Recently,Vornado Realty Trust VNO announced that it has agreed to sell 49.5% interests in the 666 Fifth Avenue Office Condominium to the company’s partner — the Kushner Companies.
Notably, Vornado will continue to own the property’s retail arm — 666 Fifth Avenue Retail Condominium — which is leased to Tissot, Uniqlo and Hollister, and has 125 linear feet of frontage on Fifth Avenue at 53rd Street.
The sale contract, subject to fulfillment of customary closing conditions, is scheduled to close in third-quarter 2018. However, the completion of the transaction cannot be assured.
Kushner bought the Manhattan building in 2007, for a record price of $1.8 billion. However, as recession hit Kushner, the company eventually started selling its parts. As a result, in 2011, Vornado acquired 49.5% stake in the building for $80 million and concurrently participated in half of the building’s loan of $1.2 billion. This loan, on the 1.4 million-square-foot office tower, is due in February 2019.
Vornado will receive net proceeds of $120 million from the above-mentioned asset disposition. The company expects to realize a gain of $134 million in its financial statement and a tax gain of $244 million. Proceeds from sale of this stake will be used to pay off Vornado’s mortgage loan on the property. The company will also receive $58 million from its share in the refinanced mortgage on the property.
This deal is a strategic fit for Vornado as it will enable the company to reduce its debts and pay off near-term loans efficiently. It will also help improve the company’s financial position. In addition, the disposition aids the company to reduce asset concentration in the New York City. This bodes well as any deterioration in economy or a fall in real estate markets in the region might hurt the company’s financial performance and the value of its properties in the area.
However, Vornado’s aggressive dispositions, as part of portfolio-repositioning efforts, are expected to have a near-term dilutive impact on earnings. In fact, the company has identified another $1 billion of assets, which, it expects to sell over the next several years.
Shares of this Zacks Rank #3 (Hold) company have underperformed its industry in the past six months. The stock has declined 8.6%, while the industry incurred loss of 3.6%, during the same time frame.
Stocks Worth a Look
A few better-ranked stocks from the same space are Arbor Realty Trust ABR, Lamar Advertising Company LAMR and Prologis, Inc. PLD. 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.
Arbor Realty Trust’s Zacks Consensus Estimate for 2018 FFO per share has risen 14.4% to $1.03 in a month’s time. Its shares have returned 15.1% over the past year.
Lamar’s FFO per share estimates for the current year remained unchanged at $5.34 in the past month. Its shares have gained 5.5% in three month’s time.
Prologis’ FFO per share estimates for 2018 have inched up 0.7% to $2.98 over the past month. Its shares have appreciated 15.4% over the past year.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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