Vornado Realty Trust (VNO), a leading real estate investment trust (REIT), has recently priced a secondary offering of 7.0 million perpetual 6.875% Series J Cumulative Redeemable Preferred Shares at $ 25.00 each. The company has also granted the underwriters an option to purchase an additional 1.05 million preferred shares to cover any over-allotments.
BofA Merrill Lynch, the investment banking and wealth management division of Bank of America Corporation (BAC); UBS Investment Bank, the investment banking division of UBS AG(UBS); Wells Fargo Securities, the investment banking division of Wells Fargo & Company (WFC); Citigroup Inc. (C); and Morgan Stanley (MS) acted as joint book-running managers for the offering.
The strategic move is aimed at increasing the liquidity of the company to capitalize on potential acquisition opportunities, as the U.S. office market poised for a likely recovery in 2011. According to the first quarter report by property research firm Reis Inc., the office vacancy rate declined for the first time since the recession during first quarter 2011, spurred by a stronger labor market that had led companies to sign more leases to accommodate a larger workforce.
Total occupied space increased by 4.7 million square feet during the first quarter, due to which the overall national vacancy rate dipped by 0.1% compared to the prior quarter to 17.5%. Asking rents (the amount of rents demanded by the owners) and effective rents (the amount of rents actually received by the owners after taking into account such benefits as free rent and interior work) both improved 0.5% during the reported quarter to $ 27.66 and $ 22.20 per square foot, respectively.
New York-based Vornado Realty has a strong asset portfolio in two of the best long-term office markets in the U.S. – the New York City and Washington DC. These high-barrier markets have held up comparatively well and have enabled the company to continue increasing rents.
The company also has a strong balance sheet with manageable near-term debt maturities and adequate liquidity to take advantage of distressed selling as asset values of office and retail properties continue to drop.
We maintain our ‘Neutral’ rating on Vornado, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.
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