Vornado Acquires Manhattan Assets


As part of its initiatives to reposition its portfolio and enhance the portfolio mix, Vornado Realty Trust (VNO) accomplished the purchase of a retail and office property on 655 Fifth Avenue Manhattan. Specifically, Vornado shelled out $278 million for acquiring 92.5% of the property. The rest of the stake is owned by Madison Capital.

As a matter of fact, Vornado is currently focused on improving its core business by making opportunistic buyouts like this Manhattan property. Spanning 57,500 square foot this property is leased through 2028 to Ferragamo for its Manhattan store. We believe this long-term lease deal will shield the company from the short-term headwinds in the market.

Moreover, recently, Vornado disclosed that its joint venture, in collaboration with institutional investors advised by J.P. Morgan Asset Management of JP Morgan Chase & Co. (JPM), acquired a Class A office tower – 650 Madison Avenue – for $1.295 billion.

On the other hand, the company is making strategic divestitures. During second-quarter 2013, it sold a power strip shopping center – The Plant – in San Jose for $203 million and realized a net gain of approximately $32.2 million. Additionally, the company disposed its 26.2% stake in LNR Property LLC to Starwood Property Trust Inc. (STWD) and Starwood Capital Group for $1.05 billion. Vornado reaped approximately $241 million as net proceeds from the sale.

We expect these concerted efforts to add to Vornado’s financial flexibility and aid in profitable investment opportunities. These would help in strengthening its Class A office properties portfolio that is concentrated in select high-rent, high barrier-to-entry geographic markets, which usually fare better amid challenging economic conditions.

Vornado currently has a Zacks Rank #4 (Sell). The other better-performing REIT that is worth a look is Sotherly Hotels Inc. (SOHO), carrying a Zacks Rank #1 (Strong Buy).

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