Vornado (VNO) Q2 Net Income Jumps 1,955%

Vornado Realty Trust (VNO -4.06%), one of New York’s largest office-centric real estate investment trusts, reported second quarter 2025 earnings on August 4, 2025. Headline net income (GAAP) was $3.70 per diluted share for Q2 2025, far surpassing the prior year’s $0.18. However, this surge resulted from a non-recurring GAAP gain of $803.2 million due to a new 70-year master lease with New York University at the landmark 770 Broadway property. Core profitability was steady: funds from operations (FFO) per share, as adjusted (non-GAAP), was $0.56—almost flat to the $0.57 in the prior year, but substantially higher than the $0.12 analyst consensus. Revenue (GAAP) was $441.4 million, a 2.0% decrease year over year. Overall, the quarter’s top-line figures were shaped by unique transactions rather than broad-based operational growth.

Source: Analyst estimates for the quarter provided by FactSet.

Company Overview and Recent Focus

Vornado Realty Trust is a real estate investment trust specializing in office and retail properties, with its flagship holdings in New York City, notably Manhattan. It also holds significant assets in Chicago (THE MART, a multi-tenant office and showroom property) and San Francisco (555 California Street, a high-rise office tower), offering stability and some diversification across major urban markets.

The company has concentrated recent efforts on development and redevelopment, particularly in Manhattan’s PENN District. PENN 1 and PENN 2 are central redevelopment projects expected to boost long-term earnings. Vornado has also prioritized balance sheet management—deleveraging through selective asset sales, refinancing debt, and maintaining liquidity to fund growth and ongoing capital expenditures. Sustainability and human capital remain stated priorities, with a goal of carbon neutrality by 2030 and ongoing investments in workforce development.

Second Quarter Highlights: One-Time Gains and Underlying Performance

The standout feature in Q2 2025 was the $803.2 million GAAP gain recognized from a 70-year master lease signed by New York University at 770 Broadway. This deal materially improved net income (GAAP), but it is a one-time event. On an operating basis, adjusted FFO was $0.56 per share, nearly identical to last year’s $0.57, indicating that recurring profits did not materially improve. Revenue (GAAP) dropped to $441.4 million, while same store net operating income (NOI, non-GAAP) rose 5.4%, a gain mainly concentrated at THE MART due to a property tax reassessment rather than ongoing rent growth.

Occupancy metrics improved as the NYU deal absorbed 500,000 square feet of previously vacant space in Q2 2025. As of Q2 2025, New York office occupancy stood at 86.7%, while retail occupancy was 67.7%. This is below the company’s historical norms—management targets mid-90 % as a long-term goal. THE MART and 555 California Street reported occupancy of 78.2% and 92.3%, respectively, as of Q2 2025. New lease activity was strong in volume but did not drive broad improvement: 1.41 million square feet were leased in New York office at an average rent of $101.44 per square foot and a 6.8-year average term. New leases delivered solid rent increases of 8.7% in cash terms over expiring leases.

One useful note for readers new to real estate: funds from operations (FFO) is a common profitability measure for real estate investment trusts. FFO adjusts net income for large non-cash charges like depreciation and for property sales, providing a better sense of core property earnings. Adjusted FFO strips out even more one-time events, such as gains from sales or certain lease transactions, to focus purely on recurring cash flow from renting buildings. In Vornado’s case, these “core” (non-GAAP, as adjusted) numbers showed little growth compared to Q2 2024.

Same store net operating income (non-GAAP)—a metric that measures property-level profitability at assets held throughout both periods—grew overall by 5.4%, but only due to the tax-driven jump at THE MART. On a cash basis, same store NOI fell 4.8% overall and dropped 8.5% in New York, due mainly to higher ground rent at the PENN 1 building and new leases with lengthy free rent periods. These free rent packages, common in large office deals, reduce cash income in the near term but are designed to make the property more appealing to tenants—cash earnings should improve in future years as rent from these signed leases begins flowing in.

Major transactions continued to reshape the balance sheet. In addition to the NYU lease, the company closed on the $350 million sale of its UNIQLO retail condominium at 666 Fifth Avenue and used proceeds to redeem preferred equity, freeing up liquidity. Vornado repaid $700 million of mortgage debt with proceeds from the NYU transaction, reducing leverage. Cash and cash equivalents at quarter-end jumped to $1.20 billion, compared to $734 million at the end of 2024.

Development remains a key focus. PENN 2’s redevelopment is nearing completion—$718 million of the $750 million budget has been spent as of June 30, 2025, with lease-up expected to drive profit growth starting in 2027. The Sunset Pier 94 Studios joint venture is ongoing. The PENN 1 ground rent was reset to $15 million annually, providing a $17.2 million one-time reversal of expenses in the six months ended Q2 2025, though this outcome is subject to ongoing litigation that may result in future rent increases.

Vornado Realty Trust does pay a dividend.

Looking Ahead: Guidance and Areas to Watch

Management expects comparable funds from operations (non-GAAP) for 2025 to be “flat” with 2024, a slight improvement over earlier projections of a decline. This more optimistic projection is mainly credited to the lower-than-anticipated PENN 1 ground rent determined through arbitration. The company expects the real boost to earnings to come in 2027 as the PENN District redevelopments—PENN 1 and PENN 2—stabilize and become fully leased. Large volumes of leasing pipeline at these properties are in negotiation, but the pace of filling vacancies and achieving targeted occupancy levels is critical for future profits.

No formal guidance was provided beyond the expectation of flat FFO for the current year. Management is not offering a forecast on revenue, NOI, or property occupancy in detail for coming quarters. Investors should monitor the roll-off of free rent periods, progress on major tenant lease-ups in the PENN District, and the resolution of ongoing litigation regarding PENN 1 ground rent. Any meaningful increase in recurring cash income is expected to begin in a couple of years, once new leases start generating rent and recently renewed assets are fully operational. Management indicates that significant earnings growth is anticipated by 2027. Future use of the company’s cash position—whether for new development, further debt reduction, or other investments—remains a key consideration for its trajectory.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.