Vornado Completes $660M CMBS Issue

NEW YORK CITY-Vornado Realty Trust said late Thursday afternoon that a subsidiary had sold $660 million of 10-year mortgage notes in a single-issuer securitization. The six notes are comprised of a $600-million fixed-rate component and a $60-million variable-rate component, and are cross-collateralized by 40 strip shopping centers located mainly in the New York metro area.

The office and retail REIT says the $600-million fixed-rate portion bears interest at the initial rate of 4.17% and a weighted average rate of 4.31% over the 10-year term and amortizes based on a 30-year schedule. The variable-rate debt bears interest at Libor plus 1.35% with a 1% floor, for an initial rate of 2.35%.

In a presale report on the CMBS issue, known as Vornado DP LLC Trust 2010, Fitch Ratings last week gave a “stable” rating to the six classes of notes, which range in size from $38.7 million to $312.6 million. The ratings agency cites expectations that Vornado’s leverage and debt service coverage ratios will remain stable, “given the company’s long average lease terms in place and the effects of incremental new development on portfolio cash flow.”

The 40 strip centers are currently 97% occupied, an average that’s above the 91.6% level across Vornado’s retail portfolio. Fitch’s report notes “a well dispersed rollover schedule,” with no more than 8.6% of the net rentable area rolling in any year during the loan term.

In its report on the Vornado issue, the ratings agency notes that it maintains a negative outlook on retail property fundamentals, as consumer spending remains well below pre-recession levels. However, the report adds, “retail sales have shown improvement year-over-year and supply deliveries have been reported at their lowest level in decades. In addition, same store sales have been rising as retailers have closed underperforming stores.”

Last week, Vornado reported second-quarter funds from operations of $204.8 million, up from $93.5 million the year prior, with adjusted FFO rising to $217.4 million and $186.2 million, respectively, for Q2 2010 and 2009. Net income for the quarter was $57.8 million; by comparison, Q2 ‘09 saw a net loss of $51.9 million.