Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDR) for
The Rating Outlook is Negative.
The Negative Outlook is based on Fitch's concern about the prospects for backfilling leases in Veris's
The ratings were withdrawn for commercial purposes.
Key Rating Drivers
Speculative Grade Credit Metrics: Fitch expects Veris's leverage will remain elevated at around 14.0x in our one-to-two year forecast horizon. This is caused by projected relative strength in the company's multifamily portfolio offset to some extent by continuing struggles with regard to leasing at the company's
Office Leasing Remains Challenged: After occupancy remained at a low but stable level in 2020 for the
Apartment Revenue Becoming Vast Majority: Multifamily comprised approximately 51% of 4Q21 NOI given the sales of the suburban office portfolio and multifamily development projects delivered over the last couple years. The company estimates that pro forma for the sale of the office asset, 101 Hudson and the acquisition of The James apartment asset in 1Q22 that multifamily contribution will be around 80%. The company's growing multifamily portfolio offers better growth and liquidity prospects, albeit elevates development risk.
Suburban Asset Sale Mostly Complete: VRE has almost completed its disposition program of selling its entire NJ suburban office portfolio, aside from one remaining asset, having sold
Fitch views the de-emphasis of the office portfolio favourably since NJ as a secondary office market, has weaker institutional lender and investor interest than core, 24-hour gateway CBD office markets, such as
Transition to Exclusive Secured Financing Strategy: In the last few years, VRE had increasingly relied on secured mortgage debt, unsecured bank term loans, JV and redeemable preferred equity and asset sales proceeds to fund refinancing its maturing obligations and new investments, and debt capital. VRE fully transitioned its balance sheet to a secured strategy in 2021. In
Subsequently, the company drew on the new credit facility, along with cash to pay off its two existing public unsecured bonds outstanding in full. Therefore, VRE no longer has any remaining unsecured borrowings. This results in less financial flexibility and weaker relative capital access for the company, especially in the context of limited access to attractively priced public equity.
Elevated Rental Risk Profile: Challenging NJ market fundamentals, combined with high asset level concentrations and VRE's growing exposure to shorter lease duration multifamily assets are key factors contributing to a higher rental income risk profile for VRE, which will likely result in greater relative cash flow volatility through the cycle. In addition, as of
Derivation Summary
VRE owns a concentrated portfolio, consisting of metro and remaining suburban
VRE has not publicly committed to financial policy targets, with current metrics consistent with high-speculative grade REITs. The company has weaker access to unsecured debt and equity capital, notwithstanding its prior long-tenure as a regular public unsecured bond issuer.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Low-to-mid blended single-digit SSNOI growth in 2022-2024 in the combined office/multifamily portfolio;
Development spend of approximately
Dispositions of approximately
RATING SENSITIVITIES
Rating Sensitivities are not applicable, given the withdrawal of the ratings.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: VRE should have a sufficient liquidity position. The company's sources cover its uses by 0.9x, based on Fitch's base case liquidity analysis for the
The size of VRE's unencumbered asset pool has decreased considerably during the last few years. Fitch did not calculate the company's unencumbered assets coverage of its net unsecured debt as secured debt is now 100% of total debt.
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
RATING ACTIONS
Entity / Debt
Rating
Prior
LT IDR
B
Affirmed
B
LT IDR
WD
Withdrawn
B
LT IDR
B
Affirmed
B
LT IDR
WD
Withdrawn
B
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Additional information is available on www.fitchratings.com
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