$Vornado Realty Trust(VNO-N)$’s VNO ability to cater to the rising demand for premier office spaces with class-apart amenities is likely to drive leasing activity. Its portfolio-repositioning efforts also augur well. A healthy balance sheet position supports the company’s growth endeavors.

However, ongoing choppiness in the office real estate market, geographic concentration of assets and competition raise concerns.

What’s Supporting VNO?

This office real estate investment trust (REIT) owns a portfolio of top-quality office properties in a few select high-rent, high-barrier-to-entry markets of New York, Chicago and San Francisco. It boasts a concentration of high-quality assets and a strategic focus on expanding its market share in the New York City office market.

VNO’s focus on having assets in a few select high-rent, high barrier-to-entry geographic markets, as well as a diversified tenant base that includes several industry bellwethers, is expected to drive steady cash flows and fuel its growth over the long term. We estimate its total revenues to increase 2.3% and 2.8% year over year in 2025 and 2026, respectively.

Vornado Realty is focused on improving its core business by making opportunistic developments and divestitures in addition to business spin-offs. Strategic sell-outs provide the company with the dry powder to reinvest in opportunistic developments and redevelopments.

In January 2025, Vornado Realty’s joint venture completed the sale of the portion of its U.S. flagship store at 666 Fifth Avenue to UNIQLO for $350 million and realized net proceeds of $342 million. Moreover, in the same month, the company closed on the sale of a condominium unit at 220 CPS for net proceeds of $11.7 million. The timely portfolio-repositioning initiatives are likely to drive growth over the long term.

VNO has a healthy balance sheet and ample liquidity. As of Dec. 31, 2024, the company had $2.5 billion of liquidity, comprising $950 million of cash and cash equivalents and restricted cash and $1.5 billion available under its $2.2 billion revolving credit facilities. A flexible financial position will enable it to take advantage of future investment opportunities and fund its development projects.

What’s Hurting VNO?

With persistent macroeconomic uncertainty and a hybrid working environment, it is expected that near-term demand for office spaces will remain choppy in this market.

Vornado Realty has high office market exposure in New York City, along with significant street retail there (90.2% of its net operating income at share for the fourth quarter of 2024). This concentrated portfolio makes the company’s cash flows vulnerable to the macroeconomic situation prevailing in that region.

VNO faces competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants. This affects the company’s ability to attract and retain tenants at relatively higher rents than its competitors, adversely affecting its long-term profitability.

Solid dividend payouts remain the biggest attractions for REIT investors. However, it has increased its dividend only one time in the last five years, and its five-year annualized dividend growth rate is negative 34.48%, which remains a concern. The company anticipates paying a single common share dividend in the fourth quarter of 2025 as part of its common share dividend policy for the year.

In the past three months, shares of this Zacks Rank #3 (Hold) company have declined 13.7% against the industry's growth of 0.8%.

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Cousins Properties CUZ and VICI Properties VICI, each carrying a Zacks Rank of #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for CUZ 2025 FFO per share is pegged at $2.79, which indicates year-over-year growth of 3.7%.

The Zacks Consensus Estimate for VICI’s full-year FFO per share is $2.33, which indicates an increase of 3.1% from the year-ago period.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Vornado Realty Trust (VNO) : Free Stock Analysis Report

Cousins Properties Incorporated (CUZ) : Free Stock Analysis Report

VICI Properties Inc. (VICI) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research