In order to achieve greater financial flexibility, Vornado Realty Trust (VNO) announced the extension of one of its two $1.25 billion unsecured revolving credit facilities, to Nov 2018 from Nov 2015 with two 6-month extension provisions.
The company would also enjoy a lower interest cost on this extended facility. This is because the interest rate was reduced to LIBOR plus 105 basis points from LIBOR plus 125 basis points while the facility fee was slashed to 20 points from 25. The other revolving credit facility will mature in Jun 2017 with two 6-month extension options.
We believe this enhanced financial flexibility will help the company meet its growth needs and obligations efficiently. Notably, as of Jun 30, 2014, Vornado had $1.4 billion of cash and cash equivalents.
Vornado’s strategic revamping of its portfolio is expected to bode well for its future growth. The New York portfolio is projected to grow on the back of improving office leasing, retail sales and rental rates. Further, the shopping center spin-off decision is encouraging as it would help in increasing the company’s focus on its core assets. However, the Washington DC market is stressed and leasing activity remains slow.
Vornado currently has a Zacks Rank #3 (Hold). Investors interested in REITs may consider stocks like Chatham Lodging Trust (CLDT), Cousins Properties Incorporated (CUZ) and DCT Industrial Trust Inc. (DCT). All these stocks hold a Zacks Rank #2 (Buy).
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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