Moody’s downgrades Vornado’s debt rating to junk

Agency cites increased financing costs and ability to pay off debt

Vornado’s Steven Roth with the Farley Building (Getty, Vornado Realty)
Vornado’s Steven Roth with the Farley Building (Getty, Vornado Realty)

Vornado Realty has been hit with a rating downgrade.

Moody’s downgraded Vornado’s debt rating from investment grade to junk over the firm’s ability to make debt payments over the next two years, on Monday.

Moody’s pointed to Vornado’s fixed charge coverage ratio, or its ability to pay debt costs, declining to 2.3x at the end of the third quarter from 2.8x at the end of last year. Vornado hedged its exposure to floating rate debt with swaps and interest rate caps. 

Still, higher interest rates will increase financing costs, according to Moody’s. Vornado’s senior unsecured debt rating dropped to Ba1 from Baa3.

Moody’s expects Vornado’s coverage ratio to further decline in the next two to four quarters.

But the ratings agency reported some positive news:

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It upgraded Vornado’s outlook from negative to “stable,” citing the REIT’s predictable operating cash flows and “very good” liquidity. The firm has a well-leased office portfolio with a long track record and diverse tenant base, according to Moody’s. Office occupancy is expected to increase around late 2024 because of Vornado’s redevelopment projects in the PENN district. 

Moody’s noted Vornado’s “modest lease expirations,” which will lead to steady cash flows over the next year and a half. Vornado has enough liquidity to continue investing in its properties or pay down a portion of its debt.

Moody’s said it’s ratings could change if Vornado’s leverage increases from current levels and its fixed charge coverage ratio is below 1.7x. 

Vornado owns over 23.5 million square feet of office space in New York City, Chicago and San Francisco. The firm owns some of the top office assets in New York City, including The Farley Building, Penn 1 and 7 West 34th Street. 

All New York City office owners are grappling with remote work and higher financing costs. S&P is considering cutting the rating of another large office owner, Brookfield Property Partners, to junk status. SL Green, Manhattan’s largest office owner, had its credit rating downgraded by Fitch in August.

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