Vornado Realty Trust (VNO) Earnings

Management highlights

Market Position - Vornado is a Manhattan-centric office and retail firm focused on high-quality Class A assets, positioned to benefit from a strengthening landlord's market in New York City - Manhattan overall leasing volume is at a 25-year high, available and sublease space is declining, office-to-residential conversions have reduced supply, and Class A vacancy in Vornado's target market is down to 6.2%, creating a severe shortage of large available blocks - AI companies are now leasing more office space in New York than in San Francisco, demonstrating strong, broad-based demand Leasing Activity (H1 2026) - Total overall leasing reached 978,000 square feet; Manhattan office leasing hit 659,000 square feet with an average starting rent of $105 per square foot, and positive mark-to-markets of 9.5% (gap) and 7.1% (cash) - Q2 2026 Manhattan office activity: 29 deals totaling 328,000 square feet at $107 per square foot average starting rent, with positive mark-to-markets of 7.7% (gap) and 5.0% (cash); 181,000 square feet of this activity was in the Penn District - The Penn District transformation is delivering strong returns: PEN1 achieved rent increases that deliver a 25% return on $200 per square foot of renovation investment, with current rents well above underwriting. PEN2 is on track to be nearly fully leased by the end of 2026, and company-wide third quarter 2026 mark-to-market is projected to exceed 20% Recent Acquisitions - 623 Fifth Avenue: A 383,000 square foot boutique office asset under redevelopment; early market demand has already justified raising asking rents above original underwriting, and the first lease with a financial services firm is nearing execution in line with underwriting - Park Avenue Plaza: Acquired a half-interest at a valuation of $950 per square foot (one-third of replacement cost), with an in-place 2.9% mortgage with 6 years remaining, delivering an 8% cash on cash return. In-place rents are roughly half current market, providing substantial upside for capital appreciation Capital and Balance Sheet Management - Debt ratio has been reduced to the 7% range; total liquidity is $2 billion ($789 million cash, $1.2 billion undrawn credit lines), which will be increased via planned sales of two non-essential assets - Q2 2026 share repurchase: 1.8 million shares bought at $29.92 per share; total repurchases since 2023: 8 million shares at an average of $26.61 per share. The firm will continue repurchasing shares as market conditions allow - 350 Park Avenue: Demolition is underway; the firm will exercise its option to take the maximum 36% ownership stake alongside anchor tenant Citadel and lead partner Ken Griffin. A $3.3 billion construction loan is in place, and the partnership plans to sell a 25% stake in September to lock in early profits. Incremental capital requirements for Vornado are back-ended, with significant outlays not starting until approximately 2029 Pipeline - Total pipeline of leases in negotiation exceeds 2.2 million square feet, including the 1 million square foot Citadel lease at 350 Park Avenue and over 500,000 square feet in the Penn District

Guidance

- Full year 2026 comparable FFO is now expected to be higher than 2025, with Q2 2026 FFO seen as a reasonable run rate for the remainder of the year - Significant earnings growth is projected for 2027, driven by continued lease up of PEN1, PEN2, and other vacancies, plus the full impact of the Park Avenue Plaza acquisition; the company's prior expectation of ~40 cents of FFO uplift for 2027 remains broadly intact despite some growth pulling forward into 2026 - New York office occupancy is expected to rise above 93% by the end of 2026, with further gains in subsequent years, and management expects to return to the historical occupancy run rate of 95-96% within the next few years, potentially sooner given current market pace - TI/maintenance capex is expected to remain fairly consistent between 2026 and 2027, and is projected to decline starting in 2028 as large-scale lease up activity concludes - Leverage is expected to continue trending down into the 7% range in 2026, and will likely fall below 7% in future years as operating income grows

Segment performance

1. New York Office: Same store NOI increased 13.7% (GAAP) and 11.9% (cash). Occupancy reached 92.2% as of Q2 2026, up 60 basis points from the prior quarter and up significantly from the 84.4% trough in Q1 2025. This segment contributed the majority of the firm's core operating growth. 2. New York Retail: Same store NOI increased 7.3% (GAAP) and 5.7% (cash). Demand is picking up, with many international and domestic retailers seeking early renewals to hold prime locations. 3. Signage Business: The segment (focused on high-traffic Manhattan locations of Times Square and the Penn District) grew at a 5% annual rate, with both rising pricing and optimized volume driving higher NOI. It is high-margin, low-capital, and continues to expand with new development in the Penn District. Overall company: Total comparable FFO per share was $0.67 in Q2 2026, up from $0.56 per share in Q2 2025, with overall New York business NOI up 11.9% (GAAP) and 6.2% (cash).

Risks & headwinds

- The firm notes that forward-looking statements are subject to material risks and uncertainties, detailed in Vornado's SEC filings, including the potential for future economic recessions or market downturns - New development projects such as 350 Park Avenue have multi-year timelines, with potential for changes in market conditions between project initiation and completion - Short-term occupancy fluctuations are expected for flexible/short-term assets like Pier 94, which serves entertainment production tenants with short tenures

Analyst Q&A

• Q: What is the gap between current physical and economic occupancy, how much occupancy runway remains, and what upside is already locked in via signed but not commenced leases?

  A: Historically, Vornado ran at 95-96% physical occupancy, and management expects to return to this range within the next few years, potentially sooner given current market strength. Currently at 92.2% physical occupancy, economic occupancy on a gap basis is 83-84%. The total annual rent value of signed but not commenced leases is $180 million, translating to approximately $150 million or more in incremental FFO that has not yet hit earnings.

• Q: How does the high projected rent for the new 350 Park Avenue building impact the valuation of your nearby older acquisition Park Avenue Plaza?

  A: The high required rents for newly constructed prime buildings create a pricing umbrella that lifts the value of all well-located older nearby buildings with lower in-place rents. The market for new prime space requires $300-$350 per square foot rents due to high construction and land costs, while Park Avenue Plaza has in-place rents of roughly a third of that level. This dynamic means Park Avenue Plaza will see substantial rent and valuation growth as leases roll, which is the core reason Vornado acquired the stake.

• Q: Is Vornado still pursuing asset sales to monetize value and deploy proceeds into repurchasing undervalued stock?

  A: Management agrees with the framework of selling non-core assets at private market values to repurchase stock that trades at a steep discount to NAV. The firm is actively in negotiations to sell two non-essential assets, which will generate significant proceeds to boost liquidity. Vornado is only interested in selling non-core, non-strategic assets; it intends to retain its core high-quality Manhattan assets, which have significant future upside that is not reflected in current static NAV calculations.

• Q: What is the incremental capital required from Vornado for the 350 Park Avenue project, and how is the capital structured?

  A: Vornado is contributing its existing land and building at a $900 million valuation, so incremental capital requirements are approximately $350 million, which is back-ended. Significant equity contributions are not required until around 2029, as the $3.3 billion construction loan will be drawn first, and the lead partner Ken Griffin/Citadel will contribute their equity ahead of Vornado's pro-rata share. Full details will be disclosed when the joint venture closes in September.