Vornado (VNO) Refinances $800M Loan for 650 Madison Avenue

Vornado Realty Trust VNO recently announced that its 20.1% owned joint venture has accomplished refinancing of an $800-million loan for 650 Madison Avenue. The interest-only loan carries a fixed rate of 3.486%. The move is a strategic fit as it helps boost the company’s financial position.

The 10-year loan will mature in December 2029, and replace a previous $800-million loan, which had an interest at a fixed rate of 4.39% and was slated to mature in October 2020. Notably, the refinancing has been done for the 600,000-square-foot office and retail property in Manhattan.

This will offer the company a cheaper line of credit and help reduce its annualized interest expense. Moreover, extended maturities of the assumed debt will help the company improve its maturity profile and enjoy greater liquidity for day-to-day operations. The move will also boost the company’s cash flow and alleviate its bottom-line pressure.

In addition, Vornado has a strong liquidity position of $3.36 billion, as of Oct 29. This included $1.28 billion in cash, restricted cash and securities, and $2.08 billion undrawn on its revolving credit facilities. Furthermore, decent leverage and well-manageable debt maturities look encouraging. With a flexible financial position, the company is well poised to take advantage of future investment opportunities and fund its development projects.

Notably, amid resilient economy and stable job-market environment, demand for Vornado’s premium assets in high-rent, high barrier-to-entry markets will likely remain healthy. The company’s strong balance sheet also supports its growth endeavors. Further, it is redeploying sale proceeds to fund strategic acquisitions and redevelopments, which augurs well for long-term growth.

Nonetheless, consistent with its portfolio-repositioning efforts, Vornado has been aggressively disposing the company’s assets. In fact, since the beginning of 2019 through October, the company has executed more than $3.1 billion in asset sales. Although these streamlining efforts are expected to propel growth over the long term, the earnings dilutive impact from asset sales cannot be bypassed in the near term. Also, shrinking footfall at malls as well as store closures and retail tenant bankruptcy are other concerns.

Over the past three months, shares of this Zacks Rank #3 (Hold) company have outperformed the industry it belongs to. In fact, its shares have gained 3%, while its industry has declined 3.9% during the same time frame.

Stocks to Consider

A few better-ranked stocks from the same space are Prologis, Inc. PLD, Cousins Properties Incorporated CUZ and Duke Realty Corporation DRE. While Prologis sports a Zacks Rank of 1 (Strong Buy), Cousins Properties and Duke Realty carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Prologis’ funds from operations (FFO) per share estimate for 2019 has been revised 1.2% upward to $3.31 in two months’ time. Its shares have gained 5.4% over the past three months.

Cousins Properties’ Zacks Consensus Estimate for 2019 FFO per share moved up 2.1% to $2.96 over the past two months. Its shares have rallied 14% in three months’ time.

Duke Realty's Zacks Consensus Estimate for the current-year FFO per share moved north to $1.44 over the past month. Its shares have gained 2.6% over the past three months.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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