VORNADO REALTY TRUST (VNO) stock intrinsic value fair value estimate & owner earnings analysis

Vornado Realty Trust owns and leases office and street-retail property, concentrated in Manhattan, with THE MART in Chicago and 555 California Street in San Francisco. In its 2025 annual report the company said about 78% of its 2025 net operating income came from office and about 88% from the New York area. The business is a landlord: tenants pay rent, and Vornado pays to operate the buildings, re-lease space as leases expire (tenant improvements and leasing commissions), and service a large debt load. How we measure the cash. We start from operating cash flow, strip out swings in working capital, and deduct stock compensation, the recurring cost of keeping the buildings leased (the "additions to real estate" line plus capitalized leasing costs, which run through operating cash flow), and preferred dividends. Development spending on new projects such as PENN 2 is treated as investment, not an ongoing cost. One large adjustment drives 2025: in May 2025 New York University paid Vornado $935 million upfront for a 70-year master lease of 770 Broadway, and $901 million of that landed in 2025 operating cash flow. That is a one-time sale-like receipt, not recurring cash, so we remove it. NYU now pays only about $9.3 million a year, and the proceeds repaid the building's $700 million mortgage. On that basis, cash to common owners was $2.35 per share in both 2021 and 2022, then fell to $1.45 in 2023, $1.04 in 2024 and $0.26 in 2025. To value the business before its lenders, we add back cash interest ($313 million in 2025) and preferred dividends. That gives a pre-financing cash flow of about $707 million in 2021, $765 million in 2022, $722 million in 2023, $590 million in 2024 and $427 million in 2025. The earlier years include properties that have since been disposed of or leased away, including 770 Broadway and 666 Fifth Avenue. We therefore set the starting level from the current portfolio, 2025 plus the first half of 2026, rather than the older median. Growth path. Pre-financing cash flow fell 27.6% in 2025. Our base case assumes year one (the next twelve months) rises 8.9%, to $465 million. The reason the decline is expected to reverse is in the filings: first-half 2026 pre-financing cash flow was about 8.8% above the first half of 2025. New York office occupancy rose from 86.7% at June 30, 2025 to 92.2% at June 30, 2026. New York same-store net operating income rose 11.9% in the second quarter of 2026 (6.2% on a cash basis) as new leases began paying. Further growth to $545 million by year three is credited only because it is already contracted. Vornado recorded $72 million of straight-line rent in 2025 and $52.5 million in the first half of 2026, which is rent tenants owe under signed leases but have not yet paid in cash, mostly during free-rent periods. As those periods end, that rent turns into cash. No credit is given for new leasing beyond today's occupancy, for rent growth, or for the 350 Park Avenue development. That project began at the end of 2025 with Ken Griffin and Rudin as partners. Its returns and Vornado's final stake were not established in the filings reviewed, so it is left out. After year three, the base case holds flat. What keeps it going is the location of the Manhattan portfolio, with the recurring re-leasing spending of about $265 million a year charged every year. No further growth is assumed. Base case. The business is worth about $8.98 billion. Against it we set about $7.72 billion of claims. These are $7.44 billion of consolidated debt (mortgages $4.84 billion, senior notes $0.84 billion, term loan $0.84 billion, revolving credit $0.92 billion) and about $1.09 billion of preferred stock and preferred units ranking ahead of the common. We add $251 million of partners' interests in consolidated properties and $272 million still to be spent on 623 Fifth Avenue, PENN 2 and the Penn District. We subtract about $475 million of cash beyond operating needs. We also subtract about $628 million already paid for assets that produced no cash in the base year (623 Fifth Avenue under redevelopment, 3 East 54th Street acquired in January 2026, and the 49% stake in Park Avenue Plaza acquired in June 2026). Finally we credit $231 million because existing debt costs well below current borrowing rates. Cash interest of $313 million on about $7.2 billion of debt is roughly 4.3%, but 2025-2026 refinancings were done at 5.75%-6.90%, so we let that benefit fade over five years. The base case leaves about $1.26 billion for common owners, or about $6.17 per share on 203.4 million shares and operating-partnership units. Bear case. We use the 2020 shutdown as the downturn template. Pre-financing cash flow fell from about $669 million in 2019 to $561 million in 2020, about 16%. The bear case starts flat at $450 million for two years. It then falls to $400 million and to $350 million for three years, a drop of about 22%. That is deeper than 2020, reflecting that office demand did not recover quickly after it. Two disclosed weak spots support it: cash net operating income at 555 California Street fell 48.6% in the second quarter of 2026, and the $244.5 million 888 Seventh Avenue loan matured unpaid in December 2025 and is under a forbearance agreement through March 2027. The case recovers to $450 million and settles at $430 million. It also charges about $45 million a year of extra interest from year three as low-rate loans refinance at current rates, which adds about $249 million to what is owed. The business is worth about $7.01 billion against about $7.97 billion owed. The company would owe roughly $956 million more than the business is worth, about -$4.70 per share. In the trough years, business cash flow of about $350 million would not cover interest plus preferred dividends. That is consistent with a negative outcome for common owners, through dilution, asset disposals or loss of the equity in individual non-recourse properties. Bull case. Leasing at Vornado's own pace continues: occupancy and cash rents rise as recent signings convert, and refinancings stay near current terms. Cash flow reaches $590 million in year three and $620 million thereafter. The business is worth about $10.10 billion against $7.72 billion owed, about $11.72 per share. What would make this wrong. The single most important input is the stabilized cash level. If it settles at $490 million rather than $545 million, the shares are worth about $1.87. If re-leasing costs ran $100 million a year lower than the recent record, the base case would be about $14.37. Leasing costs were heavy in 2023-2025, and the split between recurring re-leasing and repositioning is not fully separable in the disclosures reviewed. The 350 Park Avenue arrangement is the main unvalued item. In December 2025 an affiliate of Ken Griffin exercised an option to take at least a 60% interest in the 350 Park joint venture, and the Vornado/Rudin venture had until July 2026 to choose between joining it and putting the site to that affiliate for $1.2 billion ($900 million to Vornado). The filings reviewed did not settle which path was taken. Margin-of-safety price. We are moderately confident in the earnings level, because the 2026 occupancy and same-store gains are visible in reported results. However, the per-share result is very sensitive to that level because about $7.7 billion of claims sit ahead of the common. The worst plausible outcome is a second leg down in office demand while maturities come due. Most debt is non-recourse property mortgages, so individual buildings could be handed to lenders without sinking the company, but common owners would absorb the loss first. Being wrong on the cash level and the cost of refinancing together takes the value below $2. While waiting, the business paid $0.74 per share in common dividends in 2025, and the base case supports roughly that. The margin-of-safety price is $2.50. The price assumes a five-year holding period. From $2.50, with the base-case value growing as cash is retained and the dividend continuing, the base case implies roughly 36% a year. The bull case implies more. The bear case implies a loss even after three years of dividends, which is why the price sits well below the base value. Changes since the previous analysis. The previous estimate counted the one-time 770 Broadway prepayment within 2025 cash, and its figures were built on a different basis, so they are not comparable. The business facts that matter are that recurring cash generation in 2024 and 2025 was well below the 2017-2022 level, and that leasing gains in 2026 have begun to reverse part of that decline.