Vornado Realty Trust VNO recently boosted the company's financial position by expanding and extending one of its two revolving credit facilities. In fact, the amended credit line now stands at $1.5 billion and is slated to mature in March 2024 (as fully extended).
Further, the move has enabled the company to lower its borrowing cost. In fact, it reduced interest rate on the extended facility from LIBOR+100 basis points (bps) to LIBOR+ 90 bps. Nonetheless, facility fee remains at 20 bps.
This refinancing offers Vornado a cheaper line of credit and helps reduce annualized interest expense. Moreover, extended maturities of the credit line will help the company improve its maturity profile and enjoy greater liquidity for day-to-day operations. The move will also boost its cash flow and alleviate the bottom-line pressure. The interest-rate reduction offers greater financial flexibility and will strengthen Vornado’s balance sheet.
In fact, the company has been amending its debt instruments through refinancing and amendments, to efficiently address the financial obligations. In February, Vornado extended maturity on a $580-million unsecured term loan from 2020 to 2024, lowering the interest rate on the loan to LIBOR plus 1.55%. These efforts are expected to support its growth endeavors.
Notably, Vornado’s financial strength is indicated by its $3.3 billion in liquidity and nearly $10 billion of unencumbered assets. Additionally, it has another revolving credit facility worth $1.25 billion that will mature in January 2023 (after considering any further extension). It carries an interest rate of LIBOR+100 bps and a facility fee of 20 bps.
Nonetheless, Vornado faces intense competition from developers, owners and operators of office properties and other commercial real estates, including sublease space available from its tenants. This influences the company’s ability to attract and retain tenants at relatively higher rents than its competitors, in turn, affecting long-term profitability.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have underperformed the industry it belongs to. In fact, its shares have gained 8.2% compared with the industry’s rally of 16.2% during the same time frame.
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