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Vornado (VNO) Sells Stake in 666 Fifth Avenue for $120M

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Recently, Vornado Realty Trust VNO announced the completion of its 49.5% stake sale of 666 Fifth Avenue Office Condominium to building partner — Kushner Companies. Vornado received nearly $120 million in net proceeds. 

Nonetheless, 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-foot frontage on Fifth Avenue between 52nd and 53rd Street.

The company stated that financial statement gain, amounting to $134 million, will reflect in its third-quarter 2018 earnings. Further, it anticipates tax gains to the tune of $244 million. 

Notably, in 2011, Vornado had 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.

However, with the sale of its stake in the embattled office property, the mortgage loan was repaid. With this, Vornado stands to receive nearly $57 million for its share in debt. Further, it will recognize a gain of $8 million on its third-quarter financial statement for participation in the debt.

Notably, per an article, Kushner Companies has reached an agreement to lease the Midtown office tower to Brookfield Asset Management BAM for 99 years. Importantly, Brookfield will likely pay all the rent upfront. It will have full operational, leasing and development control.

This sale is a strategic fit for Vornado as it will enable the company to reduce its debts and pay off near-term loans efficiently. Also, the company recognized a loss of nearly $1.3 million in the June-end quarter from its share in the office property. This impacted its funds from operations (FFO) by nearly $2.2 million. Hence, getting rid of the troubled propertywill 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 dampen the company’s financial performance as well as the value of its properties in the area.

Nonetheless, Vornado’s aggressive dispositions, as part of its portfolio-repositioning efforts, are feared 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 three months. The stock has gained 4.4%, while the industry rallied 6.7%, during the same time frame.


Top Picks

Some better-ranked stocks in the same industry are Corrections Corp of America CXW and MedEquities Realty Trust Inc MRT. Both carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Corrections Corp of America’s Zacks Consensus Estimate for current-year FFO per share has been revised slightly upward in 60 days’ time. The company’s share price has risen almost 23.6% over the past three months.

MedEquities Realty Trust’s Zacks Consensus Estimate for 2018 FFO per share remained unchanged in the last 60 days. The company’s share price has risen almost 9.1% in three months’ time.

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