In an attempt to extend its presence in Manhattan’s illustrious Fifth Avenue shopping corridor, real estate investment trust (REIT) – Vornado Realty Trust (VNO), in collaboration with Crown Acquisitions, would acquire the retail condominium of the St. Regis Hotel and the neighboring retail townhouse.
In this context, a deal has been signed and this purchase would take place for a price of around $700 million. The acquisition is anticipated to be accomplished by early fourth quarter of this year and is conditioned upon customary closing norms.
Possessing 100 feet of frontage on Fifth Avenue at 55th Street, this property boasts of tenants like the Gucci division of Kering that leased 17,100 square feet of space for its Bottega Veneta brand. The other tenant is LVMH, which has leased a space of 7,600 square feet for its DeBeers brand. Notably, Gucci’s lease runs through Jan 2016 while that for LVMH is through Jan 2019.
This property would be 67% to 80% owned by Vornado and the rest by Crown. This percentage of ownership is subject to the amount of debt funding placed on the property as well as Crown’s short-term option to provide added capital. The GAAP yield is projected to exceed 4%.
In a separate announcement, Vornado announced the accomplishment of the sale of Beverly Connection, a power shopping center in Los Angeles, California, for $260 million. This has helped in making a net gain of around $44 million (to be recognized in the third quarter).
As a matter of fact, in April, Vornado disclosed its plan to spin off 81 strip shopping centers and 4 malls while retaining its premium portfolio of Manhattan street retail assets. This would help Vornado focus exclusively on the office assets in the New York City and Washington, DC region and retail properties in the Manhattan Street. Therefore, the current acquisition is in sync with the company’s strategy of gaining more space in this famous shopping corridor.
Its Manhattan Street retail portfolio comprises 2.8 million square feet in 63 properties. These assets help reap annual EBITDA of more than $310 million. The company also enjoys ownership of 689 Fifth Avenue on the same block.
Going forward, we believe that strategic sell outs would offer the company the dry powder to invest in its growth needs while expansion in target markets would provide ample scope to Vornado to ride on the growth trajectory.
Vornado currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may also consider stocks like Aviv REIT, Inc. (AVIV), Parkway Properties Inc. (PKY) and Terreno Realty Corp. (TRNO). All these stocks carry a Zacks Rank #1 (Strong Buy).
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