Rating Firm Midroog Warns Vitanya Over Debt Concerns from Ness Ziona Deal

Rating company Midroog has placed real estate firm Vitanya's A2 issuer rating, three bond series, and commercial paper under review for negative implications. The review stems from Vitanya's intention to acquire its partner's 50% stake in the Ness Ziona project, a move expected to significantly increase the company's debt at a time when its leverage ratios are already weakening.

While the Ness Ziona project is considered a quality asset, the acquisition involves Vitanya assuming approximately NIS 247 million in bank debt from its partner and waiving a NIS 50 million debt owed to it. Additional costs include NIS 18 million for purchase tax and an estimated NIS 50 million accounting loss. Midroog projects this deal could raise Vitanya's net debt to net CAP ratio to around 65%, up from 58%-62%, and its net financial debt to FFO ratio to 45-55 years by 2026-2027, compared to 38-45 years previously.

The increased debt will lead to higher financing expenses, while the full contribution from the Ness Ziona property is not expected until 2027. This comes as Vitanya faces other challenges, including a major tenant vacating 26,500 square meters at its La Guardia tower in Tel Aviv, representing about 21% of its rental income. However, the company has secured a long-term lease for approximately 40,000 square meters with Elbit at the Ness Ziona project, which Midroog views as a mitigating factor for the acquisition risk.

A downgrade, if it occurs, could make future fundraising more expensive and increase financing costs during a period of relatively high interest rates. Vitanya has significant debt maturities approaching, including its Series E bonds in June 2027 and two commercial paper series in December and June of the same year, making the ability to raise and refinance debt under favorable conditions critical.

Vitanya, controlled by the Unger family's Telecar, has a market capitalization of approximately NIS 766 million against equity of NIS 1.03 billion, reflecting a discount that suggests existing investor concerns. The company's stock has fallen about 31% year-to-date and 23% over the past 12 months. Vitanya reported a net loss of NIS 98 million in 2025 and NIS 14.9 million in the second quarter of the current year, with financing expenses rising.