Fitch Rates Vornado Realty's $500MM Unsecured Note Offering 'BBB'.

Business Editors

Fitch Ratings has assigned a 'BBB' rating to the recent offering of $500 million 5.625% senior unsecured notes due 2007 by Vornado Realty L.P., the operating partnership of Vornado Realty Trust (Vornado) (NYSE: VNO). The net proceeds from this offering will be used to repay certain existing mortgage debt adding several assets and as much as $100 million of EBITDA to Vornado's pool of unencumbered assets. Additionally, Fitch has assigned a 'BBB-' rating to Vornado's three series of preferred stock totaling approximately $309 million in securities. The Rating Outlook is Stable.

Fitch's 'BBB' rating is supported by Vornado's high quality unencumbered asset pool, which contributes significant EBITDA from its core office portfolio, and Vornado's experienced management team, which has a track record of investing opportunistically in several different real estate business lines. Fitch looks positively on Vornado's full availability under its $1 billion unsecured line of credit which enhances Vornado's liquidity, as well as its demonstrated access to capital both internally and externally sourced. Finally, Vornado has a manageable development/redevelopment pipeline with significant pre-leasing on its largest development, the Alexander's site at 59th and Lexington Avenue in New York (59th Street). Although this mixed use asset represents over 70% of the current development pipeline, the office component of approximately 900,000 square feet is 78% pre-leased to privately held Bloomberg, LP.

The current ratings balance these strengths against the risks inherent in Vornado's heavy concentration of office space in the markets of New York and Washington D.C. These risks include the reliance on the strength of local and regional economies to support Vornado's investment as well as the risk of additional terrorist strikes in the two high profile cities which could further depress the economy as well as place Vornado assets at risk to damage. Additional concerns center on the rising vacancy in the U.S. office market due to anemic tenant demand, tenant failures and overall weakness in the economy. Fitch currently maintains a Negative Outlook for the office sector as a whole, although Vornado's diversified investment strategy mitigates some of the sector risk.

Vornado has utilized a disciplined yet opportunistic investment approach that does not necessarily focus on a given asset type, rather Vornado looks for areas of growth through acquisition or development. By following this investment philosophy, Vornado has diversified its real estate holdings as well as its sources of EBITDA over the past five years. As of March 31, 2002, Vornado had four major business segments: Office (contributing 60% to EBITDA), Retail (11%), Merchandise Mart Properties (11%), and Temperature Controlled Logistics (9%). Another 9% of EBITDA is contributed by Vornado's investments in the Hotel Pennsylvania, Newkirk Joint Ventures, and Alexander's. Vornado's current focus on office was demonstrated in its Jan. 1, 2002 acquisition of the remaining 66% of Charles E. Smith Commercial Realty (CESCR) that they did not already own. This acquisition added approximately 12.4 million square feet of office space to Vornado's 14 million square feet of office in New York City. The acquisition of CESCR made Vornado the largest owner and operator of commercial property in the Washington D.C. metropolitan market.

Vornado's consolidated EBITDA has historically covered total interest in the mid to high 2.0 times (x) range and Fitch expects this measure to improve over time. This coverage ratio as well as others cited in this report give effect to a full consolidation of 100% of Alexander's Inc. (NYSE: ALX). Fitch believes this is an appropriate method to account for this 33.1% investment in that Vornado essentially controls this company which is the business of leasing, managing and developing all of the old Alexander's retail locations.

Bondholder protection is supported by a large pool of unencumbered assets (excluding the Temperature Controlled Logistics investment) that covers unsecured interest expense approximately 6.0x before the addition of new unencumbered EBITDA attributable to repayment of mortgages. Depending on which mortgages Vornado pays down with the proceeds from this offering, unsecured interest coverage could be as high as 9.4x. Further, Fitch estimates that if Vornado were to draw down $700 million on its unsecured line and convert to a term loan (at a market interest rate), unencumbered EBITDA coverage of total unsecured interest expense would be reduced to 4.5x. Additionally, based on the heavy concentration of unsecured EBITDA in the New York City office market, Fitch stressed coverage levels to assume certain percentages of loss of EBITDA from this portfolio. Based on Fitch's range of stress factors from 10% to 50% loss of New York office EBITDA contribution, coverage levels, assuming total unsecured debt of $1.2 billion (including the $700 million drawdown), ranged from 4.3x to 3.5x, which Fitch believes is appropriate for the 'BBB' rating category. Importantly, Fitch notes that this exercise recognizes that although all of New York City is threatened by a possible terrorist attack, Vornado's properties are spread across many of the city's submarkets.

Fitch believes that, like many other companies in the REIT industry today, Vornado is taking advantage of the low interest rate environment offered to unsecured issuers with over $5.2 billion in unsecured notes issued as of June 21, 2002. Additionally, Vornado is opportunistically tapping a new source of capital which serves to enhance its financial flexibility. Finally, following the events of September 11th and subsequent terrorist's threats, Fitch believes that many traditional secured lenders have requirements for levels of terrorism insurance that REITs have not been able to obtain and therefore are turning more toward the unsecured market. Typical REIT bond indentures do not have insurance requirements. That being said, Fitch does recognize the efforts of Vornado's management in attempting to obtain as much terrorism insurance as is available to them. Currently, Vornado carries a $200 million separate terrorism blanket policy on all New York office assets (except for the 59th Street development which has a separate policy in place through December 2003). The all risk insurance coverage in place for the Washington D.C. assets does have terrorism insurance as part of the policy but management expects it will be carved out once the policy renews at the end of June 2002. Vornado is currently seeking a similar separate terrorism insurance policy for these assets. Fitch will remain diligent in its review of terrorism related issues and the availability of insurance and how these effect the sectors refinance alternatives and ultimately their financial flexibility. Any worsening of this situation would have negative rating implications.

While Fitch recognizes that Vornado's covenant package for this offering differs from typical REIT unsecured bond covenants and offers less protection for the bond investor, Fitch Ratings expects that a 'BBB'-rated company will operate well in excess of these covenants. If the performance of Vornado erodes to the point of testing the covenant levels, the current ratings of Vornado would be negatively impacted.

Vornado Realty L.P. currently owns directly or indirectly all or portions of 73 office properties in the New York City metropolitan area (primarily Manhattan) and in the Washington, D.C. and northern Virginia area; 55 shopping center properties in six states and Puerto Rico; the Merchandise Mart Properties portfolio, including the Merchandise Mart in Chicago; a 60% interest in partnerships that own 89 cold storage warehouse facilities nationwide leased to AmeriCold Logistics; 33.1% of the outstanding common stock of Alexander's, Inc.; the Hotel Pennsylvania in New York City; a 21.1% interest in The Newkirk Master Limited Partnership, which owns office, retail and industrial properties nationwide and various debt interests in those properties; eight dry warehouse/industrial properties in New Jersey; and other real estate investments.