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Vornado (VNO) and Rudin Unveil Agreements on Office Buildings
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For a series of transactions related to their 350 Park Avenue and 40 East 52nd Street properties, Vornado Realty Trust (VNO - Free Report) and Rudin announce agreements with Citadel Enterprise Americas LLC (“Citadel”) and with an affiliate of Kenneth C. Griffin, Citadel’s founder and CEO (“KG”) regarding the same.
The agreements will be effective subject to the receipt of certain third-party approvals, likely to be received within the next 35 days.
Vornado’s 350 Park Avenue office building, encompassing 585,000 square feet, will be master leased to Citadel on an “as is” basis for 10 years. The initial annual net rent for the property is $36 million, retroactive to Jun 15, 2022.
Rudin’s 40 East 52nd Street, spanning 390,000 square feet, will also be master leased to Citadel. This property is adjacent to 350 Park Avenue.
Additionally, Vornado entered a joint venture (JV) with Rudin (“Vornado/Rudin”) to purchase 39 East 51st Street for $40 million. VNO intends to combine this property with 350 Park Avenue and 40 East 52nd Street to create a premier development site, to be known as “Site” collectively.
Vornado’s plans will materialize only if KG chooses to form a JV with Vornado and Rudin from October 2024 to June 2030. KG will then acquire a 60% interest in the JV that will value the Site at $1.2 billion ($900 million to Vornado and $300 million to Rudin). It will also be able to build a new trophy office tower, encompassing 1.7 million square feet, to be known as the Project. This will be in accordance with East Midtown Subdistrict zoning and have Vornado/Rudin as the developer.
Of the 40% Vornado/Rudin interest in the JV, Vornado and Rudin will own 36% and 4%, respectively, along with a $250 million preferred equity interest in the JV.
Alternatively, KG will have the choice to purchase the Site for $1.4 billion, with Vornado receiving $1.085 billion and Rudin $315 million. In this case, Vornado and Rudin will not play any role in the new development.
Furthermore, from October 2024 to September 2030, Vornado and Rudin will have the option to put the Site to KG for $1.2 billion, with Vornado receiving $900 million and Rudin $300 million.
For 10 years following any put option closing, the two entities will have the right to invest in a JV with KG on the given terms, provided the latter proceeds with the development of the Site. This will be nullified if the put option is exercised in response to KG’s request to form the JV or if it makes a $200 million termination payment.
Vornado experienced healthy leasing activity across its portfolio in third-quarter 2022. However, the United States office real estate market has been choppy for quite some time now, with negative absorption and increasing vacancy levels. The continuation of the flexible working environment and pandemic-led job cuts have led to diminishing office space utilization.
Even with many companies implementing a return-to-office policy, any significant turnaround is less likely in the near term.
Shares of Vornado, carrying a Zacks Rank #3 (Hold) at present, have lost 17.6% in the past three months compared with its industry’s decline of 8.8%.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.92.
The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share is pegged at $7.34.
The Zacks Consensus Estimate for Chatham Lodging Trust’s ongoing year’s FFO per share is pegged at $1.17.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Vornado (VNO) and Rudin Unveil Agreements on Office Buildings
For a series of transactions related to their 350 Park Avenue and 40 East 52nd Street properties, Vornado Realty Trust (VNO - Free Report) and Rudin announce agreements with Citadel Enterprise Americas LLC (“Citadel”) and with an affiliate of Kenneth C. Griffin, Citadel’s founder and CEO (“KG”) regarding the same.
The agreements will be effective subject to the receipt of certain third-party approvals, likely to be received within the next 35 days.
Vornado’s 350 Park Avenue office building, encompassing 585,000 square feet, will be master leased to Citadel on an “as is” basis for 10 years. The initial annual net rent for the property is $36 million, retroactive to Jun 15, 2022.
Rudin’s 40 East 52nd Street, spanning 390,000 square feet, will also be master leased to Citadel. This property is adjacent to 350 Park Avenue.
Additionally, Vornado entered a joint venture (JV) with Rudin (“Vornado/Rudin”) to purchase 39 East 51st Street for $40 million. VNO intends to combine this property with 350 Park Avenue and 40 East 52nd Street to create a premier development site, to be known as “Site” collectively.
Vornado’s plans will materialize only if KG chooses to form a JV with Vornado and Rudin from October 2024 to June 2030. KG will then acquire a 60% interest in the JV that will value the Site at $1.2 billion ($900 million to Vornado and $300 million to Rudin). It will also be able to build a new trophy office tower, encompassing 1.7 million square feet, to be known as the Project. This will be in accordance with East Midtown Subdistrict zoning and have Vornado/Rudin as the developer.
Of the 40% Vornado/Rudin interest in the JV, Vornado and Rudin will own 36% and 4%, respectively, along with a $250 million preferred equity interest in the JV.
Alternatively, KG will have the choice to purchase the Site for $1.4 billion, with Vornado receiving $1.085 billion and Rudin $315 million. In this case, Vornado and Rudin will not play any role in the new development.
Furthermore, from October 2024 to September 2030, Vornado and Rudin will have the option to put the Site to KG for $1.2 billion, with Vornado receiving $900 million and Rudin $300 million.
For 10 years following any put option closing, the two entities will have the right to invest in a JV with KG on the given terms, provided the latter proceeds with the development of the Site. This will be nullified if the put option is exercised in response to KG’s request to form the JV or if it makes a $200 million termination payment.
Vornado experienced healthy leasing activity across its portfolio in third-quarter 2022. However, the United States office real estate market has been choppy for quite some time now, with negative absorption and increasing vacancy levels. The continuation of the flexible working environment and pandemic-led job cuts have led to diminishing office space utilization.
Even with many companies implementing a return-to-office policy, any significant turnaround is less likely in the near term.
Shares of Vornado, carrying a Zacks Rank #3 (Hold) at present, have lost 17.6% in the past three months compared with its industry’s decline of 8.8%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties (VICI - Free Report) , Lamar Advertising (LAMR - Free Report) and Chatham Lodging Trust REIT (CLDT - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.92.
The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share is pegged at $7.34.
The Zacks Consensus Estimate for Chatham Lodging Trust’s ongoing year’s FFO per share is pegged at $1.17.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.