a high-end boutique office space, with delivery expected by the end of 2027. Financing will be managed as with other projects.
Q:What are the sources and uses of funds over the next few years, considering various projects and buybacks?
A:The company has a capital plan involving asset-level financings, asset sales, and income from unencumbered properties like PENN District buildings. Major uses include 350 Park ($300-$400 million cash contribution), 623 Fifth, tenant improvements, and potential buybacks. Financing options are available for projects like the residential development.
Q:What is the cost to build a smaller building like 3 East 54th compared to larger developments?
A:The cost is slightly less than larger developments but not appreciably different.
Q:What is the expected retention rate for 2026 expirations, especially the 600,000 square feet in Q4?
A:The company expects to renew two larger block expirations and feels confident about managing future expirations. They are optimistic about the tightening Manhattan office market and rising rents.
Q:Can you quantify Citadel's additional space requirements for 350 Park and discuss pre-leasing activity?
A:Citadel's additional space requirements are still being finalized. There is significant interest in the project, with tenants as small as 50,000 square feet showing interest. The building is expected to be the best in the city.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on several topics, including yield expectations and rent levels for 350 Park, the exact timeline for cash NOI turning positive, the status of the Meta lease at 657 Fifth Avenue, and Citadel's additional space requirements. They also refrained from giving detailed guidance on PENN 2 lease commencements and the financial impact of PENN District street retail.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AMC Networks
Americas marketplace
Americas pavilion
Avenue Americas
Avenue Madison
Avenue bankruptcy
Avenue th
Manhattan foot
Manhattan office
PENN District
Saks Avenue
bond
building ground
cash lease
decline
development program
development site
difference
disconnect
face
finance
floor
foot office
foot starting
foot term
foot tower
foot vacancy
location middle
minute
occupancy lease
office space
rent building
share price
shortage
soup
space foot
th Street
transportation
underwriting
VNO Transcript
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The earnings call highlights strong financial performance with significant revenue growth and reduced operating expenses. Product development is progressing well, with new machines and a focus on efficiency. While gross profit declined, management's strategic prioritization and optimistic guidance on future projects and partnerships suggest potential for growth. The Q&A section reveals positive sentiment from analysts, despite some uncertainties. Given the company's market cap and the overall positive outlook, a stock price increase of 2% to 8% is likely over the next two weeks.
Vornado Realty Trust (VNO) Q4 2025 Earnings Call Transcript
Positive2-10
The earnings call summary and Q&A indicate a positive outlook with strong leasing activity, strategic developments, and a robust buyback plan. Despite some uncertainties, like specific rent levels and timelines, the company's strategic projects and leasing pipeline are promising. The market cap suggests moderate stock movement, thus predicting a positive stock price reaction in the 2% to 8% range.
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