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Vornado to Buy Manhattan Property

Zacks Equity Research

Vornado Realty Trust (VNO) inked a deal to purchase a retail and office property on 655 Fifth Avenue Manhattan. The move comes as part of its effort to reposition its portfolio. In particular, Vornado will shell out $278 million for buying 92.5% of the property. The rest of the stake is owned by Madison Capital. The deal is expected to close in the fourth quarter of this year.

This 57,500 square foot property is leased through 2028 to Ferragamo for its Manhattan store. The store occupies this property as well as the adjoining property that Ferragamo owns. We believe this long-term lease deal will shield the company from the short-term headwinds in the market.

As a matter of fact, Vornado has Class A office properties that are concentrated in select high-rent, high barrier-to-entry geographic markets, which usually fare better amid challenging economic conditions. Its strong leasing activity has strengthened its foothold in two of the most vibrant long-term office markets – New York City and Washington, D.C – in the U.S.

Vornado is currently focused on improving its core business by making opportunistic buyouts and strategic divestitures. During second-quarter 2013, the company 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 sold 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.

Moreover, the company divested a Philadelphia-based retail asset for $60 million and realized a net gain of $33.1 million. We expect the strategic sales to add to Vornado’s financial flexibility and aid in profitable investment opportunities. The portfolio repositioning activity would position it well for growth.

Vornado, which has a diversified tenant base including several industry leading companies such as Wal-Mart Stores Inc. (WMT) and The Home Depot, Inc. (HD), currently carries a Zacks Rank #3 (Hold).

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