Vornado Refinances Office Property

Vornado Realty Trust (VNO - Analyst Report), a leading real estate investment trust (REIT), has recently refinanced a mortgage loan collateralized by 555 California Street – a three-building office complex spanning 1.8 million square feet in San Francisco.

The company utilized the proceeds from the $600 million refinancing transaction and $45 million cash-in-hand to repay the existing mortgage loan. The new 10-year loan, which bears interest at 5.1%, amortizes based on a 30-year schedule beginning in the 4th year.

Vornado presently has a 70% ownership stake in the property, which is the second tallest building in San Francisco and the focal point of the city's Financial District. The former Bank of America Building stands 779 feet tall and boasts 52 stories. The building was designed to have numerous bay windows, which were not only attractive but also served to increase the rental values of the offices housed within.

New York-based Vornado is one of the largest REITs in the U.S., engaged in acquiring, owning and leasing office properties, retail space and temperature-controlled logistics and refrigerated warehouses. Besides its properties, the company also has investments in other REITs, industrial buildings and Toys ‘R’ Us. Vornado currently owns about 32.7% of Toys ‘R’ Us.

Vornado has a strong asset portfolio in two of the best long-term office markets in the U.S. – New York City and Washington DC. This provides the company a competitive advantage to continually increase rents. The core properties of the company are also performing satisfactorily and are maintaining strong occupancies in its New York City office and retail portfolios. We believe this pushes the company well ahead of many of its competitors, who have assets in relatively weak markets struggling with high vacancies and little pricing power.

We maintain our long-term Neutral rating on Vornado, which currently has a Zacks #3 Rank that translates into a short-term Hold recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a Neutral recommendation and a Zacks #3 Rank for Brookfield Properties Corporation (BPO - Snapshot Report), a competitor of Vornado.

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