Back to top

Analyst Blog

Real estate investment trust (REIT) Vornado Realty Trust (VNO - Analyst Report) will spin off its U.S. shopping center business into a new publicly traded REIT. The move will help Vornado focus exclusively on the office assets in the New York City and Washington, DC region and the Manhattan street retail assets.

The company will spin off 81 strip shopping centers and four malls. These strip shopping centers are positioned in the Northeast U.S. and the malls comprise the Bergen Town Center in Paramus, NJ, Monmouth Mall in Eatontown, NJ as well as two malls in the suburbs of San Juan, Puerto Rico. These 85 properties span around 16.1 million square feet and enjoy considerable occupancy levels (average occupancy of 95.5% as of Dec 31, 2013).

For the new unit, the move will help unleash the potential of strip centers and malls that will be owned by it and Vornado projects this unit’s net operating income to be around $200 million in 2014. The average base rent of these properties is $18.75 per square foot and this is well above that of the peer median of $15.66 per square foot.

This new unit will have Jeffrey S. Olson as its Chairman of the Board and Chief Executive Officer. Olson is currently serving as the Chief Executive Officer of Equity One Inc. (EQY - Snapshot Report).

However, Vornado will keep 20 small retail assets, worth around $100 million, for sale in the near term. Two other properties – Beverly Connection and Springfield Town Center – which are currently under contract for disposition – will also be retained by Vornado.

As a matter of fact, this spin off is an outcome of Vornado’s decision to separate two businesses, which have been together for legacy reasons but with no real operating synergies. The move will result in the company having properties exclusively in the Manhattan and Washington region and we expect the stream lining efforts on part of Vornado to enhance its profitability, going forward.

The filing of the initial Form 10 registration statement with the SEC is expected to be made in the second quarter of 2014, while the transaction is targeted to be accomplished in the fourth quarter of this year.

In recent times, another REIT – Simon Property Group Inc. (SPG - Analyst Report) – also decided to spin off its strip center business and smaller enclosed malls into a publicly traded REIT. The move would help this retail real estate investment trust (REIT) to increase utilization of resources for expanding its global portfolio of larger malls, mills and premium outlets.

At present, Vornado carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider Duke Realty Corp. (DRE - Analyst Report) which has a Zacks Rank #2 (Buy).

Read the Full Research Report on VNO
Read the Full Research Report on SPG
Read the Full Research Report on DRE
Read the Full Research Report on EQY


Zacks Investment Research

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%