Vornado Realty Trust VNO is set to sell its leasehold interest in a Manhattan office building at 20 Broad Street for a total consideration of $200 million. A deal has already been signed and the sale is expected to close in fourth-quarter 2015, subject to customary closing norms.
We believe that the sale of its leasehold interest in this 473,000-square-foot office building is consistent with the real estate investment trust’s ("REIT") business streamlining efforts.
The 20 Broad Street office building has New York Stock Exchange (“NYSE”) as a major tenant. Vornado ground leases this property from the NYSE. Termination of the NYSE space lease came earlier than its scheduled expiration in Jun 2016, as per the agreement. Following the sale, the buyer plans to reposition this office building into a residential property.
Importantly, total income from the latest deal amounts to $156 million. This includes $141 million from the gain on sale and $15 million of lease termination income.
In the past, Vornado was subject to criticism for venturing into too many sectors. However, of late, the company has been focused on streamlining its business. Besides disposing its stake and selling assets, last January, the company successfully spun off majority of its strip shopping centers to form a new entity called Urban Edge Properties (“UE”).
Going forward, we believe that the company’s strategic acquisitions and divestitures including spin-offs, a diversified tenant base and strong New York operations will help maintain its growth momentum.
Currently, Vornado has a Zacks Rank #2 (Buy). Investors interested in the REIT industry may also consider stocks like CoreSite Realty Corporation COR, Ashford Hospitality Trust, Inc. AHT and Public Storage PSA. All three stocks sport a Zacks Rank #1 (Strong Buy).
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