Vornado Cuts Its Dividend by 29% Due to Higher Interest Rates and Challenging Office Market Outlook

No-moat-rated Vornado Realty reported underwhelming fourth-quarter results and reduced its quarterly dividend by 29% to $0.375 per share from $0.53 per share. The stock is currently trading at a forward dividend yield of 6.4%. The firm reported adjusted funds from operations, or FFO, of $0.72 per share, 11% lower than the $0.81 in adjusted FFO during the fourth quarter of 2021. The year-over-year decrease in adjusted FFO was mainly on the back of higher interest expenses and was partially offset by rent commencement and other tenant-related items. The company will continue to feel a disproportionate impact of higher interest rates due to its significantly leveraged capital structure. Its leveraged capital structure also makes the equity valuation highly sensitive to movements in interest rates and cap rates. We are maintaining our $35.50 per share fair value estimate after incorporating the fourth-quarter results.