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Vornado (VNO) Refinances $205M Loan for 150 West 34th Street

Vornado Realty Trust VNO recently enhanced its financial position by refinancing a $205-million loan for 150 West 34th Street. The interest-only loan carries an interest rate of LIBOR plus 1.88%, currently equating to 4.19%

The loan matures in 2024, and replaces a previous LIBOR plus 2.25% loan of $205 million, which was slated to mature in 2020, after considering extension. Notably, the refinancing has been done for the 78,000-square-foot retail property located in Manhattan.

This offers Vornado a cheaper line of credit and will help reduce 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. Hence, the refinancing renders greater financial flexibility and will strengthen Vornado’s balance sheet.

Notably, the company participated in the refinanced loan by investing $105 million. This loan is scheduled to mature in 2024, as extended and carries an interest rate of LIBOR plus 2%.

In fact, it has been making efforts to access debt markets at favorable terms. In late October, Vornado extended a $750-million unsecured term loan from October 2020 to February 2024, lowering the interest rate on the loan by 15 basis points (bps).

In addition, Vornado boasts a strong liquidity position of $3.5 billion, and cash and cash equivalents of $772.5 million as of third-quarter end. Furthermore, decent leverage and well-manageable debt maturities are encouraging.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have outperformed the industry it belongs to. In fact, its shares have gained 7.4% compared with the industry’s rally of 5.7% during the same time frame.

Nonetheless, consistent with its portfolio-repositioning efforts, Vornado has been aggressively disposing of its assets. It anticipates selling $1 billion of assets over the next several years. 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.

In fact, the Zacks Consensus Estimate for the company’s 2018 funds from operations (FFO) per share has been revised marginally downward in a week’s time to $3.87, reflecting analysts’ bearish sentiments.

Stocks to Consider

A few better-ranked stocks from the same space are Boston Properties, Inc. BXP, PS Business Parks, Inc. PSB and OUTFRONT Media Inc OUT). All three stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boston Properties’ FFO per share estimates for 2018 has been revised marginally upward to $6.38 in 30 days’ time. Its shares have gained 6.3% over the past six months.

PS Business Parks’ Zacks Consensus Estimate for 2018 FFO per share has been revised marginally upward to $6.42 over the past month. Its shares have returned 16.9% over the past six months.

OUTFRONT's Zacks Consensus Estimate for the current-year FFO per share has been revised marginally upward to $2.09 over the past month. Its shares have rallied 7.1% over the past three months.

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